Many farms and neighboring communities depend on groundwater supplies for farm operations and domestic water. Farm management decisions can directly, though unintentionally, affect the quality of that natural resource. Private choices made by farm managers and social choices made by local, state, and national governments can affect groundwater quality. Economic analysis can help explain how to predict causes of groundwater contamination problems.

After looking at economic analysis, we will describe social policies to prevent or remedy groundwater contamination. We will also look at strategies farmers can use to minimize the risk of contamination to groundwater. The following points are addressed:

• How economic incentives promote contamination of groundwater, though generally as an unintentional by-product of otherwise productive activity.
• Why groundwater contamination is only indirectly linked to its cause. How the physical process of contamination varies widely with local conditions, and is difficult or impossible to reverse.
• How the unique physical characteristics of groundwater make it hard to calculate economic benefits and costs of groundwater contamination. These same characteristics slow development of groundwater policy programs.
• How dispersing ownership in groundwater also scatters stewardship for the resource.
• Pros and cons of policies society could adapt to respond to groundwater contamination.
• Potential strategies farmers might adopt to reduce the risk of contaminating groundwater.

Aquifers are water-bearing rocks and sediments that readily supply economic quantities of water to wells or springs. They are vital and often fragile natural resources. Humans use and affect this natural resource in two principal ways. First, groundwater from aquifers is an important source of water supply for many domestic, industrial and farm water users. (See EB1622 Washington Groundwater: A Vital Resource.) Rural users depend on groundwater for domestic supplies, and for about one-third of farm irrigation water.

Humans also affect aquifers indirectly and, usually, unintentionally. Used water and other liquids percolate into the soil from lawns and parks, roads and parking lots, and farm fields and feed lots. These liquids include farm and lawn chemicals, motor oil emptied on the ground, liquid factory wastes flushed into gutters and surface waters, and chemicals applied to urban streets, parking lots, and playgrounds. Eventually, the chemicals may be carried to underground aquifers where they contaminate the water. People, in effect, are using aquifers for waste disposal -- though, until recently, this use often was unrecognized.

Aquifers serve different and conflicting purposes. The root of the groundwater dilemma is that needs for groundwater quality differ dramatically. For those draining contaminants onto the soil, groundwater quality is not directly at issue. In deciding which products to use or how to dispose of effluents, people are not usually directly concerned about groundwater quality. (See a closer examination of the farm operator's decisions below.) On the other hand, for those whose water supply is groundwater, its quality is very important. Although groundwater users differ in the level of water quality they need (for example, drinking water versus irrigation), all are concerned about unwelcome chemicals.

Farmers make private decisions that are driven largely by the profit motive. Each farmer generally plays a small part in a market with many participants. As a result farmers have relatively little market power; they have little influence over the prices they receive for products or pay for inputs. Their management decisions concern how to combine inputs­­labor and management, land and equipment, fuel, seed, fertilizer, and pesticides­­to achieve a profit. Farmers' profit depends on many things. If profit-motivated farmers find their gain from using more chemicals will be greater than their cost, they will buy and use more chemicals.

Generally, fertilizer and pesticide prices do not include the cost of contaminating surface or groundwater. Therefore, farmers can treat the use of water, soil or air as "free" for purposes of disposing of unwanted or residual chemicals. In short, no financial incentive exists for the chemical user to avoid contaminating groundwater. The profit incentive is simply to use as much fertilizer and pesticide as farm operations require, without concern about effects on groundwater quality. However, farmers have other concerns.

Many farmers also depend on groundwater for their own domestic or irrigation water supply. Chemical use may have other nonfinancial effects that the farmer must consider. These include laws that regulate their use, the potential effect of chemical residues on the marketability of the crop, and potential safety hazards incurred in the use of some chemicals. Because of such factors, financial incentives play a significant role in farmer decisions, but are not decisive in their decisions about chemical use that might affect groundwater quality.

The economic view of the groundwater problem is that soil-applied chemicals that leak into groundwater cause an economic externality. An externality (or external effect) is the direct effect of one party's action on another party without any payment or compensation. An externality is not usually intentional. In this case the farmer creates the contamination as a by-product of the main activity, farming. The effect of the by-product on others is not counted in profit-motivated decisions because it has no (financial) cost to the farmer.

However, while the effect on groundwater quality poses no financial cost to the farmer (unless the farmer is also a groundwater consumer), it certainly has costs. Market prices will not reflect these costs, but the effects on health and welfare create real costs for society. Therefore, overall costs to society of using the soil and aquifer for waste disposal is greater than the private costs from the farm operator's point of view: private costs and social costs do not match. The failure of private and social costs to match creates an inefficiency in the economy.

Where markets are free and competitive and no externalities exist, private and social costs match. In such (mostly ideal) circumstances, private, profit-motivated decisions would automatically produce socially efficient use of resources. This is the famous "invisible hand" of Adam Smith. Each resource would be used to produce the largest possible output of goods and services for the economy. However, when private costs and social costs do not match, resource use will be socially inefficient. Resources are wasted, and total output of goods and services in the economy falls. This is called a "market failure." In this case the inefficiency is excessive or inefficient chemical use and the overuse or overexploitation of the aquifer for waste disposal. In this case such overuse might totally destroy a valuable resource­­the aquifer.

This economic view is only one perspective on the groundwater contamination problem. It emphasizes the social costs which result from a mismatch between private costs and social costs. However, for some citizens groundwater contamination is an issue of fairness or moral and legal rights. They consider it unjust for a polluter to interfere at will and without cost with their right to uncontaminated water. The economic perspective is useful in looking at the consequences of changing prices or rules which affect financial incentives. It is less useful in determining who is right or wrong.

The economic-efficiency analysis must be qualified, because not all farmers are motivated purely by profit. Some farmers are also influenced by public spirit, conscience, environmental awareness, a sense of stewardship, or other motives to consider how their by-products affect the well-being of others. Moreover, some farmers are themselves consumers of groundwater for domestic use. In this case the farmer faces at least some of the costs of contamination, bringing private and social costs more into line.

Groundwater contamination begins with an activity that introduces a potential contaminant into the system. Note that at this stage the farm chemical is only a potential contaminant. The application of some noxious chemical to the ground does not automatically and immediately produce a contaminated aquifer. The chemical will begin to travel through the soil, but a number of things may happen to the chemical on its journey. (See EB1633 Role of Soil in Groundwater Protection for more details on this process.) Important factors include:

• The amount of chemical, the timing of application, the climate, weather, and soil characteristics all affect the fate of the chemical as it travels through the soil.
• Plants use and absorb some chemicals.
• Some chemicals may decay into less noxious compounds through the action of sun, soil, or time.
• The soil itself absorbs, immobilizes, or counteracts some potential contaminants.

To see the implications of these factors, consider the case of farmers applying nitrogen fertilizers. Note that the farmer's case is somewhat different from someone dumping used motor oil or another waste directly on the ground. The farmer intends for the chemical to be used. Because application is not uniform, nor exactly as much as the plants need, nor applied at exactly the right intervals, not all the nitrogen will be used by the plants. The residual nitrogen will begin to leach through the soil, but some will become immobilized in the soil. Thus, most nitrogen either will be used by plants or will become immobilized in the soil. Relatively little will escape into the subsoil and leach into the aquifer. (See EB1632 Why the Concern about Agricultural Contamination in Groundwater? for discussion of health effects of nitrogen contamination.)

Note one implication: the problem of groundwater contamination is, to a large extent, a local or regional issue. Application levels that may produce contamination in one location, will not do so in other locations with other conditions.

Once contamination reaches the aquifer the problem becomes more complicated. Aquifer characteristics affecting the outcome include:

• Water moving through an aquifer picks up and loses various substances as it passes through, and interacts with, the soil. Therefore, in principle, groundwater may be able to absorb some level of contamination. Thus, some studies show that very low levels of nitrate or pesticides do not appear to have adverse effects.
• However, water does not move through an aquifer in the same rapid way it moves through a river. Rather, water entering in one place creates pressure which either pushes out water at springs, or is reduced by water drawn from wells. Thus, while the yearly inflow and discharge from an aquifer may be equal, it may take anything from a few hours to tens or hundreds of years for a given physical drop of water to move from its point of entry to a spring or well.

These characteristics of aquifers mean that a contaminant will disperse through the aquifer slowly, often in a plume. Contamination will be relatively localized at first, but it will slowly and relentlessly spread through the aquifer. So, an aquifer does not cleanse itself in the same way a river might. Contamination entering an aquifer tends to remain for a long time. Once groundwater quality is seriously affected, contamination may be difficult or impossible to reverse. Moreover, because of the complexity, contamination, which might result from the application of a given substance at the surface, is uncertain.

Examining this process of contamination leads to two, partly contradictory, conclusions. Because some of the chemicals applied at the surface are used, decay, or are absorbed, it is neither always necessary nor desirable to prohibit an otherwise productive practice just because it has some potential for leaching harmful chemicals. Moreover, because conditions are localized, broad or blanket restrictions on application rates may be inefficient and impractical.

On the other hand, the possible irreversibility of contamination and the uncertainty about when contamination will occur provide reasons for forcefully protecting groundwater quality. It also is difficult and costly for agencies to monitor and enforce prohibitions against pollution. All members of society, therefore, must be careful and conservative in handling the more dangerous compounds to guard against possible disaster. Social policy also must be conservative in protecting the aquifer.

We now review the major economic implications of groundwater characteristics.

Irreversibility. While many aquifers, given sufficient time, might gradually flush out most chemicals, such natural cleansing could take millennia. Aquifers with no steady throughflow would never cleanse themselves. Human efforts at cleaning a contaminated aquifer can be equally futile. For example, pumping out, cleaning, and replacing the water might not be feasible and, even if done, these efforts may not remove all the contaminant. Therefore, contamination probably is irreversible in any practical sense and for any humanly relevant time period.

This irreversibility means that preventing contamination becomes more feasible and cost-effective than cleaning it up. It also means that it is efficient to be conservative: if harmful effects are possible, it is better to avoid them. Once done they cannot be undone easily.

Uniqueness. Typically if an aquifer is contaminated, no substitute aquifer is available. Even where different aquifers occur at different depths, they may be interconnected. Therefore, if one aquifer is contaminated, usually no aquifer exists nearby to provide a substitute water supply.

Indivisibility. Many resources, such as land or forests, can be divided into pieces for ownership and use, but aquifers are interconnected hydrological systems. While one can contaminate by degrees, generally one cannot fence off part of an aquifer and allow only that part to be contaminated. This means that groundwater contamination has some qualities of a yes-no, off-on decision.

Uncertainty. Finally, transmission of contaminants to the aquifer and the potential health effects of contaminants present uncertainties. Suppose a certain chemical level were thought to be safe in the groundwater, below the threshold of health effects. It would seem that it would be safe to allow that much contaminant to reach the water. However, we do not know what the safe level is. Also, we do not know for certain what amounts of contaminant will reach the groundwater with given levels of chemical applications.

It is possible to err either way: to set the allowable chemical use too high or too low. However, where risks are great most people are risk averse­­preferring to err on the safe side.

Optimum contamination. Because contamination is an externality, do private decisionmakers choose to produce too much contamination? The economic theory of externalitites suggests that, in principle, some efficient level of aquifer contamination should exist. That is, pure economic analysis suggests the existence of some middle ground: it is cheaper or more productive to allow some level of contamination than to prohibit or clean up all of the contamination. If we choose zero levels of contamination, we must incur costs of clean-up or we must sacrifice some level of farm production, for instance. The optimum pollution level balances the benefits of controlling the contamination against the costs of correcting the contamination.

The major difficulty with the idea of a theoretically optimum level of contamination is our incomplete knowledge of both contamination processes and the health and other effects of contamination. For instance, it would take vast amounts of research to determine how much fertilizer application will produce contamination. Each chemical and each aquifer reacts differently to weather and climate; characteristics of the applied chemical; soil, crop, topography, aquifer medium, size, depth, and other factors. Then, even if we know how much contamination would be produced, our knowledge of the health and other effects of the contaminants is still incomplete.

Therefore the uniqueness, indivisibility, irreversibility, and uncertainty associated with aquifers argue that the efficient level of contamination for aquifers is zero. It suggests a presumption against any additional contamination of an aquifer.

Also, certain specific aquifers might accept additional contaminant loadings with a very small increase in risk. But, how can these aquifers be identified? There would be costs of finding and monitoring these safe aquifers, dangers of being wrong, and a danger that exempting some aquifers would produce legal loop-holes that would endanger the more fragile aquifers. Therefore, let us presume that most aquifers cannot bear additional contaminant loadings and have social policy address this goal.

This analysis assumes that economic efficiency is the major social objective. Society has other goals that may interfere with, or override, the efficiency aim. The analysis assumes 1) that the gainers and losers are equally deserving, and 2) that obtaining the greatest net social benefit supports overall well-being. But, suppose the gainers are much wealthier than those who bear the costs. Some people might argue on fairness principles that the wealthier fertilizer users should not inflict any cost on poorer water users. Moreover, social justice usually places a greater burden to remedy harm on those who create it than on those who suffer from it. This principle of social justice also argues for very little tolerance of contamination.

Before we look at possible government actions to remedy groundwater contamination problems we might ask why government is called on to correct this externality? Why do those harmed by the degradation in groundwater quality not organize themselves to fix the problem? Why do they not buy up the contaminating businesses so that they no longer despoil the commons; pay polluters not to pollute; or finance clean-up efforts if the groundwater is already contaminated. Surely if those harmed would benefit from such actions they would pay for them. Economic analysis of common pool resources can help understand why we turn to the government to help solve the groundwater problem.

An aquifer typically extends under a large area of land owned by many different parties. Each landowner has access to the aquifer by drilling a well and pumping the water. Each landowner pays the costs for drilling, pumping, and transporting the water, but no one charges fees for the use of the water itself. In this sense groundwater is a free access resource, a common pool. It shares some of the management problems of a fishery or communally held grazing land or other commons type resources.

Legally in Washington groundwater is publicly owned. The state does not charge money for access to the groundwater, but it does require a permit, and it does regulate groundwater pumping. The state manages the groundwater to avoid problems that can emerge from a commons type situation.

We can look at the effect of the incentives created by an open access situation. All persons with access to a common pool resource have an incentive to exploit the resource according to their personal benefits and costs. Thus, they overfish the fisheries and overgraze the common grazing land. Individuals also have no private incentive to conserve the resource or otherwise improve or protect it. Any investment in improving the resource or any conservation mostly benefits other users. The groundwater user, like the groundwater contaminator, has no financial incentive to consider the welfare of others. For a change to occur, people must see a value in adopting a different resource practice. The practice must also fit their pattern of activities.

For groundwater one consequence of this common pool characteristic is that groundwater users are unlikely to take action individually to protect the groundwater. For instance, one solution might be to buy the land from which the contaminants are draining or simply pay groundwater polluters not to pollute. But if one person did this, other groundwater users would be able to "free ride" ­gain the benefits from clean water without paying for its protection. (Also, some people would refuse to join such an effort to "buy out" the polluters because they would view such payments as unethical "bribery" to the polluters.) Therefore, such private, voluntary actions are unlikely to succeed, and people turn to governments for solutions. Governments can either compel everyone to contribute through taxes if a payment is to be made, or enforce regulations against those who are violating rights.

Several alternative public policies and government actions might be used to reduce contamination of groundwater or mitigate effects of any damage.

1. The government can pay the costs of cleaning up the aquifer and repairing damage done.

This approach shares the cost of remedying the problem among the total population.

However, aquifers are virtually impossible to clean-up. The only realistic option would be to treat the water as it is pumped from the aquifer. But in most cases this either would be very expensive or impossible, because wells are scattered and sometimes inaccessible. Since some aquifers will be contaminated for a very long time, such treatment programs would have to last for a long time. It is much cheaper to prevent contamination than to treat it.

In summary, while this policy spreads the cleanup cost over the total area population and solves the common pool problem, it is costly because it does not stop contamination. It ignores private and civic motives that can be harnessed under other policy approaches.

2. Government could charge a fee for practices that might contaminate.

In this approach the government agency would establish the level of contamination to be achieved, generally near zero. It would then calculate a fee schedule that would encourage farmers to apply less chemicals and achieve the goal. It would take some trial and error to get the right fee schedule.

Charging a fee (or pollution tax) uses financial incentives to reduce contamination while allowing producers to decide how to use their own farm resources. The financial incentives attract attention, encourage compliance, and discourage future bad practices. In principle this approach leads to socially efficient use of resources: it provides contamination control while interfering no more than necessary in farm operations.

The fees collected can be used to help clean up problems, as gasoline taxes are used to build and maintain roads.

One problem with this approach is determining whether to put the tax on the amount of contaminant which potentially might enter the groundwater or to tax the chemical as it is applied in the field. For instance, suppose one places a tax on fertilizers or pesticides to reduce their use to levels that would not leak through to the groundwater. But, the potential for contamination varies from one aquifer to another and even by location over a single aquifer. It is difficult to design a tax that will only affect those who are likely to cause contamination.

Ideally the government should tax the contaminant that might reach the aquifer. Such a tax would be effective and fair (and quite high to obtain a zero level of contamination). However, such a tax requires knowing whose chemical would damage the aquifer, by how much, and how the farmer would respond to the tax. Designing, monitoring, and enforcing such a tax would be difficult.

3. The government could pay individuals and firms not to contaminate.

This approach also uses financial incentives to encourage people or firms not to contaminate the water. It is a proven policy: for instance, soil conservation policy awards subsidies to firms that will adopt desired practices.

The approach generates no funds to fix existing problems. It requires public funds.

It is expensive and sometimes difficult to decide who should receive the subsidy. If the money is not carefully targeted, a great deal of money can be spent with limited results.

Some would object that the policy is contrary to the "polluter pays" ethic of private responsibility.

4. The government can set standards and make violations illegal.

The price of contamination becomes a jail term or a fine if a person is convicted. This penalty attracts attention, encourages compliance, and may prevent some contamination. It is relatively simple to understand (a rule is a rule). It is the most commonly chosen policy alternative for groundwater quality.

It appeals to those who believe in the "polluter pay" principle: those who engage in socially bad practices should stop or pay the consequences.

Fines generally do not generate enough funds to repair damage or even to pay for administration and enforcement of the rules.

Rules are almost always uniform and inflexible. But groundwater aquifers have different levels of contamination risk. Uniform rules are not apt to fit the differences in local conditions, aquifers, and contaminants. Enforcing uniform rules is inefficient and costly for the resulting improvement. Some farmers may be subject to rules restricting practices that are actually doing no harm, while other farmers may not be prevented from contaminating. More flexible rules are difficult to design and expensive to administer.

In recent years sustainability has emerged as a goal for use of agricultural and other natural resources. The goal of sustainability recognizes current as well as future needs and obligations. For instance, sustainable agriculture is a long term-goal that balances the following outcomes (EB1634 Washington Agriculture­Sustaining Water, Land and People):

• Conservation and enhancement of on and off farm resources.
• Maintenance and strengthening of farm profits.
• Provision of safe, abundant, and high quality food and fiber.
• Improvement in the vitality of rural communities.
• Realization of social acceptability of practices

Future use of groundwater depends on sustaining this resource. Sustainability as a goal for groundwater quality is consistent with sustainable agriculture and desirable in its own right. Two specific reasons stand out for choosing sustainability as a goal in groundwater policy: sustainability is the safest approach in a risky world, and managing for sustainability recognizes and protects future users who cannot represent their own concerns.

Our knowledge of aquifers is uncertain and incomplete. In principle, aquifers can absorb some chemicals. In practice, it is difficult to know the safe limits of contamination, how fast or how far materials move through soils to reach groundwater, how well the soil cleans the water, and the rates of natural water recharge. Therefore, the goal of sustainability­maintaining, enhancing and leaving better water to future generations­is the safest approach.

Groundwater also has a social nature. Many generations use an aquifer over time. One person's use cannot be isolated from another's: one persons's contamination affects all other users. Because aquifers are common pool resources, each individual has the incentive to overuse the resource, or to leave its clean-up to someone else. Managing groundwater for sustainability shares benefits and costs among current users and protects future users.

A farmer's effect on groundwater generally results from a combination of financial incentives, stewardship and other motives, and uncertainty. The farmer's financial incentive is to pay little or no attention to residuals that leach down to the aquifer. The farmer usually has little information about which, or how much, of the chemicals used in farming might eventually reach groundwater. The first step to correct negative effects on groundwater is to provide appropriate information and incentives.

Once the responsibility is clear, the farmer might respond with management changes:

Chemical applications. Farmers can use less of the suspect chemical or switch to other chemicals. Unfortunately, this approach will impose mild to heavy financial burdens on the farmer, depending on the available alternatives.

Cropping patterns. Another response is to switch crops since different crops have different water and chemical demands. Some experimentation and financial analysis will be needed to see if new crops can be found which leach less contaminant into the soil and maintain, or even increase, profitability.

Water applications. Leaching chemicals into groundwater depends partly on water transporting the contaminants through the soil. Reducing water applications can reduce leaching, yet it may lower yields. However, more intense management and changes in irrigation technology can improve yields and profits while reducing leachates.

Precise management. Chemicals leached from the crop do the farmer no good. The farmer can reduce costs or increase yields by wasting less chemical and producing less leachate. More precise management (e.g., frequent and exact measurement) has higher management and labor costs, but it can also lead to lower chemical costs, higher yields, and higher profits.

As chemicals become more costly, water more scarce, and profit margins more uncertain, many farmers are increasing the intensity of their management. Improved practices take more time and attention, but may bring both greater profits and lower pollution. Farmers can contact local extension offices for ideas about crops and management practices suited to their local conditions.

Many users share groundwater from an aquifer extending over a wide area. The state owns the water and issues water permits, which provide a right to use a certain amount for a given location. Many people prefer to turn to private solutions through markets or private bargaining before they turn to government. But, if an aquifer is contaminated, no private mechanism stands ready to propose and finance a solution. The problems of externalities and common pool resources preclude this approach. Who can pay how much to whom for what?

Conflicts over goals are large. Some argue that nothing less than absolutely pure water is acceptable and that zero tolerance for contaminants should be the guiding policy. Their highest priority is clean water. On the other hand, some people have other economic interests that may lead to a lower priority on concerns about groundwater contamination and a tolerance for some contaminants. Scientists need to learn more about thresholds at which contamination is harmful. A political choice must decide where the true value lies. Present Washington law recognizes that some groundwater contains natural and human-made contaminants, but prohibits any additional degradation.

The issue is further complicated because no clear and stable relationship exists between farming and other activities and groundwater contamination. Identical chemical applications on similar crops have very different risks of reaching groundwater, depending on the soil type, moisture, topography, and the nature of the aquifer. The physical world is not uniform; a safe application in one place may be unsafe in another.

Partial funding for publications in this series on Groundwater Protection was obtained through U.S. Environmental Protection Agency nonpoint source pollution grants administered by the Washington State Department of Ecology.

The authors acknowledge the contributions of Christopher F. Feise, Ph.D., Washington State University Cooperative Extension Western Washington Water Quality Coordinator and Groundwater Fact Sheet Project Coordinator, WSU Puyallup Research and Extension Center; John H. Pedersen, Ph.D., P.E., consulting technical editor; and Ronald E. Hermanson, Ph.D., P.E., WSU Cooperative Extension Agricultural Engineer and Water Quality Project Leader, WSU Pullman.