Valuing Groundwater with Uncertain Surface Water Supply
One value of groundwater or a reservoir is derived from holding water in storage as insurance against future droughts. Efficient water management recognizes that conjunctive management of surface water and groundwater can enhance overall benefits of either source of supply. The analytical problem we faced was how to optimize groundwater use and value an aquifer in a way that accounted for this interaction with surface water.
Integral economics staff used techniques from operations research to develop a method for valuing groundwater while recognizing that the timing of groundwater extractions could buffer swings in surface water supply.
The analysis identified a new concept—the buffer value of groundwater—and measured it for agricultural use of water. We found that incorporating this buffer value would significantly alter water management decisions, with the buffer aspect constituting up to 80 percent of the total value of groundwater. This method was recognized as an important advancement in the field of water management and was highlighted in a book on valuing groundwater published by the National Research Council of the National Academy of Sciences.