Rationale

The Rio Grande is a transboundary river basin, shared by the USA and Mexico and governed by a complex set of institutions, with long-standing competition over water resources and an increasing water demand. Most of the water is used for agriculture (85%), while the river also supplies three major cities (Albuquerque and El Paso in the USA and Ciudad Juárez in Mexico). Despite a number of well-established institutions governing the Rio Grande, further developments in management will be needed to address current and future challenges. Three key issues facing the Rio Grande are an unsustainable abstraction rate, the reallocation of water from agriculture to other uses, and provision of safe and affordable water to all. These issues are subjected, therefore, to hydro-economic modelling.

Description

Currently, the Rio Grande is subject to an unsustainable abstraction rate. Thus, water managers need to guide water users towards a sustainable water-use pattern. A basin-wide hydro-economic model was used by Ward and Pulido-Velázquez (2012) to determine the costs of three management options: (1) acceptable decreases in water stocks, (2) sustaining water stocks, and (3) renewing water stocks.

The model shows that maximising economic benefits under the first option reduces water stocks. However, it is hydrologically and institutionally feasible to manage the basin's water supplies sustainably at a cost of 6-11% of the basin's average annual total economic value of water over a period of 20 years. Reallocation of water from agriculture to other uses is often the intended outcome of agricultural water conservation subsidies. For instance, subsidies given to farmers who change from flood irrigation to drip irrigation could save water. Ward and Pulido-Velázquez (2008) examined this hypothesis by setting up a hydro-economic model for the Rio Grande Basin, analysing the effects on the water used in irrigation as well as that conserved (and available to other users). The model maximises the discounted net present economic value summed over water uses, water environments, irrigation technologies, locations and time periods. The results show that drip irrigation results in higher evapotranspiration than flood irrigation and, thereby, there is an increase in overall water use and a decrease in return flows and aquifer recharge. To continue providing safe and affordable water to all its users following a new water quality standard, the Albuquerque and El Paso water utilities had to devise a new tariff structure, to cover the increased treatment costs of arsenic pollution abatement. A comparison of economic benefits from marginal cost pricing and two-tiered pricing was done in a model integrating hydrologic, economic and institutional factors (Ward and Pulido-Velázquez, 2006). The results of this study are that the economic losses incurred at the basin scale when applying two-tiered pricing, which covers the increased treatment costs, were only 0,3 % of marginal cost pricing.

Main conclusions/lessons learned

• Hydro-economic models can be used to calculate the economic cost of implementing policies that ensure sustainable water resources
• Ensuring that improvements in water use efficiency are achieved requires detailed analysis of the technical, economic and hydrologic aspects of water use. In the case of more efficient irrigation, a more detailed analysis of the effects of decreased return flows and increased evapotranspiration on other water users is needed at a basin-wide scale
• It is not under all circumstances that the rights of low income groups to water can be financed through two-tiered pricing. This pricing structure is unlikely to be sustainable, for example, if only a small percentage of the water users use larger quantities (and thereby pay the higher tariff) and if new water quality standards require a significant increase in the higher tariff.

Replicability

The models described above were initially developed for the Rio Grande, but they are easily adaptable to other basins, geographic conditions, legal systems and water allocation rules.

(GWP 2013b)