Groundwater Management - Issues Affecting the Efficient Allocation of Groundwater

Groundwater has become increasingly scarce across much of Australia, with some reserves being substantially depleted. This has raised concerns over the efficiency and equity of current management arrangements.Groundwater systems tend to be complex and difficult to observe. As a result, sustainable groundwater yield estimates are often highly uncertain. Adding to the difficulty in managing these systems is the poor monitoring of extractions, with only 20-40 per cent of users metered.A cap and trade system may be suitable for some groundwater systems, with the cap providing the certainty needed to protect the integrity of the groundwater resource, and trade providing the mechanism for allocating consumptive water to its highest value uses.Where there is a high degree of uncertainty about what can be sustainably extracted from groundwater systems, it may be prudent for policy makers to be conservative in allocating access to groundwater, and to formalise a set of management actions specifying restrictions on extractions in the event that stocks fall below predetermined thresholds.