Land Subsidence Impacts and Optimal Groundwater Management in South Africa

Fresh surface water is increasingly becoming scarcer worldwide, leading to significant groundwater over-extraction. However, groundwater over-extraction could result in many environmental externalities including various land subsidence (LS) effects. LS causes the gradual reduction of the voids and the subsequent ground surface sinking. The loss of aquifer system storage capacity, owing to LS, is one such negative externality that is seldom discussed in the economic literature. In this paper, we investigate the indirect loss of the aquifer system storage capacity due to LS along with other direct LS negative externalities. We develop a dynamic economic optimization model for groundwater utilization and evaluate various policy instruments (quota systems, taxes on land sinking and aquifer storage loss, and packaging and sequencing of taxes and quotas) to prevent overexploitation externalities. The model is calibrated to South African data. We found that taxes on land sinking and aquifer system storage capacity reduction have a significant effect on withdrawals and water table levels. Taxes provide larger social welfare. In addition, under certain circumstances, quotas are preferable when it comes to supporting groundwater conservation practices. Packaging and sequencing provide the second largest social benefits.