Pricing Energy for Groundwater: A Path to Sustainable Irrigation and Climate Resilience

Pricing energy for groundwater extraction could promote more efficient use of both water and energy, arrest groundwater depletion, and make irrigation more sustainable

As Azerbaijan hosts the Conference of the Parties (COP29), it is worth noting that this water-scarce nation heavily depends on water inflow from upstream countries to meet its needs. Groundwater, often termed the ‘invisible resource’ that buffers against surface water shortages, is essential for water, food, and economic security — not just in Azerbaijan but globally. It accounts for about half of the world’s water withdrawn for domestic use and about a quarter for irrigation. The United States, China and India, three of the world’s largest economies, are also the largest consumers of groundwater. However, concerns are growing about the sustainable use of this resource. Anthropogenic and climate change-induced pressures are resulting in a decline in groundwater levels, particularly in north-western India, the north China plain, Iran, and the western US. But the declining water tables are not the only concern.

Globally, most groundwater is withdrawn for irrigation, largely using fossil fuels. A 2024 study published in Nature estimates that the annual energy use for groundwater-based irrigation is about 1,670 petajoules (PJ), with associated carbon emissions of 193 metric tonnes (Mt) CO₂ to pump and deliver water for irrigation. This represents 89 per cent of the total energy use and 90 per cent of the carbon emissions from irrigation. Further, at 74 per cent and 57 per cent respectively, the annual energy use and carbon emissions from diesel-based groundwater pumping for irrigation are substantially higher than electric-based sources. 

In the agricultural countries of the Global South, such as India, Mexico, and Pakistan, energy supply for groundwater pumping is either free or highly subsidised, driving over withdrawal. The solution lies in pricing energy for groundwater extraction, which could also promote more efficient use of both water and energy, arrest groundwater depletion, and make irrigation more sustainable. However, implementing this approach is challenging, as water is often viewed as a public good, and free energy for irrigation has become deeply entrenched in the political economy. Four pathways are proposed to enable this implementation of a more environmentally and economically sustainable model that can limit the groundwater crisis.

First, establish tradable groundwater rights that could make saving water financially attractive to farmers. In many countries of the Global South, such as India and the Philippines, and in more than half of states in the US, groundwater is considered as part of property rights, with landowners considering it as a private resource. By introducing tradable groundwater extraction rights—allowing farmers to use a specified volume over a fixed period but not own it—governments can nudge farmers to adopt low-water consuming crops, use water more efficiently, and earn money by selling their unused groundwater entitlement to other users. This will also help provide additional income to farmers, who might then be willing to pay for the energy used for extracting groundwater. Such groundwater rights systems have been already implemented in southwestern US, New South Wales and Victoria in Australia.  

Second is developing formal groundwater markets where trading can occur and strengthen groundwater data availability. Informal groundwater markets already exist in South Asia, but in the absence of clear entitlements, they often disadvantage small and marginal farmers who don’t own wells. This is because large farmers monopolise energy subsidy benefits for irrigation and sell groundwater to them at a high price. Formal groundwater markets, managed by a state within a right-based system, would create a level playing field, allowing farmers to trade their unused groundwater shares with transparency and oversight. This would require strengthening local groundwater monitoring to track aquifer recharge, withdrawals, usage, and savings. An online public platform, accessible via a mobile app, could provide this information to potential buyers and sellers. While public institutions currently handle large-scale groundwater monitoring for recharge and extractions, citizen science-based initiatives can be adopted for generating data at a granular scale. Such initiatives have been tested in countries like Lebanon and India, where local volunteers collect, digitise, and make data publicly available. 

Additionally, these markets should extend beyond agriculture to other sectors, such as domestic manufacturing, which will drive future water demand. Trading should occur between users – including farmers, industries, and domestic water suppliers – tapping the same aquifer to be economically viable. Total groundwater withdrawal must remain within mandated safe limits. Such markets can serve as an effective mechanism for water reallocation. The cost of inaction – if water is not used efficiently and reallocated for other social and economic uses – can be substantial, with potential economic losses estimated at USD 2.5 trillion by 2050 for India alone, according to analysis by the Council on Energy, Environment and Water (CEEW). 

Third, community engagement is crucial for realistic gains in pricing energy for irrigation and its cost recovery. Marginalised communities are the ones most affected by the misuse of energy and groundwater because they have limited financial resources to cope with declining groundwater levels. Further, such misuse and extraction increase carbon emissions and accentuate groundwater stress. Energy pricing is essential, and community buy-in for it is crucial for sustainable groundwater use. Examples from China, the Philippines, and Spain show how community-based institutions can play a role in setting and recovering irrigation fees, mainly for irrigated areas served by surface water. These experiences can be leveraged to identify champions among farmers, build their capacity to understand water-energy linkages, and entrust them with disseminating the need for pricing energy for groundwater extraction and cost recovery to the wider community. 

Fourth, and equally important, is finance. In many countries, farmers are reluctant to pay for energy due to poor service quality and reliability.  In South Asia, for example, continuous electricity supply for irrigation is often unreliable, primarily due to the poor financial health of electricity distribution companies (DISCOMs). Subsidies are often recovered by DISCOMS with long delays, leading to inadequate funding for routine operation and maintenance or electrical infrastructure improvements. This vicious cycle needs to be broken by ensuring that DISCOMs receive past subsidy dues from the government, allowing them to charge enough to at least cover the operation and maintenance, and providing access to risk-free public or private funds to upgrade the distribution infrastructure. In regions like Sub-Saharan Africa, where energy access for irrigation is limited but groundwater irrigation has potential, investments in renewable energy-based smallholder systems, like solar pumps, could address the energy gap and ensure future irrigation development is sustainable. 

The climate co-benefits of introducing energy pricing and adopting clean energy for groundwater extraction are substantial. The pace of progress depends on governance and market-based reforms in these sectors; community willingness to value energy and groundwater and their participation in strengthening groundwater data availability at source; and policies and finances to support the transition to clean energy. Implemented well, green groundwater irrigation can become crucial to mitigate and adapt better to the adverse impacts of climate change in one of the most at-risk sectors — agriculture. 

Nitin Bassi is a Senior Programme Lead with the Council on Energy, Environment and Water (CEEW), a leading policy research institute and think tank based in Delhi, India. Views are personal.

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Nitin Bassi

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