Marginal Abatement Cost Curves for Water Scarcity Mitigation under Uncertainty

Abstract

As water scarcity and drought become more common, planning to avoid their consequences becomes crucial. Measures to prevent the impact of new climate conditions are expected to be extensive, costly and associated with major uncertainties. It is therefore necessary that policymakers and practitioners in both the public and private sector can compare possible mitigation measures in order to make economically rational investment decisions. For this to be successful, decision-makers need relevant decision support. This paper presents a novel approach of constructing marginal abatement cost curves for comparing water scarcity mitigation measures while taking the underlying uncertainties into account. Uncertainties in input variables are represented by probability distributions and calculations are performed using Monte Carlo simulations. This approach is applied on the island of Gotland, one of the most water-stressed parts of Sweden, to provide the first marginal abatement cost curve in Europe for water scarcity mitigation in which municipal, agricultural, industrial and household measures are compared. The results show that the agricultural measure of on-farm storage has the greatest potential to increase water availability on the island. Among municipal measures, increased groundwater extraction and desalination offer the greatest potential, although desalination is almost 25 times more costly per cubic meter. The most cost-effective measure is linked to hot water savings in the hotel industry. The approach presented provides a quantitative visualization of the financial trade-offs and uncertainties implied by different mitigation measures. It provides critical economic insights for all parties concerned and is thus an important basis for decision-making.