Hydro-Economic Analysis for Water Resources Management in a Changing Climate

Abstract

Water is potentially one of the most affected resources as climate changes. The impact of climate change in hydrologic regimes will affect water quantity, water quality and the occurrence of extreme events such as floods and droughts. Future water availability will also depend on the evolution of water use and water demands which are influenced by socioeconomic factors such as population growth, technological progress, infrastructure development, land use changes, and institutions. Climate change analysis for water resources management has traditionally focused on the physical impacts of different climate regimes on water availability with a limited representation of the socioeconomic dynamics within water systems. At the same time, economic analysis of climate change impacts on water resources has lacked a careful treatment of the physical aspects of water resource systems. Hydro-economic models have the potential to bridge the gap between these two types of analysis by integrating economic analysis into detailed water resource system analysis. A hydro-economic framework of analysis can be instrumental in studying how climate-related changes in water availability affect social welfare and how different policy interventions and investments can help reduce risks and take advantage of possible opportunities in the water sector resulting from climate change. This framework can be a useful tool for planners and decision-makers in the water management sector. Hydro-economic assessments integrate models describing the physical effects of climate change (e.g. hydrologic changes) with models describing engineering, economic and institutional responses at appropriate scales, providing a robust framework to study whether the broad range of water uses might remain compatible under future climate scenarios. We review case studies of different river basins around the world where applications of hydro-economic models were used to assess climate change impacts and adaptation strategies in water resources management. The cases under review address climate change adaptation strategies such as water allocation for agriculture and other uses in a river basin, water storage infrastructure expansion, flood control investments, and institutional barriers to adaptation.