Auctions for buying back groundwater for environmental purposes: Which design performs better?

Abstract

Buyback auctions to reduce groundwater extraction for agriculture have been used in many real world scenarios but, to date, the impact of different auction design mechanisms for this context has not been comprehensively studied. Here, three auction design issues are studied: (i) framing the overall objective as either a budget constrained auction or a water target auction; (ii) the severity of budget and target constraints; and (iii) the role of a spatially explicit environmental benefit index. To answer the research questions an agent‐based optimisation model is developed for the most important groundwater system in Western Australia. The results show that a budget constrained auction performs as well or better than a target constrained auction and that use of an environmental benefit index improves auction efficiency.

Estimating non‐market values of protecting groundwater in a constrained environment

“…To obtain impact estimates, first, we applied the reduction in total groundwater allocation to agriculture to the hydrological model developed in Lan et al. (2021a). This allowed us to estimate the annual impact of each reduction level on hydrological conditions, expressed in groundwater table height.…”

“…The third level is a buyback auction. This approach has been implemented in the United States (Garrick et al., 2009; Ghosh et al., 2014) and Australia (Adamson & Loch, 2018; Crase et al., 2012; Lan et al., 2021a; Wheeler et al., 2013).…”

“…T A B L E 1 Attributes and levels used in the choice experiment. Ghosh et al, 2014) and Australia (Adamson & Loch, 2018;Crase et al, 2012;Lan et al, 2021a;Wheeler et al, 2013). The attribute 'financial compensation for irrigators' has four levels.…”

“…(2015); Kuwayama and Brozović (2013); Lan et al. (2021a, 2021b)). In general, there are no established markets for environmental goods and services.…”

An economic assessment of options for operating within plantation forestry water entitlements and tightening cap and trade policy

“…Most water trade globally is for surface water. Groundwater cap-and-trade schemes are less developed in Australia (Lan et al, 2021a(Lan et al, , 2021b and globally (Brozović & Young, 2014). Furthermore, trade in capped water entitlements is most common amongst irrigators (Wheeler et al, 2017).…”