Sustainable watershed development suffers from severe challenges, such as water pollution and water scarcity. Based on an analysis of water quality and water utilization in the Fenhe River Basin, an inexact two-stage stochastic programming model with downside-risk aversion was built for optimal water resource allocations for the four primary water use sectors (industry, domestic use, agriculture, and the environment) in the Fenhe River Basin. The model aims to maximize the comprehensive watershed benefits, including water benefits, water costs, water treatment costs, and downside risks. The constraints are water quality, available water resources, and sectoral demands in different hydrological scenarios. The results show that pollutant emissions decrease as risk-aversion levels increase and show the opposite trend in the midstream and downstream areas. The increase in water resource allocation for agriculture and reduction in ecological water indicate that agriculture suffered the greatest water shortage and risk. Improving water recycling and coordinating the transferred water resources increases the comprehensive benefits and reduces sectoral risks. The model effectively manages rational water allocations under dual constraints and provides support for coordinating socio-economic development and environmental protection in the river basin.
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