External Costs of Climate Change Adaptation: Groundwater Depletion and Drinking Water

Abstract

Adaptation to environmental change can carry negative externalities. We document one such case: Farmers in California respond to heat and drought by extracting more groundwater, harming access to drinking water for nearby residents. Using yearly variation we show that surface water scarcity and heat increase agricultural well construction, groundwater depletion, and domestic well failures, and that well construction accounts for a large share of the latter effects. In our setting, adaptation also exacerbates inequality. Effects on domestic well failures are concentrated in low-income and Latino communities. Climate damage estimates may be incomplete without accounting for the external costs of adaptation.