Evaluating the Economic Impact of Groundwater Amid Climate Change

A report by the world bank, The Hidden Wealth of Nations, explores the potential of groundwater to support the economy and food security in times of climate change. The report notes that groundwater can buffer a third of the losses from droughts and protect cities from day-zero events.

The idea of ‘Day Zero’ was introduced by Cape Town during South Africa’s water crisis to urge all residents to manage their water consumption tightly. The country is arid, and rain become critical, as demands exceed its water supplies. In 2019 water levels in their dams fell 10 to 60% below 2018 levels without rain. Dam levels will reach a critical point when no surface level is available to supply the city (Heggie, n.d.)

The report shows that groundwater is the country’s key asset in reducing poverty and promoting resilience and equitable development; however, this underground wealth has been undervalued and taken for granted for so long.

Groundwater provides 49% of domestic use globally, 43% for irrigation, and for watering 38% of the world’s irrigated land, the report says.

However, over-extraction significantly threatens economies, especially from regions with transboundary aquifers. In South Asia, 92% of transboundary aquifers show signs of groundwater depletion, slowly chipping away at groundwater’s 10-20% agriculture revenue advantage. 

In Sub-Saharan Africa, expanding solar pumping with adequate safeguards could maximize the potential of groundwater to improve rural livelihoods dependent on it.

The report uses banking as an analogy to show how this life-sustaining common-pool wealth should be best used, managed, and protected.

“Groundwater recharge can be equated with income and groundwater withdrawal with expenditure. To achieve balance, natural discharge and withdrawals should not exceed recharge.”

Over-extraction could result in bankruptcy and jeopardise the “inheritance” of this wealth with severe consequences to the economy, food production, and health.

Policymakers can manage how much groundwater is extracted and ensure its quality is protected through these three policy levers- information, incentives, and investment.

The need for more information about groundwater has resulted in overexploitation. Lack of knowledge about its benefits can lead to missed opportunities, especially from policymakers who are blind when making decisions about its fair use.

Incentives at the user, institution, national and transboundary levels need to be considered for policies to be effective.

Lastly, Investment, the third lever, should be underpinned by the first two levers – information and incentives- to be efficient and not cause maladaptation.

“A central message of this report is that groundwater needs to be politically prioritized and should be carefully managed through integrated cross-sectoral action to benefit society, the economy, and the environment.”