Water Economics and Policy

This paper reviews recent advances in the motivation, conceptualization, development, application, and assessment of hydroeconomic models (HEMs), for which these models are implemented by conducting a hydroeconomic analysis (HEA). It addresses various dimensions of HEA, including problems motivating the need for an HEM, roles of HEA, policy debates informed by HEMs, important uses of HEA, recent achievements in the scientific literature performed by use of HEMs, future improvements desired in HEA, as well as one simple prototype HEM. Supplementary material is included describing some contributions made to HEA, with special attention given to four individual contributors to water resource economics generally, criteria for credibility, and a description of some of the more popular mathematical programming packages used to build an HEM.

Residential water and energy use are linked in multiple ways. Various household activities and appliances involve both resources. Particularly in developing countries, households commonly apply energy-intensive coping strategies to deal with unreliable water supply. To understand the water-energy nexus at the private household level, here we introduce the concept of water-energy services (WES). We analyze household water and energy demand with a conceptual economic framework based on a household production model, and illustrate examples of the demand-side linkages with an empirical case study in India using an existing household-level dataset ($n=42,152$). We conclude that household demand for one nexus resource depends not only on its own specific price, but also on the price for the other nexus resource as well as the opportunity cost of time, household income and income structure, other household characteristics, and production conditions for WES. Therefore, water and energy management should not be considered in isolation at the policy-making level. The economic framework developed here can serve as a conceptual basis and motivation for the empirical studies for developing sustainable water and energy management strategies.

Yangzong Lake is the third largest deep-water plateau lake in Yunnan, China. Rapid socioeconomic development of the basin has resulted in pollution of water environment. This study aimed to identify the carrying capacity of water environment and to conduct the associated optimization of socioeconomic development. The results of this study showed that: (1) The carrying capacities of tributary rivers were small in relation to that of the lake. The maximum allowable annual loads of chemical oxygen demand (COD), ammonia nitrogen (NH₃-N), and total phosphorus (TP) into the main rivers of the basin were 449.37, 24.73, and 5.38 tons, respectively. (2) Under the planning scenario, COD and NH₃-N loads remain the primary constraints on economic and social development in the watershed. (3) In further optimizing the structure of the plantation industry, focusing on strengthening the collection and treatment capacity of rural domestic sewage, the watershed can achieve high-quality development of the tourism industry. The tourism output value in 2025 and 2035 can carry up to 20.28 billion CNY (growth rate: around 15.44%) and 76.80 billion CNY (growth rate: around 14.64%), respectively. This study can provide basic support for the future economic and social development of the watershed for decision-makers.

On June 29, 2021, cannabis home cultivation of up to six plants per person became legal in the water-scarce, desert state of New Mexico in the southwestern United States. This study explores the likely effects of this policy change on residential water use, a topic on which the existing literature is silent. Survey data on home cultivation, associated water use and growing decisions and substitution with dispensary-sourced cannabis were collected from 532 New Mexicans in Spring 2023 to assess how legalization changed home cultivation behaviors, including water use. Residential water utility data, collected between January 2017 and April 2022 and consisting of 2,073,751 month-level observations from 35,351 households located in the state capital, Santa Fe, were used to study monthly residential water use pre- and post-HCL. The survey responses suggest increased water use following HCL, and that such effects are likely to persist and even increase in the future with 12% of respondents reporting past home cultivation, 19% reporting current home cultivation and 40% of respondents intending to home cultivate in the future. Retention rates in home cultivation are high — 90% of current home cultivators intend to home cultivate in the future, despite increasing access to dispensary-sourced cannabis. An increasing number of home cultivators grow indoors, most home cultivators use public utility water and dispensary-sourced cannabis is a substitute for many home cultivators. Regression analyses of the residential water use data show a modest increase in water use of around 105 gallons per household per month, following HCL, but lingering effects of the COVID-19 pandemic in Summer 2021 may exist. More specifically, residential water use was declining prior to COVID, experienced a surge during Summer 2020 and then continued its overall decline but at a slower rate following HCL. Associations between HCL and water use exhibit significant heterogeneity by Census-Tract-level per capita income and population density. These descriptive results highlight the need for future causal analyses of primary water utility data in order to disentangle the relationship between legalization of home cultivation and water use. In the meantime, educating home cultivators on water-saving cultivation methods, e.g., growing indoors, could help reduce any impact of legalizing cannabis home cultivation on water use, of particular importance to geographic areas with limited water resources. Survey responses indicate that increasing dispensary prices or decreasing dispensary access will increase home cultivation, with the relative amount of water used by commercial versus home cultivators also a topic for future research.

Sustainable cropping patterns and a systems approach in farming are crucial for the conservation of natural resources and the long-term livelihood of farmers. Achieving agricultural sustainability goals relies on adopting a comprehensive system approach involving developing a comprehensive model for optimal crop and allied enterprise planning. In this study, a multi-objective crop and livestock allocation model (MOCLAM) was devised and evaluated with a case study of the semi-arid and drought-prone Bundelkhand region of Central India. The primary aims of the model were to enhance input efficiency, maximize income and self-sufficiency and minimize water usage and other environmental impacts. The uniqueness of the proposed model lies in three key aspects: First, the model adopts a systemic view of agriculture by simultaneous optimization of both crops and livestock, second, MOCLAM introduces a quasi-dynamic framework and third, the model comprehensively incorporates water considerations from both surface and groundwater sources. The findings of the case study demonstrated that optimal resource allocation can significantly increase farmers’ net economic margins, conserve water and effectively utilize vast monsoon-season (locally termed as kharif) fallow lands in the region. By adopting microirrigation techniques and improved sowing methods, water savings can be more than doubled without compromising economic margins. Compensating farmers for potential lower yields of sesame, a low-water-requiring and stray-cattle-resistant crop, would encourage the adoption of these water-saving practices. Increasing water availability by 24% through water harvesting can boost farmers’ returns by up to 62%. This study suggests that farmers may be reluctant to adopt agroforestry practices, such as integrating trees with field crops, unless they are incentivized for the social benefits these systems provide. It also requires the development of an adequate timber marketing mechanism that is crucial for wider adoption.

A good understanding of the factors that influence household water demand is required to assist policymakers in implementing appropriate policy instruments that lead to sustainable municipal water use and ensure water security. This paper analyzes the factors affecting household water demand in South Africa to develop a better understanding of residential water demand in developing country contexts. The predominant focus in both the developed and developing country literature has been on determining the water price elasticity of household water demand. In terms of the price impacts on water demand in developing countries, and for poor households elsewhere, it is not only the impact of water price which affects household water demand. Given the low average incomes of these households, they usually spend most of their income on basic needs such as water, energy, and food. A water–energy–food price and consumption nexus thus exists for these households. In this paper, we examine this nexus by determining how changes in the prices of water, energy, and food affect household water consumption. Using three months of data from 527 households in the Mpumalanga province of South Africa, we estimate household water demand using ordinary least squares regression and two-stage least squares regression techniques with the use of instrumental variables. The results reveal that water, food, and energy prices have a significant negative effect on household water consumption. The tap water, food, and energy price elasticities ranged from −0.543 to −0.935, −0.174 to −0.403, and −0.072 to −0.163, respectively. This shows that policies aiming to alter water demand and improve water security for low-income households should not only focus on water prices but also the price of food and energy.