What are the impacts of the electricity tariff on groundwater conservation and sustainable consumption?

Responsible researcher: Viviane Pires Ribeiro

Paper Title: Power tariffs for groundwater irrigation in India: A comparative analysis of the environmental, equity, and economic tradeoffs

Authors: Balsher Singh Sidhu, Milind Kandlikar and Navin Ramankutty

Intervention Location: India

Sample Size: Not Specified

Big theme: Environment, Energy & Climate Change

Variable of Main Interest: Energy Tariffs

Type of Intervention: Comparative analysis of energy tariffs for irrigated agriculture

Methodology: Literature Review

Groundwater irrigation has caused unsustainable depletion of aquifers in many regions of India. Electricity tariff policies, by influencing farmer behavior, can be used as an effective tool for groundwater conservation and sustainable consumption. In this sense, Sidhu, Kandlikar and Ramankutty (2020) use empirical evidence from previous studies in several Indian jurisdictions to compare energy tariff structures in terms of three main characteristics: administrative burden on public services; equity in access to groundwater between low- and high-income farmers; and influence on farmers' behavior in relation to pumping water for agriculture.

Assessment Context

India's Green Revolution took place in the 1960s, a government-sponsored program that successfully increased national crop production through the use of hybrid seeds, agrochemicals (fertilizers and pesticides), and implementation of irrigation techniques. Thus, the country has transformed into a net food exporter due to the rapid growth of agricultural production – for example, wheat and rice production increased 3.8 and 2.5 times between 1961 and 2017.

Groundwater irrigation using electric pumps plays a key role in supplying water to India's agriculture. Currently, there are 20 million operational groundwater wells in the country, of which more than 70% depend on electricity, 26% are diesel-powered and the rest depend on wind, solar, animal and other energy sources. However, because the pumps in the deeper tube wells (which require greater energy per unit of water) are predominantly electrical, 85% of groundwater pumping energy is supplied by electricity. In this context, energy distributors in different states use two types of common tariffs to charge groundwater consumers: fixed tariffs, in which payments are fixed according to the pump's power rating; and variable tariffs, based on the units of energy actually consumed.

Intervention Details

Agricultural power tariff policies in India are formulated by individual state governments and can be broadly divided into fixed tariffs and variable (metered) tariffs. Much research has been carried out in various jurisdictions in India comparing these tariff structures: among them are studies based on empirical evidence from states that have switched from one tariff structure to another in the past; as well as contrasting behavioral studies of farmers with fixed and variable tariffs in states where both tariff structures coexist. However, the results of these studies are context-dependent and their inferences are not directly transferable to other states. However, the general relationship between tariffs and irrigation has not been fully explored in the literature. This is the gap that Sidhu, Kandlikar and Ramankutty (2020) address. That is, the authors conduct a review of previous studies of fixed and variable tariffs in different jurisdictions (to account for variation between jurisdictions and natural resource regimes) in order to examine the administrative burden of fixed and variable systems in electricity distribution companies. , equity between low- and high-income farmers in both systems, and the ability of tariffs to promote groundwater conservation by influencing farmers' pumping behavior.

Methodology Details

The review article by Sidhu, Kandlikar and Ramankutty (2020) was carried out based on empirical evidence from previous case studies of fixed and variable tariffs that are widely used to charge groundwater consumers in India's agricultural sector. In terms of structure, the work begins with a description of the historical evolution of groundwater irrigation and agricultural electricity price trends. Next, the authors perform a comparison of fixed and variable tariff structures in terms of their administrative characteristics, equity between high- and low-income consumers, and influence on farmers' pumping behavior to promote groundwater conservation. Subsequently, an evidence-based assessment is carried out on the design of the most appropriate tariff structures to achieve a balance between economic viability, farmer well-being and groundwater sustainability. Finally, a discussion is presented on the role of enhanced agricultural energy tariffs in helping India meet the various Sustainable Development Goals.

Results

The analysis shows that fixed tariffs have low administrative costs and more equitable distributional outcomes, but do not provide farmers with incentives to conserve water. On the other hand, variable tariffs have the potential to encourage judicious consumption, but are costly to administer and disadvantageous to low-income farmers who typically purchase water from underground well owners. Faulty tariff policies, coupled with large subsidies for agricultural energy, have caused rapid depletion of groundwater in many regions of India, as well as huge financial losses for power distributors and governments – state and federal.

Access to groundwater from water markets is more equitable under a fixed-tariff scheme with minimal energy rationing in water-abundant regions where there are functioning markets unhindered by caste and other social barriers. A shift toward rationing and stricter tariffs increases the burden on low-income families. First, when fixed-rate power is rationed, the reduction in supply hours disproportionately hurts small farmers, as pump owners only sell water when their own demand is met. Second, when states switch from fixed to variable tariff supply, evidence from West Bengal (India) suggests that this shift hurts most marginal water buyers, who are forced to pay higher prices for water, or lease their land. land for part of the year, or even abandon agriculture.

Farmers who pay fixed fees face no marginal cost of pumping groundwater. As a result, regions of India with fixed tariffs have witnessed rapid depletion of groundwater and wastage of energy in agriculture. On the other hand, the impact of variable tariffs on farmers' water pumping behavior is more complex. Its ability to promote groundwater conservation depends on the social, agricultural and economic circumstances of the region – such as the prevalence of water markets and energy subsidies, the general usefulness of groundwater to the farmer, and other options available to the farmer to access. the aquifers.

Public Policy Lessons

Since there is considerable heterogeneity in agricultural practices and groundwater availability across India, Sidhu, Kandlikar, and Ramankutty (2020) propose specific strategies that can assist policymakers in creating tariff structures that ensure sufficient irrigation for millions of farmers. without harming the country's limited groundwater reserves. For regions where overexploitation of groundwater is already causing rapid depletion of aquifers (particularly in western and northwestern India), the main focus should be on tariff policies that promote groundwater conservation through energy rationing and financial incentives . While eastern regions with an abundance of groundwater can benefit from a hybrid flat rate that incentivizes farmer-to-farmer water sales. Western states facing unsustainable groundwater exploitation must develop tariff policies that ration energy and prioritize its supply during the most critical seasons, as well as reward farmers who reduce their groundwater consumption. These tariff policies will not only help conserve groundwater but also increase the government's financial resources for social welfare programs such as education, healthcare, energy access, etc. Thus, improved energy policies can provide substantial assistance in India's progress towards the various UN Sustainable Development Goals.

Therefore, to formulate future tariff policies, India needs a holistic approach that is not only based on energy availability and demand but also incorporates various aspects such as groundwater availability, irrigation demand of farmers and opportunity cost of electricity subsidized. At the same time, judicious long-term use of groundwater also depends on a broader review of agricultural policy. The cost of agricultural production in terms of groundwater depletion, which to date has been externalized to the environment, needs to be internalized into the cost of production, while adjusting farmers' compensation to mitigate any potential adverse impacts on their livelihoods. of subsistence. That is, decisions must be made based on local constraints, and farmers must be involved in the decision-making process so that the new policies to be adopted are truly successful in achieving their objectives with minimal impact on welfare. financial health of farmers and national food security.

References

SIDHU, Balsher Singh; KANDLIKAR, Milind; RAMANKUTTY, Navin. Power tariffs for groundwater irrigation in India: A comparative analysis of the environmental, equity, and economic tradeoffs. World Development , vol. 128, p. 104836, 2020.