As a high priority in dealing with the problem of water scarcity, the effect of water pricing policy remains a controversial issue, especially the environmental effect. Using household-level panel data of three irrigation districts (IDs) in the northern China, this paper probes the potential impact of water price rising on local environment. The examination shows that farmers will reduce the rice area as a response to the rising surface water prices. The changing cropping pattern will exert three-fold environmental impacts, including the dropping groundwater level resulting from the reduction of seepage and percolation of irrigated water and overexploitation of groundwater, the negative effect of non-point pollution from fertilizer and pesticide application, and the loss of field irrigation facilities. Water pricing is not a valid means of significantly reducing agricultural water consumption due to the substitution of groundwater for surface water, it will lead to negative environmental effect. It is an imperative task for Chinese government to improve the management efficiency at IDs.
