An Economic Analysis of the Institutional, Spatial and Temporal Dimensions of the Central Arizona Groundwater Replenishment District: Implications for Arizona’s Water Future

Created by Arizona’s development community, the Central Arizona Groundwater Replenishment District exists to facilitate compliance with the Assured Water Supply rules by replenishing excess groundwater pumped by its members. Currently, Arizona law does not require groundwater replenishment to take place within the area of hydrologic impact, and the enormous growth of CAGRD’s replenishment obligation in recent years has caused some to question the sustainability of pumping in one location and replenishing in another. This thesis attempts to explain both the formation and the potential future of CAGRD using economic principles. The analysis of CAGRD’s formation uses Nash’s model of a cooperative negotiation with bargaining power to provide insight into the political economy behind the creation of the District. CAGRD’s potential future is also studied, with particular attention paid to the economics of how CAGRD affects and is affected by the geographic distribution of water supplies in an Active Management Area. The spatial (GIS-based) economic model developed for this analysis allows for the prediction of the timing of any water utility’s transition from groundwater pumping (and possible CAGRD replenishment) to direct delivery of a renewable water supply. While today CAGRD provides water providers and developers with an incentive to spatially disconnect their pumping and replenishment, the model presented in this thesis demonstrates that in the long run CAGRD will likely encourage these entities to stop mining groundwater and to import renewable water supplies. As this paper’s model makes clear, the key factors controlling this decision include the water utility’s distance from renewable water supplies, water demand, and degree of reliance on CAGRD for replenishment, as well as the CAGRD replenishment rate and the ADWR water level decline standard for recovery wells.

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