Hydro-economic models can measure the economic effects of different operating rules, environmental restrictions, ecosystems services, technical constraints and institutional constraints. Furthermore, water allocation can be improved by considering economical criteria’s. Likewise, climate and land use change can be analyzed to provide resilience. We developed and applied a hydro-economic optimization model to determine the optimal water allocation of main users in the Lower-middle São Francisco River Basin in Northeast (NE) of Brazil. The model uses demand curves for the irrigation projects, small farmers and human supply, rather than fixed requirements for water resources. This study analyzed various constraints and operating alternatives for the installed hydropower dams in economic terms.

A seven-year period (2000-2006) with water scarcity in the past has been selected to analyze the water availability and the associated optimal economic water allocation. The used constraints are technical, socioeconomic and environmental. The economically impacts of scenarios like prioritizing human consumption, impacts of the implementation of the São Francisco river transposition, human supply without high distribution losses, environmental flows, forced reservoir level control, forced reduced reservoir capacity, alteration of lower flow restriction were analyzed. The results in this period show that scarcity costs related ecosystem service and environmental constraints are significant, and have major impacts (increase of scarcity cost) for consumptive users like irrigation projects. In addition, institutional constraints such as prioritizing human supply, minimum release limits downstream of the reservoirs and the implementation of the transposition project impact the costs and benefits of the two main economic sectors (irrigation and power generation) in the region of the Lower-middle of the São Francisco river basin. Scarcity costs for irrigation users generally increase more (in percentage terms) than the other users associated to environmental and institutional constraints.

Results from this current period represents an initial set (baseline) used to compare changes in operating rules, climate, crop mix and land use due increasing biofuel production as previewed for this region in Brazil (Assad et al, 2008; Beck 2012, Kölling 2014). The water demand curves of the main irrigation users assess the impact of the projected expansion of irrigated sugarcane production area in the region and on their willingness-to-pay for water.(Moraes et all, submitted to 2^ndRCN, unpublished 2016) Once they were incorporated in the hydro-economic model for the basin it will be possible supporting decisions on water management policies that can face climate change challenges. The calculation of the economic optimal allocation under water scarcity is important for support of the management of water resources in that region of Brazil. There are concerns that increased bioenergy production in NE might have negative impacts on the São Francisco river basin, with an increase in both the scarcity of water and its economic value (cost).

In this context, according to Moraes et al (2015) , public policies must be established to promote more efficient inter- and intra-sector water allocation schemes. Integrated hydro-economic models are able to support the design of effective management instruments, such as water pricing, that induce economically optimal and equitable allocations. Policy makers could incorporate the benefits measured by these economic models in their decisions affecting the integrated management of water-bioenergy systems. This information, and corresponding policies, can foster enhanced economic welfare and sustainable water use, as well as help to resolve water use conflicts.

References

Assad, E. D.; Pinto, H. S.; Zullo Jr., J.; Evangelista, S. R. M.; Otavian, A. F.; Avila, A. M. H. de; Evangelista, B. A.; Marin, F. R.; Macedo Jr, C.; Pellegrino, G. Q.; Pereira-Coltri,P.; Coral, G. Aquecimento Global e a Nova Geografia da Produção Agrícola no Brasil. 2.ed. Campinas: EMBRAPA. v.1, 55p.(2008).

Beck, F., 2012. Modelling Land Use Change in the Catchment Area of the Sao Fransisco River in Brasil (Masterthesis). Humboldt University of Berlin.

Kölling, K., 2014. The impact of socioeconomic and climatic changes on the Sao Fransisco Basin in Brazil (Masterthesis). Humboldt University of Berlin.

Moraes, M.M.G.A ; Ribeiro,M.M.R.. ; Watkins, D. ; Viana, J. H. N. ; Figueiredo, L. E. N. ; Silva, G.S. ; Carneiro, A. C. G. (2015). Integrated Economic Models to Support Decisions on Water Pricing in Biofuel Production River Basins: Three Case Studies from Brazil. Biofuels, Bioproducts & Biorefining. DOI: 10.1002/BBB.1581

Moraes, M.M.G.A; Carneiro, A. C. G. Silva, G.S.; Biewald, A.; Lotze-Campen, H.; Popp, A.; Sobral, M.C. (2016) The Impact of Future Climate and Socioeconomic Changes on Irrigated Sugarcane production area and water demand curves of the main irrigation users in the Catchment area of the São Francisco River in Northeastern Brazil. Submitted to 2^nd RCN Conference in September, Argentina.