Impact of electricity prices and volumetric water allocation on energy and groundwater demand management

This paper introduces a theoretical model to examine farmers’ response to changes in power tariff and water allocation regimes vis-a-vis energy and groundwater use. The author begins by explaining the context as one where the existing direct & indirect regulations and direct management interventions have been ineffective in arresting groundwater depletion. Also, there is an absolute paucity of sufficient empirical data to compare and analyze the differential impacts of different levels of pricing of electricity, and groundwater rights allocations on water and energy productivity.

The paper presents a review of farm sector pricing theories and thereafter analyses the potential impact of different modes of electricity pricing on productivity of groundwater use.

Water productivity was estimated using primary data of gross crop inputs like cost of all inputs and volumetric water inputs. Empirical analyses suggests a positive impact of water and electricity price shift, i.e., induced marginal cost of water or electricity on physical efficiency of water use, and water and energy productivity in agriculture.

Further, the study establishes positive impact of a combination of water and electricity price shifts, i.e., induced marginal cost of water and electricity, and water allocation on physical efficiency of water use, cropping patterns and overall water and energy productivity. Physical efficiency and water & energy productivity impacts are remarkably higher when induced marginal cost is coupled with water allocation where individual entitlements are fixed. 

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