Economic valuation of virtual groundwater in hyper-arid regions of Iran

Abstract

Access to high-quality water in Iran's hyper-arid regions faces growing challenges due to increasing demand, climate variability, and scarce freshwater resources. The Bajestan watershed consists of two parts: the plain and the playa. The groundwater consumption in this area is such that the plain, which contains relatively better water and is mainly owned by the people, is used for the agricultural sector. Meanwhile, the government is compelled to utilize the saline groundwater resources from the playa through a desalination process to provide good-quality groundwater for drinking and sanitation purposes and to introduce it into the drinking and sanitation network. To evaluate groundwater allocation efficiency, this study integrates virtual groundwater accounting with economic indicators—Net Present Value (NPV), Internal Rate of Return (IRR), and Benefit-Cost Ratio (BCR). The analysis shows that producing bottled water via desalination reached a cost of 45.07 million RI per cubic meter in 2023, resulting in a negative NPV, undefined IRR, and BCR = 0.46—rendering it economically unviable. In contrast, saffron cultivation yielded a significantly higher return (BCR = 2.21) than pistachio (0.89) and pomegranate (0.76), despite requiring far less water. Yet, over 94 % of groundwater is still allocated to agriculture, while only 4 % serves essential domestic needs—revealing a critical misallocation. The findings advocate for cost-reflective water pricing, revised allocation priorities, and expansion of virtual water accounting frameworks to support equitable and climate-resilient water governance. To ensure long-term sustainability, the study recommends implementing cost-reflective water pricing, revising allocation priorities, and enhancing virtual water accounting frameworks. These measures can support more equitable and climate-resilient water governance in Iran's hyper-arid regions.