Regional and Sectoral Impacts of Water Redline Policy in China: Results from an Integrated Regional CGE Water Model

Abstract

China has started to implement the most stringent of Three Red Lines water policy since 2012, which sets targets for total water use, water use efficiency, and water quality for a number of benchmark years to 2030 by province and prefecture. This paper aims to develop an integrated regional CGE and water resource model at river basin-provincial level for China and to quantify regional and sectoral economic impacts of three red lines. Five policy scenarios are constructed to assess the impacts of water red lines, including the red line of total water use cap, irrigation efficiency, industrial water use intensity, surface water pollution and all redlines combined. The red line of total water use cap will increase water shortage drastically, leading to considerable negative impacts on the economic growth of East, South Central and Southwest. The sectors with the higher water use intensity such as machinery and equipment, metal and metal products, chemical products and non-metal products are affected most. Other two red lines need to go hand in hand to minimize water shortage and mitigate potentially negative economic impacts. Establishing regional water use right market and promoting economic restructuring are two policy options to cope with water scarcity challenge. Acknowledgement : We would like to acknowledge Winston Yu from the World Bank for the guidance and Shuzhong Gu from Development Research Center of the State Council (DRC) for his valuable comments in the early stage of the research. We are grateful to Xinshen Diao and James Thurlow from International Food Policy Research Institute for their guidance on developing regional CGE model. We acknowledge funding support by the World bank through the project Mind the Gap: Balancing Growth and Water Security in China , and the National Natural Science Foundation of China (NSFC) (Grant No.71761147004) ,the Agricultural Science and Technology Innovation Program (ASTIP-IAED-2017-04?