March 30, 2021
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Evaluating the Economic Impact of Water Scarcity in a Changing World

Calculating the multi-region and multisector effects of water scarcity for thousands of possible future socioeconomic, climate, and hydrologic scenarios

Dry, cracked earth

Market adjustments can profoundly magnify economic uncertainty related to hydrologic uncertainty.

(Image by _tono | Flickr.com)

The Science

Water scarcity depends on multiple factors including available supply, population growth, technological advancement, and food and energy preferences. How these factors will change over the course of the century remains highly uncertain. In this study, researchers simulated thousands of possible future worlds, designed to span a range of human and environmental influences, and calculated the economic impact of restricting water supply in each of them. The results showed that, depending on the scenario assumptions, hydrologic basins may experience either highly positive or severely negative impacts from water scarcity. The factors that play the strongest role in determining the impact differ across basins.

The Impact

This study examined how economies respond to physical water scarcity and the impacts of those responses. The experimental design improved on previous water scarcity studies in its treatment of uncertainty by combining discrete levels of uncertain factors to construct thousands of scenarios. The resulting simulations highlighted that the set of influences leading to strongly negative or strongly positive results is basin-specific. Depending on a region’s capacity for adaptation, water scarcity may even yield net economic benefits under high global demands. These dynamics would not be observed in traditional water scarcity studies that only consider physical quantities of water.

Summary

Water scarcity is dynamic and complex, emerging from the combined influences of socioeconomics, climate, water resource accessibility, and the available responses of the managed systems. Beyond environmental influences and responses, it is critical to also consider how multisector, multiscale economic connections mitigate or exacerbate water shortages. This study used a coupled hydro-economic model to calculate the change in total economic surplus from imposing physically derived bounds on water supply. Researchers simulated thousands of distinct socioeconomic, hydrologic, and climate scenarios and assessed how basin-level economies adapted to water scarcity under different conditions. They found that basins could experience highly positive or severely negative economic impacts depending on the conditions. Positive impacts arose in basins with a comparative advantage that export water-embedded goods. The factors that caused negative outcomes varied across basins. In some basins, groundwater levels and population primarily determine impact, whereas others depend on land use or agricultural productivity. In many high water demand scenarios, the economic impact is extremely sensitive to deviations in water supply. Markets in the human system amplify precipitation uncertainty from different climate models, which yields wide ranges of economic impact. High-magnitude outcomes are typically hybrids of traditional scenarios, emphasizing the need for improved treatment of uncertainty in complex systems.

PNNL Contact

Katherine Calvin, Pacific Northwest National Laboratory, Katherine.Calvin@pnnl.gov 

Funding

This research was supported by the U.S. Department of Energy, Office of Science, as part of research in MultiSector Dynamics, Earth and Environmental System Modeling Program.

Published: March 30, 2021

F. Dolan, J. Lamontagne, R. Link, et al.Evaluating the economic impact of water scarcity in a changing world.” Nat. Commun., 12, 1915 (2021). [DOI: 10.1038/s41467-021-22194-0]