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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? • Explain the socio-economic and political processes in watersheds • 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) • Determine the most efficient water management strategies and water policies (e.g. water pricing) Economics in the EU Water Framework Directive (WFD) 1. 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 2. Incentive water pricing (incl. the ppp) Art. 9 3. Most cost-effective measures in water use Art. 4 + 11 4. Cost recovery of water services Art. 9 5. Cost-benefit analysis of measures (derogation from the Directive’s objectives) Art. 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 How can hydro-economic models help? • Optimisation of 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) Models: three examples Ringler, Berger, Cai, Rosegrant, ObengAsiedu et al. Integrated Hydro-Economic Model: Maipo (Chile), GLOWA Volta (Africa), etc. Andreu Alvares et al. Aquatool DSS: PRB Jucar river basin (Spain), etc. Assimacopoulos et al. WaterStrategyMan WSM: Island of Paros (Greece), etc. Integrated Hydro-Economic Model Ringler, Berger, Rosegrant, Cai, Obeng-Asiedu et al. (Germany, USA, Africa) Purpose Optimal allocation of water resources among competing water users Objective Maximisation of total economic net-benefits from water use Outcomes • Optimal price for water abstraction • Water price resulting from water trading Aquatool DSS Andreu Alvares et al. (Spain) Purpose • Optimal allocation of water resources among competing water users • Most cost-efficient measures in water use Objective • Simulation of economic processes in watersheds • Maximisation of total economic net-benefits from water use Outcomes • Marginal resource costs at optimal allocation • Marginal environmental costs at constraints • Water price resulting from water trading WaterStrategyMan Assimacopoulos et al. (Greece) Purpose • Optimal allocation of water resources among competing water users • Most cost-efficient measures in water use Objective • Simulation of economic processes in watersheds • Maximisation of total economic net-benefits from water use Outcomes • Optimal prices for abstraction, water use and pollution • Financial, environmental and resource costs What do hydro-economic models provide currently? Forecast water supply and demand Art. 5 ✔✔✔ Maximise total economic net-benefits across all water users ✔✔✔ Find out the most cost-effective measures in water ✔ ✔ ✔ management at given constraints Art. 5 + 11 Calculate financial, environmental and resource costs Art. 5 ✔✔ Determine charges on using infrastructure, and on ✔ environmental and resource costs Art. 9 Cost-benefit analysis trade-offs between different water uses versus stakeholder values Art. 4 ✔ Some basic essentials in hydro-economic models 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“) Marginal net benefits for user i: MNBi MNBi* W* Economic losses due to water shortage „penalty“: Pi WS Water delivery Net economic benefits for user i: NBi 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“ The concept of water scarcity rent Marginal net benefits for user i: MNBi Water scarcity rent = resource cost Unit economic water value Marginal cost of infrastructure W* Limited water availability WS No water shortage Water delivery Condition for optimal water allocation MNB*1 = MNB*2 = ... = MNB*i = MNB*n = = wp*i: unit water value for each water user i Model Penalty Water scarcity rent functions Unit economic value of water: Ringler, Berger, Cai, Rosegrant, Obeng-Asiedu et wp *i al. Andreu Alvares Shadow prices et al. of constraints: wp*i,r Assimacopoulos et al. Unit financial, environmental and resources costs: wp*i Coupling water models with economic models Model Ringler, Berger, Cai, Rosegrant, Obeng-Asiedu et al. Andreu Alvares et al. Assimacopoulos et al. Holistic Modular ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ AgriCom Mozart 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) 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). DSS component DSS calculates the economic net benefits for each of the selected strategies, i.e. installing more irrigation equipments, improving drainage systems. Environmental pressures Mozart OutputExchangeItems Area, CropCode, Droughtdamage, Saltdamage, WaterlogDam, InundDam, AvgGroundwaterlevel, SprinkType, SprinkDemandSW, SprinkDemandGW AgriCom InputExchangeItems OutputExchangeItems CropPrice, CropValue, ActualPhYield, LabourCosts, EnergyCosts, WaterLevyCosts, FixedCapitalCosts InputExchangeItems Scenarios and Investment AM-DSS Economic net benefit 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). Rain module OutputExchangeItem +Quantity = "Precipitation" +ElementSet = "MyRainGrid" +DataOperationDescriptor = "None" "Average (temporal)" "Accumulate (temporal)" "Average (spatial)" River model InputExchangeItem +Quantity = "LateralFlow" +ElementSet = "LateralInlets" Rainfall-Runoff model InputExchangeItem +Quantity = "Rainfall" +ElementSet = "Sub-catchments" OutputExchangeItem +Quantity = "Outflow" +ElementSet = "Outlets" +DataOperationDescription = "None" "TimeAverage (temporal)" "MaxValue (temporal)" OutputExchangeItem +Quantity = "WaterLevel" +ElementSet = "River" +DataOperationDescriptor = "None" "Interpolate (spatial)" Mozart model OutputExchangeItem +Quantity = "Sprinkling Type„ +ElementSet = "PlotByDw85„ +DataOperationDescriptor = "None" GetValues() call Agricom model InputExchangeItem +Quantity = "Sprinkling Type„ +ElementSet = "District water code:85" AM-DSS InputExchangeItem +Quantity = "ActualPhYield" +ElementSet = "Default" OutputExchangeItem +Quantity = "EconomicNetBenefit„ +ElementSet = "Default„ +DataOperationDescriptor="None" OutputExchangeItem +Quantity = "ActualPhYield" +ElementSet = "District water code:85" +DataOperationDescription = "None" GetValues() call 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. 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.