(125e) Water Stress-Based Price for Global Sustainability: A Study Using Generalized Global Sustainability Model (GGSM)

Water is a resource that is critical for human survival. Recently, water consumption across the world has been increasing significantly, leading to a rapid rise in water stress; that is, water demand exceeds the supply. The state of California in the U.S. and South Africa are two examples of regions with high water stress. One way of addressing this situation is increasing the supply of water through the development of more water-related infrastructure, such as desalination plants, dams, and canals. The other way is water demand management, that is, altering the water demand to reduce water stress. Water pricing is a tool that can be used for water demand management. Globally, flat rate pricing was a popular model used for water pricing. More recently, other models such as uniform (volumetric) rate, block or tire rate, and complex rate have been utilized for water price-setting. However, conventionally, the effect of water stress on the water price is incorporated as a constant factor. Hence, examination of the suitability of the water stress-based price as a tool for water demand management becomes the need of the hour.

Water is consumed for agriculture, energy, industry, and municipal applications. The relationship between these sectors with each other is complex; for instance, biomass produced by the agricultural sector can be used to produce energy, and the agricultural sector uses electricity-powered tools for farming processes. Because of such inter-dependencies, integrated models capable of capturing these relations, that is, the Food-Energy-Water nexus, are well suited to analyze the effect of policies implemented for water demand management. One such model, Generalized Global Sustainability Model (GGSM), was developed by Nisal et al. (2021) and Hanumante et al. (2022). GGSM, as shown in Figure 1, is a global model with integrated economic and ecological dimensions. Its ecological dimension has multiple trophic levels with intra-trophic level diversity. At the lowest trophic level, the plants are the primary producers that consume the natural resources from the Resource Pool. The higher trophic levels depend on lower ones for survival. Since there are multiple compartments at each trophic level, these interactions give rise to a complex food web. These interactions are represented using Lotka-Volterra-type equations. Some compartments of the ecological dimension are human-controlled; for instance, P1 represents the agricultural sector. On the right side, we have the human households HH, industrial IS, and energy production EP sectors. The industrial sector operates by taking resources from the ecological dimension and the energy from the Energy Production sector. This is where the ecological and economic dimensions integrate. At the end of their life, the used industrial goods are transferred to the Inaccessible Resource Pool, imitating the landfills. This GGSM is parameterized to reflect global realities. It also incorporates a global water system, where the water consumption in the world is represented in six regions (Africa, Asia, Europe, North America, Oceania, and South America) and three sectors (municipal, industrial, and agricultural). The historical consumption of water by these regions and sectors has been captured in this model.

However, GGSM has a key limitation in the form of an assumption that irrespective of the water stress, the water consumption patterns would not change. As a result, even if the water stress reaches a value close to 100%, the water consumption rate does not change. In reality, lower availability of water is expected to limit the water demand; it may be because water access becomes harder or water becomes costlier. For instance, in water-starved regions, the supply of water for municipal use is carried out via tankers; this might change consumption patterns. Even the higher water price might persuade the consumer to use water more judiciously. Hence, feedback on water stress is a critical component for the realistic modeling of the FEW nexus. Here, we examine the utility of water-stress-based prices from a global sustainability standpoint.

We develop a water-stress-based water price model and a feedback mechanism that facilitates the manifestation of the effects of the price change on water consumption and hence, water stress. We first model the water price with a base price and a variable component which is a linear function of the water stress. Thus, instead of a constant environmental factor, we develop a dynamic model for water price, which is based on water stress. Then we model the water stress feedback through the demand elasticity of water price. The demand elasticity of water price represents the ratio of the percent change in demand to the percent change in water price. This change in the water demand then results in a change in the state variable of the GGSM.

We parameterize the water price model and the feedback model for six regions (Africa, Asia, Europe, North America, Oceania, and South America) and three sectors (municipal, industrial, and agricultural). For each of these combinations (region and sector), for the water price model, we determine the base price and multiplier for the water stress, that is, the water stress sensitivity of water price; and for the water stress feedback model, we determine the demand elasticity of water price. The parametrization mainly depends upon two regional factors, regional affluence, and regional water availability. We assume that, for the municipal sector, affluent regions have a higher base price, higher price sensitivity, and higher elasticity. For the industrial sector, on the other hand, owing to a well-developed water market and regulations, affluent regions are expected to have lower elasticity. However, the base price and price sensitivity for the affluent regions would be higher. The agricultural sector is expected to be inelastic till the water price crosses a threshold value. Agricultural practices that govern the regional water use pattern are developed to conform with regional water availability, and hence, the demand elasticity of water price for the agricultural sector is determined as a function of the regional availability of water. We determine the limits of the parameter values from the literature and use GDP per capita (from the World Bank and UN) and water availability per capita (from the works of Hanumante et al. (2022)) as a proxy for regional affluence and regional water availability.

We carried out simulations using this modified GGSM to analyze various scenarios. Simulation results indicated that the proposed water price model could capture the regional realities through relative changes in price and demand. The change in water price can alter the regional water demand and hence the water stress. Thus, a water stress-based price model can be used as a policy instrument. The simulation results indicate that, in the absence of a water stress-based price, the African continent may experience increasing water stress well beyond 100%. With the implementation of a water stress-based price, the water stress can be controlled; however, it may lead to a reduction in regional food production by about 26%. Because of the trade-off between regional food production and water stress, cooperation between various regions could help in reducing the impact of the impending water and food crisis. North America and Europe may produce surplus food products and play a pivotal role in alleviating the critical situation in Africa.

To summarize, water-stress-based water prices can be used as a tool for water demand management. The analysis identifies the advent of a potential food crisis in the African continent owing to increased water stress. This model will be used to carry out further simulation studies to compare policy options and determine ways and means to achieve specific policy targets.

References:

Nisal, Apoorva, et al. "Integrated model for food-energy-water (FEW) nexus to study global sustainability: The main generalized global sustainability model (GGSM)." PloS one 17.5 (2022): e0267403.

Hanumante, Neeraj, et al. "Integrated model for Food-Energy-Water (FEW) nexus to study global sustainability: The water compartments and water stress analysis." Plos one 17.5 (2022): e0266554.