Ordering the extraction of renewable resources: The case of multiple aquifers

Optimal sequencing of resource extraction is typically studied for nonrenewable resources. We provide conditions for optimal use of multiple sources of a renewable resource and characterize the resulting extraction sequence, resource scarcity values, and (single) efficiency price path for two groundwater aquifers and an abundant alternative resource. Even with one demand, the optimal sequence depends on the differential opportunity costs of the two renewables. A numerical simulation for the South O‘ahu aquifer system, which also allows for different distribution costs, illustrates the case of using the “leakier” aquifer first and then switching to simultaneous use of both resources. The welfare gain from specialization relative to independent management is $4.7 billion.

► We provide conditions for optimal management of multiple renewable resources.
► Even with a single demand, optimal sequencing is not by extraction costs.
► Instead, ordering is determined by differential marginal opportunity costs.
► All resources are used simultaneously in the optimal steady state.
► Extraction moratoriums can be optimal in transition to the steady state.