Pairing Groundwater-Based Irrigation Well Registration with the Continuation of Electricity Subsidy for Water Pumping

Level: National
Region: North America
Tags: Agriculture | Economic instrument | Institutional measure
Target audience: Agricultural authorities | Environmental authorities | Farmers | Industry/business | Local government/municipalities | National government | Regional government | Students/university | Water authorities


There is serious groundwater overdraft in Mexico due to overuse (above quotas) from titled wells and additional pumping from untitled wells (without production quotas). Regulatory and participatory approaches have failed to manage the problem. The state with the largest groundwater use alone has an overdraft of 1.3 km3 per year, or 4.4 percent of estimated total use. A 2002 deadline was announced, after which unregistered pumping consumption would not be entitled to a subsidised agricultural electricity power tariff. The change was accompanied by other measures, such as: a block tariff scheme for agricultural electricity use for groundwater pumping, based on a site-specific limit of electricity volume; and a night tariff to divert pumping activity from peak hours of national electricity consumption.

The offer to register the wells in exchange for financial benefits to the farmers would have been a reasonable policy from a long-term perspective because it could have given the authority the information needed to be able to regulate consumption. Weak enforcement, however, more or less maintained the previous status quo, while the night tariff extension of the subsidised tariff resulted in a time shift from day to night, also contributing to a substantial increase of consumption. The case study revealed the genuine problem of any policy or policy mix that avoids confronting the users with both the direct cost of their infrastructure use and the resource cost of their water use. Although this case is not a true success story, it successfully highlights what is required for good policy.

Results obtained

The groundwater use did not decrease; it actually increased. In states that made considerable effort to cut titled quantities (for example the state of Sonora), consumption stabilized, demonstrating that the measure can be used effectively. Water abstraction in the other states of Mexico, however, continued to rise (Scott, 2013). At the same time the shift to the night tariff showed considerable adaptation on the part of farmers. This result supports the assumption that their consumption patterns are sensible to the pressure economic instruments can exert on them, which is an important lesson for policy making. 

Success factors

The biggest shortcoming of the scheme was that the agricultural electricity tariff was very low, compared to the rates for other users. At such a low price, farmer’s pumping demand is inelastic. So high enough tariffs would need to be introduced to make preferential, lower tariffs attractive in exchange for registering wells. A steeply progressive tariff with preferential rates would also be useful.

Indicators used

  • Electricity used kWh on annual/state level.
  • Subsidy provided on annual/state level.

Electricity consumption is a good approximation of water use because groundwater pumping corresponds to 98 percent of farmers’ electricity.



The capture of a subsidy by interest groups is a major threat everywhere, as it can create difficulties for modification and introduce long-term false incentives for water users.

Moreover, the rational economic interest of farmers drives them to use more water resources—i.e. more pumping. While electricity cost is a small share of their total production costs, many may not be aware of the risks of over-irrigation to production volumes (Scott 2006). Farmer education should therefore be an important component of similar policies. Good policy also requires effective monitoring and enforcement.

 

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References

  • Scott, Christopher A. and Shah, Tushaar, “Groundwater overdraft reduction through agricultural energy policy: Insights from India and Mexico,” Water Resource Development, vol. 20, no.2, pp. 149-64 (June 2004).
  • Scott, Christopher A., “Electricity for groundwater use: Constraints and opportunities for adaptive response to climate change,” Environmental Research Letter 8 (2013) 035005 (8pp) stacks.iop.org/ERL/8/035005 doi:10.1088/1748-9326/8/3/035005
  • “Agricultural demand for groundwater in Mexico,” Working Paper INE-DGIPEA/ 0306 (2006).