The Effects of Energy Prices on Agriculturalgroundwater Extraction from the High Plainsaquifer

In this article we examine the effects of energy prices on groundwater extraction using an econometric model of a farmer’s irrigation water pumping decision that accounts for both the intensive and extensive margins. Our results show that energy prices have an effect on both the intensive and extensive margins. Increasing energy prices would affect crop selection decisions, crop acreage allocation decisions, and the demand for water by farmers. Our estimated total marginal effect, which sums the effects on the intensive and extensive margins, is that an increase in the energy price of $1 per million btu would decrease water extraction by an individual farmer by 5.89 acre-feet per year. Our estimated elasticity of water extraction with respect to energy price is -0.26.