In my previous life as a graduate student, I worked with hydroeconomic modeling. I recently had the opportunity to jump back into that type of research with colleagues from the University of California Davis and Merced.
If hydroeconomic modeling sounds like jargon, that’s because it is. In a nutshell, hydroeconomic modeling is a tool for water management. It helps researchers, water practitioners, and policymakers answer critical questions related to how much water is available now and in the future, and–ideally–the best ways to use it. This type of modeling gets complicated when you are trying to find balance among water use by people, agriculture, ecosystems, energy production, and recreation. Fold in the need to consider flood management, politics, and economics…and oh yes!…add climate change, and it gets very complicated!
My colleagues and I reviewed more than 150 scientific papers that applied hydroeconomic modeling. We worked in collaboration with the International Institute for Applied Systems Analysis (IIASA) and the Union of Concerned Scientists and recently published a peer-review study titled, Hydroeconomic Modeling of Water Resources Management Challenges: Current Applications and Future Directions.
What is hydroeconomic modeling?
Hydroeconomic modeling is a fancy word for the economics of water management. This topic is important because, as the demand for water intensifies and competition across economic sectors escalates, the task of managing our water resources becomes increasingly complex.
There are many factors that influence water management, from climate, land use, and ecosystems, to economics, policy, and human decisions. To understand how each component interacts and influences others within water systems, researchers and water managers develop models that allow us to test different scenarios and interactions among water system elements. This is the field of hydroeconomic modeling.
Hydroeconomic modeling addresses research and policy questions from socioeconomic (people and money) and biophysical (water, climate, ecosystems) perspectives under a broad range of water-related topics (e.g., agriculture, floods, energy).
In recent years, hydroeconomic models have been used to evaluate climate change impacts and adaptation, sustainable management of groundwater resources, optimization of agricultural production, hydropower operations, governance and cooperation, water quality, desalination, reservoir operations, weather forecasting, and the water-energy-food-ecosystems nexus. Applications include economic evaluations of existing and new water projects, alternative water management actions or policies, risk assessments from hydroclimatic uncertainty (e.g., climate change), and the costs and benefits of mitigation and/or adaptation to such events.
These water models are also particularly valuable in addressing the management problems from growing demand and competition for water across economic sectors. This is even more important as the options for developing additional water supplies dwindle and costs rise. Moreover, the growing recognition of the importance of environmental water demands adds another layer of complexity.
Hydroeconomic models shine a light on these challenges, helping us navigate the intricate challenges of water management in an increasingly thirsty world.
An extensive review yields five distinct themes
After an extensive review of more than 150 studies using hydroeconomic modeling and research on water management, these are our insights and conclusions:
1. Collaboration and Partnership in Water Management
- Water is better managed through partnership and collaboration. Models showed more sustainable water resource management and better outcomes for stakeholders as the level of cooperation increased. This becomes even more important as the impacts of climate change become more apparent. However, there is still much work to be done to ensure that all relevant factors and stakeholders are integrated to make informed decisions.
- Basin-wide cooperation optimizes benefits. It is important to consider multiple objectives to balance different stakeholders’ benefits on the system. For example, cooperative basin-wide maximization of benefits would lead to large increases in upstream hydropower production and only minor changes in downstream irrigation benefits.
- Comprehensive water management requires interdisciplinary teams. Analyzing long-term changes and adaptation to global change in river basin management requires bringing multiple scientific disciplines together and binding them into a single framework facilitated by integrated governance.
2. Equity and Sustainability in Water Allocation
- Water use sustainability requires an equitable and just water (re)allocation. As demand for water resources grows, so does the need for solutions that address resilience and reliability through equitable water (re)allocation.
- Water markets are an option only if they are developed with an equity perspective. Water markets can mitigate agricultural impacts from climate change but should be developed with an equity perspective and with the considerations of a Human Right to Water as the highest priority. Groundwater banking can offset irrigators’ economic losses during dry periods, but its effectiveness depends on whether it facilitates trade across groundwater and surface water users. Strategies that include smaller farmers will be vital for societal positive impacts.
- Water management should be rethought at the water-food-energy-ecosystems level. One of the most significant areas to improve water sustainability is to conjunctively manage water systems, food systems, energy systems, and ecosystems.
3. Climate Change Adaptation and Uncertainty Management
- Water policies should consider the role of water in stakeholders’ activities, especially in the face of more frequent and severe droughts (and floods). It’s important to consider extreme scenarios to develop adaptation strategies. Places with limited access to groundwater and uncertain surface water deliveries during drought are the most economically vulnerable regarding crop revenues, employment, and household income.
- Addressing and integrating uncertainty is a crucial feature of water management. As climate change advances, studying the effects of sustained droughts and extreme flooding has become an increasingly important area of study, with models evaluating responses using water trading, groundwater recharge, and other adaptation strategies. The ability to address and integrate uncertainty is also crucial for allowing stakeholders to understand better the risks associated with different water management options and the costs of inaction.
- Climate change is severely impacting agricultural systems, reducing the availability of water resources and crop yields, and increasing irrigation water requirements. These results support the need to design and facilitate adaptation processes considering the socioeconomic characteristics of irrigation agriculture and its surrounding communities. Climate change impacts may not be significant for certain economic sectors, and actions and policies should be either focused on other sectors or on more relevant impacts to that sector.
4. Effective Groundwater Management
- Groundwater needs to be sustainably managed at all costs. As costly as it is to use groundwater sustainably today, it won’t compare with the cost of not having groundwater in the future. Groundwater supplies provide an effective buffer for many municipal and agricultural systems and help ameliorate price spikes.
- When overuse of groundwater water is leading to private benefits but public costs, economic sanctions are effective. Increasing irrigation water prices along with energy prices can reduce groundwater exploitation.
5. Water Policy and Governance
- The cost of inaction to reach water use sustainability is unbearable. In the absence of adequate policies protecting water resources and natural ecosystems, water users will deplete reservoirs, aquifers, and river flows for short-term adaptation to climate change, disregarding the impacts on the environment and future human activities. These impacts can be addressed by implementing sustainable management policies.
- Governments should provide incentives for small farmers to adopt new irrigation technology and sustainable farming practices. Such improvements would deliver benefits across the basin by improving food and energy security, boosting income, and contributing to the protection of the environment and communities.
- Local control is important, but there needs to be some minimal central guidelines. Countries in the European Union have a more cohesive approach to dealing with transboundary water policy than the United States. While the European Union uses transboundary models that account for climate change and other topics that are “controversial” for certain politicians, some states of the United States don’t even acknowledge climate change as a reality, lagging the country’s efforts to improve water use and plan sustainably.
Hydroeconomic models are useful, but could be better
Despite the multiple applications of hydroeconomic models, there are still many challenges that these water management tools need to overcome to become more effective. For example, they primarily focus on biophysical and economic indicators, often overlooking the preferences and perspectives of stakeholders. Equitable water management would benefit from the integration of commonly neglected variables, such as social equity components, ecosystem requirements, and water quality. Although hydroeconomic modeling has improved the integration of ecosystem needs, representation is still lacking, and stakeholder perspectives are often overlooked.
As our understanding of water systems and their connections with various sectors like agriculture, energy, and the environment grows, so should our models evolve to reflect these complexities. However, the utility of these models is not solely dependent on their sophistication.
The real-world impact of these models is significantly amplified when they are used in collaboration and involve all relevant stakeholders. Collaboration fosters a shared understanding of the challenges and encourages the development of mutually beneficial solutions. By embracing collaboration, equity, and justice in our approach to water management, we grow hope for a sustainable future. A future where every drop of water is valued, and voices that have been traditionally unheard finally have a say.