CONSERVATION PRICING AND GROUND WATER SUBSTITUTION
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The United States Bureau of Reclamation has been exploring the use of water price as a tool for promoting water conservation. Raising water rates is an attractive means of reducing diversions from surface water systems supplied by the USBR. Rising water rates may promote ground water substitution. When irrigators have access to both surface and ground water, changes in the relative cost of each water source can encourage movement from one source to another. Ground water substitution will occur if the marginal cost of ground water becomes less than the price of surface water from the USBR. In this situation, surface water will be consumed until the point at which groundwater becomes cheaper, and then the irrigator will switch to groundwater. As a result, reductions in surface water diversions (and hence surface water conservation) will always be limited by the marginal costs of groundwater.