Factors determining the economic value of groundwater

Increasing groundwater extraction threatens aquifer sustainability for future generations. Making the best use of limited groundwater resources requires knowledge of its alternative extractive and non-extractive values, as well as the cost of extraction and the hydrological interlinkages between alternative uses. Groundwater value is driven by a number of factors including its supply and demand and institutional and policy factors. These factors and how they affect value of groundwater are described. Also described are the various components relevant to the economic valuation of groundwater and there is discussion on the potential difficulties in their practical estimation. It is argued that groundwater management is essential when there are large potential spatial and temporal externalities related to groundwater pumping. Maintaining non-extractive and option values is likely to require trade-offs with current extractive uses. Well-informed management will be required to allocate groundwater efficiently between different users such as agriculture, industry and the environment, while also balancing the needs of current and future generations.