Security-differentiated Water Pricing as a Mechanism for Mitigating Drought Impacts. Insights from a Case Study in the Mediterranean Basin.

Water is becoming an increasingly scarce resource due to growing multi-sector demand and the effects of climate change. During droughts, the proportional rule is the most widespread water allocation method applied in irrigation systems. However, this method fails to guarantee efficient water allocation or to provide a fair method of water allocation. This paper aims to verify whether by replacing the water allocation methods based on a proportional rule with methods based on a priority rule could improve the allocation of water resources and minimize the negative economic impacts of water shortages. The ultimate objective of this research is to design a water pricing scheme capable of guaranteeing efficient water reallocation during drought conditions. Therefore, an experiment was carried out for the largest irrigated area in southern Italy, covered by the Capitanata Reclamation and Irrigation board (CBC). A positive mathematical programming model was implemented in order to simulate the effects of the proposed mechanism. The findings show that priority mechanisms have the potential to improve overall economic efficiency in the event of water shortages. However, results also point to the need for optimal design of a differentiated water pricing scheme.

Socioeconomic impact of 2005-2008 drought in Andalusian agriculture.

Meteorological drought is defined as the event that arises when precipitation is lower than average and initially affects rainfed crops; this is transformed into hydrological drought when persistent drought affects water storage. We have studied the economic impact of multiyear droughts by applying the economic surplus to the last severe drought (2005-2008) in Andalusia. The method is applied to both rainfed and irrigated agriculture. The results show negative effects on regional social welfare, with an estimated global loss of EUR 1512 million, although this negative impact is unequally distributed. There is a quantity effect (lower yields) and higher prices due to shorter supply. Overall, rainfed farms experience a negative impact on their income since higher prices only partially compensate for yield reduction, although, paradoxically, certain irrigation farms increase their income when higher prices overcorrect lower yields. Consumers are always negatively affected by drought. This result may aid in the design of agricultural policy models and drought-recovery policies.

To charge or to cap in agricultural water management. Insights from modular iterative modeling for the assessment of bilateral micro-macro-economic feedback links.

This paper develops an iterative micro-macro-economic modeling framework to assess agricultural water management policies including feedbacks between local and economy-wide impacts. The main contribution of the paper is the introduction of a set of bidirectional protocols that work through land use and price changes to model the bilateral feedbacks between the micro and macro scales. The proposed framework is applied to the Castile and León Region in Spain, where we assess the performance of two alternative water conservation policies (charges and caps) and compare results to those obtained using a conventional stand-alone microeconomic model. We find that, as compared to the proposed modular framework, the assessment of water conservation policies using conventional stand-alone microeconomic models is expected to overestimate water conservation and underestimate economic performance. Overall, our results suggest that water conservation targets can be achieved with lower economic losses than those anticipated by conventional stand-alone microeconomic models.

An ensemble experiment of mathematical programming models to assess socio-economic effects of agricultural water pricing reform in the Piedmont Region, Italy.

The Piedmont Region in NW Italy has recently deployed an ambitious and pioneering agricultural water pricing reform aimed at integrating and effectively enforcing EU's Water Framework Directive principles of cost recovery, polluter-pays and affordability. This paper develops a multi-model ensemble framework encompassing 5 mathematical programming models (2 Positive Mathematical Programming models, 2 Positive Multi-Attribute Utility Programming models and 1 Weighted Goal Programming model) that represent the observed behavior of socioeconomic agents to: 1) simulate the impacts of the Piedmontese water pricing reform on land use allocation and management, water conservation, profit and water tariff revenue; 2) sample modeling uncertainty through the ensemble spread; and 3) explore potential tipping points through use of scenario-discovery techniques. Our research suggests that the key challenge to the reform lies in the management of rice fields, an extensive (17% of the agricultural area), water-demanding and relatively low-added-value crop that nonetheless delivers significant ecosystem services (e.g. water retention) of historical and cultural relevance to the region. The ensemble experiment suggests that rice agriculture rapidly dwindles in the price range 0.012-0.074 EUR/m3 depending on the model. Before reaching this tipping point, agricultural water pricing can reduce withdrawals up to 1.7%-9.5%, while reducing profit between 4.9% and 5.6% and achieving a 57- to 65-fold increase in water tariff revenue.