Capacity Building Programme on the
Economics of Climate Change Adaptation (ECCA)
Supporting National/Sub-national Adaptation
Planning and Action
Siem Reap, Cambodia
17-20 Sept. 2014
Brian H. Hurd
Professor of Agricultural Economics & Agricultural Business
New Mexico State University
bhurd @
Concepts and Methods for Assessing and Evaluating Water System
Response to Climate Change
• Overview of adaptation concepts
• Current water issues and problems
along America’s Rio Grande
• Conjunctive-use externalities
• Basic concepts and strategies in HydroEconomic Modeling
• Case Study: Rio Grande
• Systems modeling basic structure, concepts and application
• Case Study: Systems modeling of small community irrigation systems in
New Mexico
• Ideas and strategies for modeling adaptation in watershed assessments
Changing Hydrographs
What does it mean for?
Model assumptions
temperature ↑ 4°C
Precipitation ↑ 10%
• Water storage and
distribution systems?
• Urban and rural water
• Water quality?
• Hydropower?
• Recreational and cultural
• Riparian ecosystems and
migratory patterns?
Droughts and Floods
Sept 2014, Pakistan
Rio Grande Drought: Elephant Butte
(1) 89% June 2, 1994
(2) 3% July 8, 2013
Climate Adaptation Related Terms and Concepts
Climatic Vulnerability - Measures a system’s susceptibility to climate change as a function
of exposure to climate, sensitivity to climatic changes, and adaptive capacity
Adaptive Capacity - The ability of systems, organizations, and individuals to:
Adjust to realized and potential changes and disturbance events
Take advantage of existing and emerging opportunities
Successfully cope with adverse consequences, mitigate damages, and/or recover
from system failures
Adaptation - A deliberate change in system design, function or behavior in
response to or anticipation of external events or changing conditions.
Reactive (autonomous) adaptation – disturbance occurs and systems absorb impacts
and attempt restoration to pre-disturbed conditions
Proactive (anticipatory) adaptation – nature and timing of disturbance is anticipated and
systems are appropriately reorganized to improve their capacity to avert adverse damages
and to leverage resulting opportunities
Adaptation is successful if, following a change or disturbance, the level of services and
functionality (i.e., social value) is approximately maintained or restored.
Timing Adaptations: the Relative Cost and Success of
Reactive versus Proactive Adaptation
– Increased accuracy based on evolving
knowledge and information
– Postponed expenditures and possibly
better technologies and lower unit costs
Net Social Value
Benefits of delayed action
Risks of delayed action
– Less successful adaptation
• More welfare losses and service disruptions
• Greater likelihood of irreversible losses
– Reduced adjustment time
Water in the Southwest
United States: Rio Grande
Rio Grande Project
(U.S. Bureau of Reclamation project;
initiated 1905; Elephant Butte Dam, 1916;
Caballo Dam, 1938)
Elephant Butte Irrigation
District (EBID)
Rio Grande Compact
(Colorado, New Mexico, Texas, 1939)
1906 Treaty with Mexico
(for “Equitable Distribution of the Waters of
the Rio Grande” delivers 60 (kaf/yr) to Ciudad Juárez)
El Paso County Water
Improvement District #1
(EP No. 1)
Water Use Along the Rio Grande, 2005
Surface Water 1.2 maf
Groundwater 0.7 maf
Longworth, John W., Julie M. Valdez, Molly L. Magnuson, Elisa Sims Albury, Jerry Keller. 2008,
New Mexico Water Use by Categories, 2005. NM Office of the State Engineer, TR 52.
Timing and Mixture of Surface
and Groundwater in El Paso
Climate Change or Climate Variability
Rio Grande Drought: Elephant Butte Reservoir
(1) 89% June 2, 1994
(2) 3% July 8, 2013
Watershed Assessment Goals and
Describe the important hydrological, bio-physical, economic, and institutional
characteristics at appropriate spatial and temporal scales
• Identify and characterize plausible alternative environmental and management
scenarios and/or system changes
• Assess, analyze and describe the bio-physical and economic consequences of
modeled scenarios and changes in environment, management, technology,
infrastructure etc.
 Models are tools that help planners
 examine data
 integrate concerns
 analyze alternatives
 evaluate outcomes
Objectives of Hydro-Economic
Watershed Models
• Represent major spatial, physical,
and economic characteristics of
water supply and use
• Evaluate welfare, allocation, and
implicit price changes associated
with alternative hydrologic,
management, and institutional
• Identify opportunities to improve
water management systems from
a watershed perspective
Hydro-Economic Modeling Basics
• Develop a schematic diagram of the watershed system
– Describes physical structure (tributaries, inflows, and
– Identifies and locates watershed services
– Show diversion points and instream uses
• Derive estimates for the model’s objective function
– Develop demand and supply curves for each service
based on water diversion or instream flow
• Describe model constraints
– Mass balance (upstream to downstream flow)
– Intertemporal storage in reservoirs
– Institutional flow restrictions
Rio Grande
Model Objective Function
Given water supply, expected streamflows, and water demands in the watershed, the
model objective is to choose (manage) all water diversions (allocations), reservoir storage
and releases in order to:
Maximize present value of total long-run net economic welfare ($)
defined as the sum of all net benefits less the sum of all costs and damages
PVNB   dt      Bnit (Wnit )  Cnit (Wnit )  Qnt ( Snt )  Hnt ( Rnt )  Ent ( Fnt )  Dnt ( Fnt ) 
n  i
where Bint and Cnit define benefits and costs as a function of diverted water Wnit,
Qnt and Hnt generate value from water stored Snt and released Rnt,
Ent environmental services and flood damages Dnt are functions of flow Fnt.
Model Constraints: River Flow Mass Balance
Instream Flow Balance at each node (n) models the
contemporaneous flow, storage and distribution of water.
Fnt  Fn  1, t  Int  Rnt    rniWn  1, it  Wnit 
where streamflow Fnt equals previous streamflow Fn-1,t plus
additional rainfall and tributary inflow Int, net reservoir-release Rnt,
upstream return-flow rni, and less diversions Wnit.
Model Constraints: Reservoir Storage Mass
Reservoir (aquifer) Storage Balance for each time period (t):
Snt  Sn, t  1  Int    nniWn  1, it   Rnt  Lnt
where storage Snt equals previous period storage Sn,t-1 plus net additions from
inflow Int and net-seepage from upstream diversions nniWn-1,it, less net amounts
pumped or released Rnt and evaporation losses Lnt.
A Two-Sector Model of Efficient Water Distribution,
Use and Drought Damages
Note: NB1 and NB2 are
marginal net benefit curves
that illustrate marginal
benefits for water (water
demand) after all associated
marginal costs (e.g.,
conveyance, treatment,
distribution) have been
W A0 W B0
W0 (normal)
W 1 (drought)
Water Demand Estimation
A basic inverse linear water demand function:
Pw = b0 + b1 Qw + b2 Z
Pw = unit price of water ($/m3)
Qw = quantity of water consumed (volumetric
units e.g., m3)
• Z = other important factor(s) – could be
several. E.g., land quality, seasons, irrigation
• b0, b1 and b2 = parameters to be estimated
Simple Water Demand Model
• With minimal data – i.e., a single data point
and an estimate of the price-elasticity of
water demand – a water demand function can
still be approximated.
• Total annual sector water use = 250 MCM
• Estimated water value or price
(marginal value of water) = $20 / MCM
• Estimate of price elasticity of demand in
sector = 1.5
Elasticity: In Mathematical Notation
(Q1  Q0 )
% change Q
% change P ( P1  P0 )
E is the elasticity of Q with respect to P
Q1 is the new level of Q
Q0 is the old level of Q
ditto for P
Estimate Linear Demand Parameters:
b0 and b1
• Linear demand function: Pw = b0 + b1 Qw
• Recall definitions:
– ε = (Δ Q / Δ P) * (P0 / Q0)
– b1 = (P1 – P0) / (Q1 – Q0 )
• Data: P0, Q0, and ε
• Therefore, parameter are
estimated as:
– b1 = 1/ε * P0 / Q0
– b0 = P0 * (1 – 1 / ε)
question: what should be the sign of b1?)
Merci’ Beaucoup!
Gracias Thank You
Brian H. Hurd, PhD
Department of Agricultural Economics & Agricultural Business
Gerald Thomas Hall Rm. 350
New Mexico State University
Tel :
(575) 646-2674
[email protected]