Water-Management Policies: Economic Modeling and Applications to Israel

Summary:

• Water policy

  • Consumers with different demands

  • Spatiotemporal variability

  • Uncertainty about physical attributes of water supply

  • Property rights

  • Externalities (pollution, extraction, recreation, tourism)

  • Economies of scale (natural monopoly)

  • Dynamics of renewable vs non-renewable water resources

  • Backstop technologies (price of water can’t exceed cost of desalination)

  • Cross-border effects (international resource sharing)

  • Conclusion: complex issue; government intervention is essential!

• Water Legislation in Israel

  • Water is public property

  • Centrally managed (vulnerable to political pressure but also reduces transaction costs)

• Challenges of the Israeli Water Economy

  • North-South gradient of climate

  • Most water is in the North, needs to be moved to the South

  • Population is concentrated in the Center

  • Agriculture is concentrated in Center and South

  • Rainfall fluctuates significantly over time, with drought periods

  • Rainy winter, dry summers

  • Agricultural irrigation is most intensive in summer

  • Requires 

    • Water storage

    • Desalinization

    • Wastewater treatment

  • Extensive network of water pipes to move water North to South and from wastewater  and desalination sources

  • Water quality

    • Treated water has 3 quality levels (primary, secondary and tertiary treatments), and regulations mandate meeting standards with respect to many different contaminants

    • Different levels of salinity

  • Population is growing quickly

• Goals: 

  • Develop integrated agro-hydro economic model

  • Derive economic analyses and policy recommendations

    • Infra development

    • Water pricing

    • Analyzing impacts of exogenous changes and policy choices

• MYWAS-VALUE model  (This is the version calibrated to 2015 data. The version calibrated to 2019 data has not yet been published).

  • MYWAS: water

    • Regional urban and agricultural water demand

    • Costs of treatment, conveyance

    • Capacity extension costs

    • Constraints

  • VALUE: vegetative agriculture

    • Land use

    • Water-salinity production

    • Demand for agricultural products

    • Pricing

  • Large-Scale Desalination and the External Impact on Irrigation-Water Salinity: Economic Analysis for the Case of Israel

• MYWAS topology

  • 16 aquifers, lakes, 19 wastewater treatment plants, …

  • 18 agricultural and 21 urban regions

  • Piping network between them: separate freshwater, brackish water, wastewater and agricultural transport systems

• VALUE: positive mathematical programming model

  • Considers

    • Supply/demand curves for each crop, to determine price

    • The tradeoff between area allocated to each crop and the profit per hectare for the crop

  • Can compute optimal allocation of land to crops

• Can model shocks to system:

  • Impact of drought that reduces crop yields

  • Impact of using saltier water for a given crop (cheaper water, lower yield)

  • Investment in desalination plant

    •  PMP approach: 

      • Rationalizes diversification of land use by calibrating a non-linear function that represents farmers’ unobserved considerations

      • Assumes the cost is very high for first liter but drops with scale

    • Enables productive agriculture, which produces profits

      • Quality of desalinated water can be higher than groundwater

      • Desalinated water can thus produce higher yields and higher profits

    • Water sent to farmers is priced based on cost of desalination and whether farmers can profit from it

    • Cost-effectiveness of plant depends on the increased profits from agriculture at given water production level vs. the cost of desalination

    • Can compute optimal water price and whether the desalination plant should be built: 

      • Under population growth, which shifts the water demands

      • Desalination-capacity is expanded once the surpluses in the agri-water economy exceed the investment costs

• Effects of ignoring salinity changes

  • Compute optimal water supply infrastructure solution 

  • Compute solution with salinity fixed (changes in salinity ignored) to obtain suboptimal infrastructural development plan

    • Then use this infrastructural plan to get the optimal farmer reactions to this infrastructure, while accounting for the changes in salinity

  • Compute solution with salinity fixed (changes in salinity ignored)

    • Then use this solution to get the optimal farmer reactions to this infrastructure

  • Compare the two outcomes

  • Optimal solution:

    • More desalination, less wastewater and freshwater use

    • Higher overall welfare by $360 million/year (~10% of the annual cost of the water economy)

    • Urban users and agricultural product consumers benefit most from optimal solution 

• Impact of reduction in precipitation: 

  • 1% change = $22 million / year

  • Farmers affected most

  • Israel may see 20% reduction in rain due to climate change 2040-2060

• Possible model extensions:

  • Endogenize water treatment technologies: make choice dependent on the state of the water system

  • Evaluate growing grains domestically in Israel

    • Change water system

    • Reduce meat consumption

  • Energy/agriculture interactions: agri-voltaic technology

  • Modeling trees as they grow over multiple years