Water taxation strategies for the natural gas sector in North America: Facing a rising water crisis

Abstract

Natural gas, a high water-intense technology, has become the primary source of electricity generation in the United States. Its exploitation allowed energy independence to the region and exposed the rising water crisis, given the high correlation between shale gas plays locations and high water-stressed areas. This study developed an integrated framework, coupling NANGAM, a long-term partial equilibrium model, and the Aqueduct platform, which assesses water scarcity. The contribution of this study is twofold. First, a market-based coupled framework was developed for regulating water usage in the natural gas market. Second, water taxation strategies are proposed for the natural gas market, analyzing their effect and highlighting differences regarding a business-as-usual scenario. Results show significant transformations in production and distribution strategies across North America are needed to address the rising water crisis. Mexican production will be particularly affected since water scarcity is severe there, dropping up to 15% by midcentury compared to a business-as-usual scenario. West South Central’s production will barely increase despite rising Mexican imports. The Middle Atlantic’s production will increase up to 4.2%, incrementing the domestic American trade, mainly in the south. Similarly, Canada’s production will increase up to 10.7% to supply the northern and Pacific regions’ demand.