Abstract
Abstract. Finding ways to improve the efficiency in water usage is one of the most important challenges in integrated water resources management. One of the most promising solutions is the use of scarcity-based pricing policies. This contribution presents a procedure to design efficient pricing policies based on the opportunity cost of water at the basin scale. Time series of the marginal value of water are obtained using a stochastic hydro-economic model. Those series are then post-processed to define step pricing policies, which depend on the state of the system at each time step. The case study of the Mijares River basin system (Spain) is used to illustrate the method. The results show that the application of scarcity-based pricing policies increases the economic efficiency of water use in the basin, allocating water to the highest-value uses and generating an incentive for water conservation during the scarcity periods. The resulting benefits are close to those obtained with the economically optimal decisions.
Highlights
One of the main challenges in integrated water resources management (IWRM) is improving the efficiency in water usage while balancing it with equity
The main purpose of this paper is to propose a method for the design of scarcity-based water pricing policies based on the marginal resource opportunity cost (MROC) derived from a stochastic hydro-economic model
This paper presents a method to design an efficient scarcitybased pricing policy based on marginal water values (MROC) derived from stochastic programming
Summary
One of the main challenges in integrated water resources management (IWRM) is improving the efficiency in water usage while balancing it with equity. Public water allocation provides an adequate treatment of water as a public good, allows for the development of large-scale infrastructures often beyond the private investment capacity, and focuses on equity issues and non-economic objectives It usually fails in achieving optimal economic performance, leads to water prices which are below the water value, and provides no incentive to water saving and efficient use (Meinzen-Dick and Mendoza, 1996). Water markets encourage both sellers and buyers to use it efficiently, provide flexible allocation mechanisms and allow considering the real value of the employed resource. It may be inadequate in inter-sectorial allocation, requiring a very transparent structure (Dinar et al, 2007)
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