The Economics of the Water-Food-Welfare Nexus: Learning from a Hydro-economic model

09:00 Thursday 30 May


Room S7


Roberto Ponce-Oliva (Chile) 1; Francisco Fernandez-Jorquera (Chile) 2; Felipe Vasquez-Lavin (Chile) 3

1 - School of Business and Economics, Universidad del Desarrollo. Chile; 2 - School of Agronomy, Faculty of Sciences, Universidad Mayor, Santiago, Chile; 3 - School of Business and Economics. Universidad del Desarrollo. Chile

Water consumption has increased significantly in the last few decades due to population growth and economic development, generating a strong competition among different water users, including ecosystem functions, economic sectors (agriculture, industry), and human consumption. It is expected that climate change will exacerbate this competition due to reductions in water supply and changes in both precipitation and temperature patterns, increasing the intrinsic vulnerability of water users.

The economic assessment of climate change impacts on water resources in Mediterranean countries has been widely analyzed from different perspectives in recent years. A large amount of literature has been devoted to analyzing this problem from the water-food-energy nexus perspective (see Allan, Keulertz, and Woertz (2015) for an extended review). However, studies on the economic dimension of the nexus approach are scarce, and most of the studies analyze the nexus approach from a top-down perspective (Al-Riffai et al., 2017; Kling, Arritt, Calhoun, & Keiser, 2017). Using a spatially explicit integrated hydro-economic model (HEM), we analyze the economic dimension of the nexus among water, food production, and households’ welfare, at river basin scale. In this paper, we assess the trade-off effects of changes in water availability, due to climate change, across those users.

The physical impacts of climate change come from a regionalized climate change scenario that perturbs the hydrological model for the basin. Then again water users’ economic responses are modelled through their economic water demands, which are integrated into a single and comprehensive framework. We use a Chilean river basin as a case study. Our results show that total agricultural water use will decrease by 26%, while the water used by households will decrease by 3%, showing the magnitude of the water transfer between users. In a world in which water flows freely across users, farmers will face the largest burden of climate change, jeopardizing food security in agriculture-intensive communities. Thus, by increasing the adaptation options for households, it is possible to decrease farmers’ vulnerability to climate change.