Marginal Value Of Water Research Articles

Estimating production functions to determine the marginal economic value and price elasticity of water in the Chilean industrial sector

This study determines the marginal economic value of water and the price elasticity of demand for this resource using data from the 2018 Annual National Industrial Survey. Specifically, a translog production function is estimated with the ordinary least squares (OLS), constrained least squares (CLS), and instrumental variables (IV) methods, CLS being the method with the best results. Based on the estimates of the production function at the national level, it is determined that, on average, the marginal value of water is 14.6 USD/m3. Finally, the price elasticity of water demand varies between −0.8 and −1.2 depending on the industrial subsector.

Assessing the benefits of exchanging spinning reserve capacity within the hydro-Dominated nordic market

This paper presents a hydrothermal scheduling toolchain suitable for detailed studies of procurement of spinning reserves in the hydro-dominated Nordic power system. The toolchain combines a long-term model to find the expected marginal value of water in the hydropower reservoirs and initial states for thermal generators, and a short-term model to optimize the daily unit commitment and dispatch. The short-term model has a detailed description of both hydro and thermal generation technologies to realistically constrain their capabilities as reserve capacity providers. The toolchain is applied on a data description representing a 2030 scenario of the Northern European power system to quantify the benefits of exchanging spinning reserve capacity both between bidding zones and between countries within the Nordic market. By allowing 10% of the transmission line capacity for exchange of reserves, we find that the daily average economic benefit is 290 k€ and 102 k€ for reserve exchange between bidding zones and countries, respectively. Moreover, we quantify and illustrate the importance of applying unit commitment for hydropower stations and strictly enforcing their minimum power requirements.

Water, Policy, and Productivity in Egyptian Agriculture

When water scarcity restricts agricultural production, expanding water resources is only one option to increase or maintain output; investments in research to raise productivity can also release constraints on growth. In this paper, we construct a model of optimal resource allocation with both public and private inputs in production—the public sector invests in research and irrigation infrastructure to supply technology and water, respectively, whereas the private sector supplies other inputs. The model is used to derive shadow values for water that suggest “crop per drop” valuations are likely to significantly overstate the marginal value of water in agriculture. We apply our model to analyze sources of growth in Egyptian agriculture, which is almost entirely dependent on publicly supplied irrigation water, over 1961–2016. We construct two indexes of total productivity: total factor productivity treats resources from a producer perspective, where water is free and resource rents accrue to land. Total resource productivity takes a social perspective, where government subsidies for irrigation are included as a cost of production, and resource rents are assigned to water withdrawals for agriculture. Our results find that technological innovations and efficiency gains contributed significantly more to agricultural growth in Egypt than expansion of irrigated area or water use. Productivity growth accelerated in the 1980s following the transition from a socialist to a market‐oriented economy. Including social costs of irrigation provision reduces the implied rate of total productivity growth only marginally. Nonetheless, the rise in total resource productivity significantly increased the value of natural resource rents in Egyptian agriculture.

The economic value of water in crop productions and policy implications in southern Brazil

Promoting economically efficient solutions to meet competing demands for water under uncertain and variable supplies requires knowledge about the economic value of water and costs for its scarcity. In this work, an agricultural production optimisation model was used to evaluate the marginal value of water (MVW) in an agricultural region of rice and soybean growing in southern Brazil. The results indicate a MVW of 0.02–0.09 R$/m3 (1 R$ = £0.14), which is higher than common values considered for water charges for agricultural uses in Brazilian watersheds. The total scarcity costs of two recent drought periods were also investigated – these were approximately R$138 million (£19 million) and accounted for up to 15.5% of irrigated rice and soybean agriculture net return in some of the studied regions. Finally, the potential for cropping mix changes for some regions was explored through short-term water reallocation programmes to mitigate drought impacts. The results of this work should be useful in the design of water policies in terms of improved economic water management instruments, key infrastructure investments to be prioritised by watershed plans, strategies to integrate with other sectoral policies to secure funding for new water infrastructure and strategies to reinforce local adaptation through crop mix changes and short-term water reallocation.

Impact of aerosols on reservoir inflow: A case study for Big Creek Hydroelectric System in California

Accurate and reliable reservoir inflow forecast is instrumental to the efficient operation of the hydroelectric power systems. It has been discovered that natural and anthropogenic aerosols have a great influence on meteorological variables such as temperature, snow water equivalent, and precipitation, which in turn impact the reservoir inflow. Therefore, it is imperative for us to quantify the impact of aerosols on reservoir inflow and to incorporate the aerosol models into future reservoir inflow forecasting models. In this paper, a comprehensive framework was developed to quantify the impact of aerosols on reservoir inflow by integrating the Weather Research and Forecasting model with Chemistry (WRF-Chem) and a dynamic regression model. The statistical dynamic regression model produces forecasts for reservoir inflow based on the meteorological output variables from the WRF-Chem model. The case study was performed on the Florence Lake and Lake Thomas Alva Edison of the Big Creek Hydroelectric Project in the San Joaquin Region. The simulation results show that the presence of aerosols results in a significant reduction of annual reservoir inflow by 4-14%. In the summer, aerosols reduce precipitation, snow water equivalent, and snowmelt that leads to a reduction in inflow by 11-26%. In the spring, aerosols increase temperature and snowmelt which leads to an increase in inflow by 0.6-2%. Aerosols significantly reduce the amount of inflow in the summer when the marginal value of water is extremely high and slightly increase the inflow in the spring when the run-off risk is high. In summary, the presence of aerosols is detrimental to the optimal utilization of hydroelectric power systems.

A pricing model for water rights trading between agricultural and industrial water users in China

This paper presents a pricing model developed for the Chinese water rights trading market. The model focuses on the transfer of water rights from irrigators to industrial users in areas with limited water resources. Water rights trading is an efficient means of allocating water resources, and the price plays an important role in this market. At present, China lacks formal mechanisms for water rights pricing. Therefore, an integrated pricing model is built for situations when agricultural users implement water conservation measures and sell water rights to meet industrial water demand. The model accounts for project construction costs, operation and maintenance costs, renewal and reconstruction expenses, irrigation frequency compensation, and the economic cost of ecological damage. The marginal value of water rights to the industrial water user is also quantified on the basis of the production function accounting for water inputs. The pricing model is applied to an example of water rights trading between irrigators and industrial users in an agricultural area on the Yellow River near Ordos in Inner Mongolia.

Design and assessment of an efficient and equitable dynamic urban water tariff. Application to the city of Valencia, Spain

Water pricing policies have a large and still relatively untapped potential to foster more efficient management of water resources in scarcity situations. This work contributes a framework for designing equitable, financially stable and economically efficient urban water tariffs. A hydroeconomic simulation model links the marginal value of water, which reflects water scarcity given its competing uses, to water supply reservoir levels. Varying reservoir levels trigger variations in the second block of the proposed two-block increasing-rate tariff; these variations then reflect water's value at that time. The work contrasts the two-block scarcity tariff with a constant volumetric rate for the city of Valencia, Spain, and the drought-prone Jucar basin, where most of 430,000 households are equipped with smart meters. Results show urban consumption is reduced by 18% in the driest years, lowering basin-wide scarcity costs by 34%.

Definition of efficient scarcity-based water pricing policies through stochastic programming

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.

Hydroeconomic optimization of integrated water management and transfers under stochastic surface water supply

AbstractEfficient reallocation and conjunctive operation of existing water supplies is gaining importance as demands grow, competitions among users intensify, and new supplies become more costly. This paper analyzes the roles and benefits of conjunctive use of surface water and groundwater and market‐based water transfers in an integrated regional water system where agricultural and urban water users coordinate supply and demand management based on supply reliability and economic values of water. Agricultural users optimize land and water use for annual and perennial crops to maximize farm income, while urban users choose short‐term and long‐term water conservation actions to maintain reliability and minimize costs. The temporal order of these decisions is represented in a two‐stage optimization that maximizes the net expected benefits of crop production, urban conservation and water management including conjunctive use and water transfers. Long‐term decisions are in the first stage and short‐term decisions are in a second stage based on probabilities of water availability events. Analytical and numerical analyses are made. Results show that conjunctive use and water transfers can substantially stabilize farmer's income and reduce system costs by reducing expensive urban water conservation or construction. Water transfers can equalize marginal values of water across users, while conjunctive use minimizes water marginal value differences in time. Model results are useful for exploring the integration of different water demands and supplies through water transfers, conjunctive use, and conservation, providing valuable insights for improving system management.

A dynamic water accounting framework based on marginal resource opportunity cost

Abstract. Many river basins throughout the world are increasingly under pressure as water demands keep rising due to population growth, industrialization, urbanization and rising living standards. In the past, the typical answer to meet those demands focused on the supply side and involved the construction of hydraulic infrastructures to capture more water from surface water bodies and from aquifers. As river basins have become more and more developed, downstream water users and ecosystems have become increasingly dependent on the management actions taken by upstream users. The increased interconnectedness between water users, aquatic ecosystems and the built environment is further compounded by climate change and its impact on the water cycle. Those pressures mean that it has become increasingly important to measure and account for changes in water fluxes and their corresponding economic value as they progress throughout the river system. Such basin water accounting should provide policy makers with important information regarding the relative contribution of each water user, infrastructure and management decision to the overall economic value of the river basin. This paper presents a dynamic water accounting approach whereby the entire river basin is considered as a value chain with multiple services including production and storage. Water users and reservoir operators are considered as economic agents who can exchange water with their hydraulic neighbors at a price corresponding to the marginal value of water. Effective water accounting is made possible by keeping track of all water fluxes and their corresponding hypothetical transactions using the results of a hydro-economic model. The proposed approach is illustrated with the Eastern Nile River basin in Africa.

Integrating economic and hydrologic interdependence in reservoir management

The purpose of this study is to determine the optimal allocation of reservoir water among competing uses (hydroelectric power generation, lake recreation and urban and rural water supply). An optimization model using nonlinear programming is developed to optimally allocate reservoir water among these uses. It is not unusual to optimize the values for flood control, hydroelectric generation, and urban and rural water uses, and to determine recreation values as a residual. Furthermore, if recreation values are considered, it may be in the form of constraints that maintain reservoir water levels within a specified range. In contrast, this study develops a model in which the recreational benefits depend explicitly on lake water levels, while the flood control capacity of the reservoir is maintained through upper bounds on the lake level. A mass balance equation is used to determine the water levels and volumes in the lake for each month over a twelve-month period. The General Algebraic Modeling System with MINOS is used to solve this model. The results indicate that the total economic benefits for Lake Tenkiller could be increased by directly including recreational values in the model, and maintaining lake water levels at near-normal levels that maximize the number of summer visitations. The optimal allocation of Lake Tenkiller water among competing uses also satisfies the equimarginal principle. That is, the marginal value of water at the lake in each month is the same for the last unit of water used for hydroelectric, recreational, or urban and rural water uses. Use of this type of modelling framework would assist policymakers or reservoir managers in reallocation of reservoir water and in calibrating several policy scenarios.

ECONOMIES OF USING AVAILABLE WATERRESOURCES FOR FIELD CROPS IN BEHAIRA GOVERNORATE ON THE LIGHT OF ALTERNATIVE CROP ROTATIONS

The current study aims at identifying water requirements for field crops and water-consuming crops in the light of the current cropping pattern in Behaira Governorate.. the results revealed that costs of water used in the cultivation of rice were the highest reaching about 13.3% of the total costs of production per feddan whereas, the costs of water used in the cultivation of faba bean were the lowest reaching about 5.6% of the total costs of production per feddan in the studied season. Besides, as a result of no water cost paid by farmers, the costs of one unit of water were the lowest for the heavy water-consuming crops whereas, these costs were the highest for the low water-consuming crops even though there were small differences in the total costs of irrigation for these two groups of crops as compared to their water requirements. The results revealed that crop rotation consisting of wheat+maize ranked first in terms of gaining the highest net revenue of water including the irrigation costs of about LE 0.926 per unit of water m3 whereas, the net revenue excluding the irrigation costs for this crop rotation reached about LE 0.789 per unit of water. Nevertheless, the marginal value of water was higher than the costs of irrigation per one feddan cultivate by such crops ranging between about LE 3 thousand per feddan of maize and about LE 800 thousand per feddan cultivated by sesame. On the other hand, the ratio of irrigation costs to the value of marginal product ranged between 73 % for sugar beet and 8% for broad beans. Besides, the net profit for water ranged between 250% for sugar beet and 109 % for broad beans. However, the ratio of the value of marginal product to irrigation costs ranged between 756% for maize and 135 % for sugar beet indicating the high net profit for water as compared to the difference between the value of the marginal product and the costs of irrigation. These results revealed the possibility to increase the costs of irrigation due to the difference between the value of the marginal product and the costs of irrigation. However, this should be put into consideration when applied on the countrywide because these results were obtained from some areas in Bohaira Governorate and these results give an idea about the possibility of increasing the costs of irrigation to gain profits for such important resource. Besides, identifying the economic efficiency for using water resources thus, improving on-farm irrigation.

Economic concepts to address future water supply–demand imbalances in Iran, Morocco and Saudi Arabia

In Middle East and North Africa (MENA) countries, renewable groundwater and surface water supply are limited while demand for water is growing rapidly. Climate change is expected to increase water demand even further. The main aim of this paper is to evaluate the water supply–demand imbalances in Iran, Morocco and Saudi Arabia in 2040–2050 under dry, average and wet climate change projections and to show on the basis of the marginal cost and marginal value of water the optimum mix of supply-side and demand-side adjustments to address the imbalance. A hydrological model has been used to estimate the water supply–demand imbalance. Water supply and demand curves have been used to explore for which (marginal value of) water usage the marginal cost of supply-enhancement becomes too expensive. The results indicate that in the future in all cases, except in Iran under the wet climate projection, the quantity of water demanded has to be reduced considerably to address the imbalance, which is indeed what is currently happening already.

Economic Sharing of Basin Water Resources between Competing Stakeholders

This paper describes an application of linear programming (LP) methods for optimal allocation of water among competing stakeholders that would achieve the highest economic return from water use in the agricultural section of the Sefidrud Basin, northern Iran. In a network presentation of the basin, the nodes stand for the supply and demand points and arcs represent reaches. The constraints of the LP model are the network structure of the basin (flows, stream geography and channel capacity), the available surface and ground water in each node, the environmental demand in different reaches, upper and lower bands of supply in each node and water balances. Optimal policies are derived for current and future demand. The optimal policies indicate that, at present, the basin water resources satisfy the demands of all stakeholders. Although, the results show that there is no conflict for supplying stakeholders’ current demands, they indicate that the current proportion of surface water used is not optimal compared with the proportion of ground water used. The results also indicate that some future demands of provinces with lower marginal value of water are unsatisfied and that this could cause conflict between stakeholders. Since in some nodes the optimal solutions suggest using surface water even where they have available ground water, they are categorized as having a higher possibility to construct dams in the basin.

Design of Efficient Water Pricing Policies Integrating Basinwide Resource Opportunity Costs

AbstractBy ignoring the opportunity cost of water use, water is undervalued, which can lead to significant errors in investments and water allocation decisions. The marginal resource opportunity cost (MROC) varies in time and space, as resource availability, demands, and users’ WTP vary. This spatial and temporal variability can only be captured by basinwide hydro-economic models integrating water demands and environmental requirements, resources, infrastructure, and operational and institutional restrictions. This paper presents a method for the simulation of water pricing policies linked to water availability, and the design of efficient pricing policies that incorporate the basinwide marginal value of water. Two approaches were applied: priority-based simulation and economic optimization. The improvement in economic efficiency was assessed by comparing the results from simulation of the current system operation and the pricing schedule. The difference between the benefits for the simulated current mana...

An Empirical Assessment of On-Farm Water Productivity using Groundwater in a Semi-Arid Indian Watershed

Realistic estimation of irrigation volume applied to any crop at farm level generally requires information on event based discharge rates and corresponding periods of irrigation application. Use of mean seasonal discharge rates leads to erroneous estimation of volume due to unaccounted seasonal fluctuations in the water table, upon which the discharge rate of tube well is dependent. In the absence of such information, an alternative approach of estimating farm level water application based upon water table fluctuation data has been adopted in this study. The total actual water extracted during each irrigation event from the watershed was distributed among the farms irrigating crops in proportion to the product of irrigation time and the pump capacity (hp). Volume of water withdrawal concurrent to an irrigation event was computed based on the water level fluctuations in the wells in conjunction with potential recharge contribution from the surface storage structures to the groundwater aquifer. A production function approach was used to estimate the marginal productivity of water for selected crops at various stages of plant growth. Water, as an input in the production function, encompassed either in-situ soil moisture storage from rainfall or irrigation from groundwater or both. The inter-season as well as intra-season groundwater use, and the consequent groundwater withdrawals were analyzed based on the marginal value and output elasticity of water at different crop growth stages during the season. The cotton crop realized marginal value product of water, ranging from Rs. 1.03/m3 to Rs. 10.43/m3 at different crop growth stages in cotton. Castor crop had the marginal value product ranging from Rs. 2.89/m3 to Rs. 6.81/m3. The availability and use of water, including soil moisture, in the two seasons, coupled with the local harvest prices received, yielded the differential marginal values of water.

Price discovery and distribution of water rights linking upstream tree plantations to downstream water markets: experimental results

This paper reports controlled experiments on markets linking downstream water entitlement holders with upstream landholders wishing to establish large tree plantations. The present study tackles the question of whether it matters who owns the initial water rights. Coase's (1960) theorem suggests initial endowments will not affect final equilibrium outcomes, in terms of water prices and water rights held by the various parties. That theorem is tested through experiments with human subjects who blindly represent different groups of water users. These are land owners in upstream water supply sub-catchments and downstream urban, irrigation and ‘stock & domestic’ water users, each with pre-specified marginal values of water. These values and equilibrium results calculated in an earlier modelling study provide the theoretical base for evaluating the new results. In the experiment the initial endowments of water rights were shifted between the up and downstream participants. Strong ‘endowment effects’ were observed; participants who held the greatest initial endowments often traded away fewer units than predicted by the theoretical model and captured greater shares of the gains of trade. Including new tree plantations in the market for permanent water entitlements can engender positive changes in economic surpluses in all sectors, with greater levels of social equity and protection of downstream wetland assets. This is in sharp contrast with reductions in river volumes reaching downstream parties and environmental assets in the absence of regulations requiring purchase of entitlements to cover extra water use by new plantations.

DEFINING AND MANAGING ENVIRONMENTAL FLOWS: INPUTS FROM SOCIETY

Two key questions regarding the management of Australia's riverine environments are addressed: how much water should be allocated for environmental flows; and how should water entitlements for environmental flows be acquired and managed. First, an application of the choice modelling technique in the context of River Red Gum forests along the River Murray is used to demonstrate how the marginal values of water for the environment can be estimated for comparison against prices paid by extractive users of water. Second, mechanisms in the public and private sectors for the purchase of environmental water are contrasted.

Conjunctive water management options: examples from economic assessment of system‐level water saving through Liuyuankou Irrigation System, China

AbstractThe paper provides results of a study aimed at saving a substantial amount of water by maintaining deeper groundwater levels to prevent fallow evaporation and by reducing the cost of groundwater abstraction for lowland farmers. An integrated LIS economic appraisal model was developed that linked simulated response of hydrological modelling of different conjunctive management options with economic analysis.The simulation results of the LIS system dynamic model show that a combination of canal lining and pumping groundwater is the most cost‐effective way to reduce non‐beneficial evapotranspiration and increase water availability by saving up to 68 MCM of water. The simulation results of economic parameters indicated that canal lining and pumping also offer highest net economic benefits (¥21.98 million). Among other options, canal lining also indicates reasonably high net economic benefits (¥9.02 million). The model indicates a small increase in marginal value of water with canal lining (¥1.53 m−3) and pumping and canal lining (¥1.62 m−3). Among other options, the marginal capital cost of water saving for pumping and canal lining together was the lowest (¥0.096 m−3). However, the marginal capital cost of water saving for pumping and shifting canal water downstream was the most expensive (¥1.046 m−3). Copyright © 2007 John Wiley & Sons, Ltd.

The economic unsustainability of the Spanish national hydrological plan

This paper analyses the economic aspects of the Ebro water transfer, which have been overlooked in the Spanish National Hydrological Plan. The questions exam ined are the cost of transferred water, and irrigated agriculture in the Levante and south-eastern regions, which are the main water transfer destinations. Results show that the water transfer is not economically sustainable, because the costs of the diverted water are higher than the current marginal value of water in agriculture, and crop profitability is insufficient to pay for the whole volume of transferred water. A compromise solution between increasing water supply and demand management measures will combine a reasonable water price increase with water desalination in coastal counties. This solution would reduce water demand with a moderate effect on farmers' revenue and net income. Spain could find alternative investment projects to the water transfer, able to improve social welfare.