The economic impacts of water supply restrictions due to climate and policy change: A transboundary river basin supply-side input-output analysis

Highlights

• Sectoral water use is incorporated into a supply-side input-output model.

• The model is spatially disaggregated into 6 sub-basins across 3 Canadian provinces.

• The model evaluates the economic impacts of alternative water allocation policies.

• The model results assist policymakers prepare efficient water management plans.

• Adopting proper policies, potential economic drought losses can be reduced by 50%.

Abstract

Finding sustainable pathways to efficiently allocate limited available water resources among increasingly competing water uses has become crucial due to climate-change-induced water shortages and increasing water demand. This has led to an urgent need for the inclusion of economic principles, models, and methods in water resources management. Although several studies have developed macro-economic models to evaluate the economic impacts of alternative water allocation strategies, many if not most ignore the hydrological boundaries of transboundary river basins. Furthermore, of those using input-output (IO) models, only a handful have applied supply-side IO models. In this paper, we present one of the first attempts to develop an inter-regional, supply-side IO modelling framework for a multi-jurisdictional, transboundary river basin to assess the direct and indirect economic impacts of water supply restrictions due to climate and policy change. Applying this framework to the Saskatchewan River Basin in Canada encompassing three provinces, we investigate the economic impacts of two different water supply restriction scenarios on the entire river basin and its sub-basins individually. We find that in the face of climate-change-induced water shortage, economic losses can be reduced by almost 50% by adopting appropriate management practices, including prioritization of water allocation, using alternative water sources, and water re-use technologies.

Introduction

The overexploitation of water resources and the degradation of their quality by human-driven activities have reduced the amount of available water in many regions around the world. This situation is expected to be intensified by climate change and increasing demand for water associated with population growth and economic development. Under such circumstances, allocating limited water resources in an efficient manner among competing water users becomes more and more critical (Renzetti and Dupont, 2017), particularly in transboundary river basins that are operated by different authorities. One way to allocate water more efficiently is to include economic principles and methods in water allocation and management practices (Harou et al., 2009). The need to consider water as an economic good in water management was acknowledged by the United Nations in its 1992 Dublin statement (U.N., 1992).

Several researchers have used economic modelling approaches to study either water quality changes caused by human activities (e.g., Duarte Pac and Sánchez Chóliz, 1998; Brouwer et al., 2008; Dellink et al., 2011) or human-induced water quantity changes (e.g., Cai et al., 2003; Velázquez, 2006; Harou et al., 2010; Ward, 2014; Kahsay et al., 2017; Ridoutt et al., 2018). While some of the studies investigating water quantity changes have applied combinations of hydrological simulation and economic optimization methods to identify the most promising sectoral water management practices based on economic parameters (e.g., Bielsa and Duarte, 2001; Cai et al., 2003; Jenkins et al., 2004; Booker et al., 2005; Medellín-Azuara et al., 2007; Harou et al., 2010; Blanco-Gutiérrez et al., 2013; Razavi et al., 2013; Asadzadeh et al., 2014; Graveline et al., 2014; Ward, 2014; Esteve et al., 2015; Bekchanov et al., 2016; Kim and Kaluarachchi, 2016; Amjath-Babua et al., 2019), only a number of these studies have used macro-economic models to evaluate the direct and indirect economic impacts of water management policies on the economy as a whole (e.g., Kulshreshtha and Grant, 2003; Velázquez, 2006; Guan and Hubacek, 2008; Calzadilla et al., 2010; González, 2011; Kahsay et al., 2017; Levin-Koopman et al., 2017).

One of these macro-economic models is the Input-Output (IO) framework originally developed by Leontief (1936), and later extended to account for environmental parameters, such as pollution caused by economic activities (Leontief, 1970). This framework has been used in water management studies mainly to estimate sectoral water consumptions in response to a change in final demand for water-dependent goods and services (e.g., Duarte et al., 2002; Velázquez, 2006; Cazcarro et al., 2013; Ridoutt et al., 2018). This IO framework was modified to accommodate limited resources, such as water, and the supply-side IO model was proposed to relate changes in sectoral inputs to sectoral production (Ghosh, 1958; Miller and Blair, 2009). The supply-side IO model has however been used in only a few studies to evaluate the economic impacts of water allocation and supply policies (e.g., Yoo and Yang, 1999; González, 2011; Bogra et al., 2016).

A critical step in including water in an economic model, either in physical units (e.g., Bogra et al., 2016), monetary units (e.g., Velázquez, 2006) or a combination thereof (e.g., water productivity as in Pérez Blanco and Thaler, 2014), is selecting the relevant spatial scale at which not only hydrological and economic data are available, but also modelling results could be used for water allocation decisions. This step is challenging due to the differences in spatial resolution of hydrological and economic data (e.g., Brouwer et al., 2005; Brouwer and Hofkes, 2008; Cai, 2008). Water extraction and use data are, for example, usually available at river-basin or sub-basin scale, whereas economic data are typically published at administrative scales such as a province, county, or country as a whole. The river basin or catchment is often the most appropriate study unit from the viewpoint of hydrology and water resources management and planning (Loucks and Van Beek, 2005), while economic market data may better fit administrative boundaries.

Based on their spatial scales, existing IO studies that include water can be categorized into single and multi-region studies. Single region studies focus on one river basin (e.g., White et al., 2015) or one administrative unit (e.g., Velázquez, 2006; González, 2011), while multi-region studies consider several river basins (e.g., Ewing et al., 2012; Lutter et al., 2016), hydro-economic regions (e.g., López-Morales and Duchin, 2015), or a study region (like an irrigation district or a country) and the rest of the world (e.g., Kulshreshtha and Grant, 2003; Ridoutt et al., 2018).

Although these IO studies have contributed significantly to the advancement of hydro-economic modelling, hardly any have evaluated the economic impacts on interconnected hydrological units, i.e., sub-basins of a larger transboundary river basin. To fill this gap in the literature, this study aims to develop an inter-regional supply-side IO model that enables us to assess the direct and indirect economic impacts of various water supply restrictions under climate change and alternative water policies in a multi-jurisdictional river basin. This is one of the very first attempts to develop such a model that encompasses not only each of the provinces that share the river basin, but also the sub-basins and the entire river basin. To this end, hydrological and administrative boundaries are reconciled, and trade flows are identified and quantified between study units (i.e., sub-basins) to build relevant interconnections. Developing such a model is challenging due to limited data availability, and data sources are typically not compatible across different jurisdictions.

We apply this hydro-economic modelling approach to the Saskatchewan River Basin in Canada, a large, multi-jurisdictional river basin where water has been allocated traditionally through licenses on a “first-in-time, first-in-right” basis (Brooymans, 2011). From the three provinces sharing this river basin, Saskatchewan is the only one that has moved away from that basis in the 1980's (SWSA, 2012) to the current licensing system administered by the Saskatchewan Water Security Agency based on terms and conditions, which are not necessarily based on economic criteria, and for a specific duration only (instead of in perpetuity) (Government of Saskatchewan, 2018). The limited number of studies that have focused on IO modelling of this river basin (e.g., Martz et al., 2007; Paterson Earth & Water Consulting, 2015; Brown, 2017) have primarily investigated the economic impacts of climate change and irrigation development on either one sub-basin (e.g., the South Saskatchewan River Sub-basin) or one province (e.g., a part of the river basin in Alberta Province). These existing studies considering only a part of the Saskatchewan River Basin or adhering to administrative boundaries, fail to recognize that the basin is an integrated and interconnected system, from both hydrological and economic points of view, and disable any evaluation of the impacts of water allocation strategies and management practices in one part on other parts of the river basin. Therefore, the results of this study provide unprecedented insights into the hydro-economic interactions of this complex river basin, under alternative water policy scenarios.