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Hydro-economic models: coupling of two different domains in water management

Harmoni-CA Forum & Conference Osnabrueck, 5-7 April 2006, Germany. Hydro-economic models: coupling of two different domains in water management. Ingo Heinz Institute of Environmental Research University of Dortmund Germany. What is ‘ economics ’ in water management?.

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Hydro-economic models: coupling of two different domains in water management

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  1. Harmoni-CA Forum & Conference Osnabrueck, 5-7 April 2006, Germany Hydro-economic models: coupling of two different domains in water management Ingo Heinz Institute of Environmental Research University of Dortmund Germany

  2. Whatis ‘economics’ in water management? • Find out the economic values of different water uses (trade-offs between e.g. discharge and ecology) • Find out the economic net-benefits of water for different water users (trade-offs between e.g. agriculture and hydro-power) Explain the socio-economic and political processes in watersheds • Determine the most efficient water managementstrategies and water policies (e.g. water pricing)

  3. Economics in the EU Water Framework Directive (WFD) • Incentive water pricing (incl. the ppp) Art. 9 • Most cost-effective measures in water use Art. 4 + 11 Economic analysis of water use Art. 5: * Forecasts of water supply and demand * Costs and prices of water services * Investments and extent of cost recovery 4. Cost recovery of water services Art. 9 5. Cost-benefit analysis of measures (derogation from the Directive’s objectives) Art. 4

  4. How can hydro-economic models help? Simulation of the processes in watersheds: * Water availability and water demand * Water quality * Water ecology * Extreme events (shortage, flooding) * Costs / benefits of water management measures * Cost recovery * Water prices and contribution to cost recovery

  5. How can hydro-economic models help? Optimisationof the processes in watersheds: * Water allocation among different water uses (abstraction, discharge, storage, shipping, natural habitats, recreation) * Water allocation among different water users (households, agriculture, industry, power plants) * Economically efficient measures in water management (water supply, water quality, aquatic ecosystems, flood control) * Cost recovery and water pricing * Water policies (regulations, water markets, subsidies)

  6. Models: three examples

  7. Integrated Hydro-Economic Model Ringler, Berger, Rosegrant, Cai, Obeng-Asiedu et al. (Germany, USA, Africa)

  8. Aquatool DSS Andreu Alvares et al. (Spain)

  9. WaterStrategyMan Assimacopoulos et al. (Greece)

  10. What do hydro-economic models provide currently?

  11. Some basic essentials in hydro-economic models

  12. Optimal allocation of scarce water resources V = i (NBi) max V: Total economic value from water NBi: Economic net benefits from water for user i NBi = NBWSi - Pi NBWSi:Economic nets benefit for i without water shortage Pi: Economic losses due to water shortage for i (= „penalty“)

  13. Marginal net benefits for user i: MNBi Economic losses due to water shortage „penalty“:Pi Net economic benefits for user i: NBi MNBi* W* WS Water delivery

  14. Condition for optimal water allocation MNB*1 = MNB*2 = ... = MNB*i = MNB*n = = wp*i: unit water costs for each water user i wp*i can vary between different river basins and periods .... and in dependence on constraints r, such as total availability of water resources and environmental limits (e.g. minimum streamflow in rivers) :  wp*i,r: „shadow prices“

  15. Water scarcity rent = resource cost Unit economic water value Marginal cost of infrastructure W* WS No water shortage Limited water availability The concept of water scarcity rent Marginal net benefits for user i: MNBi Water delivery

  16. Condition for optimal water allocation MNB*1 = MNB*2 = ... = MNB*i = MNB*n = = wp*i: unit water value for each water user i

  17. Coupling water models with economic models

  18. AgriComMozart DSS – AMDSS (Dirksen, Blind, Nagandla, Bomhof, Heinz et al., The Netherlands, Germany) A modular approach using the Open Modeling Interface and Environment – OpenMI Created in the HarmonIT project (2002 – 2005)

  19. Mozart model = Hydrological model Mozart represents relationships between environmental pressures (inundation, water logging, salinity and water shortage) and yield damage fractions. AgriCom model = Economic model AgriCom calculates yield losses, costs and benefits in agriculture on the basis of Mozart’s calculations results for different environmental conditions (such as for dry and heavy rain conditions). DSScomponent DSS calculates the economic net benefits for each of the selected strategies, i.e. installing more irrigation equipments, improving drainage systems.

  20. Environmental pressures Mozart OutputExchangeItems Area, CropCode, Droughtdamage, Saltdamage, WaterlogDam, InundDam, AvgGroundwaterlevel, SprinkType, SprinkDemandSW, SprinkDemandGW InputExchangeItems OutputExchangeItems CropPrice, CropValue, ActualPhYield, LabourCosts, EnergyCosts, WaterLevyCosts, FixedCapitalCosts InputExchangeItems Scenarios and Investment Economic net benefit AM-DSS AgriCom

  21. As one typically exchanges a Quantity on an ElementSet, this combination is grouped into an ExchangeItem. A model can have exchangeItems as input (InputExchangeItem) or can provide them as output (OutputExchangeItem).

  22. Mozart model OutputExchangeItem +Quantity = "Sprinkling Type„ +ElementSet = "PlotByDw85„ +DataOperationDescriptor = "None" AM-DSS InputExchangeItem GetValues() call +Quantity = "ActualPhYield" +ElementSet = "Default" Agricom model OutputExchangeItem InputExchangeItem +Quantity = "EconomicNetBenefit„ +ElementSet = "Default„ +DataOperationDescriptor="None" +Quantity = "Sprinkling Type„ +ElementSet = "District water code:85" OutputExchangeItem +Quantity = "ActualPhYield" +ElementSet = "District water code:85" GetValues() call +DataOperationDescription = "None"

  23. Benefits from coupling techniques (such as OpenMI) Allow separated models to be updated Link models with different spatial representation Link models with different temporal resolutions Link models with different terminologies & units Link models based on different concepts Allow two-way interactions at every time step Allow optimisation feedback loops Allow coupling further models Make integrated water resource management easier.

  24. Future challenges  Identify the needs for considering socio-economic and water policy aspects in IWRM  Develop economic models tailored to watersheds Improve the properties of coupling techniques to link water models with economic models Apply and improve hydro-economic models in watersheds together with the stakeholders.

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