egu2018-6242 the shadow price of non-renewable groundwater

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The shadow price of non-renewable groundwater Marc F.P. Bierkens, Stijn Reinhard, Jens de Bruijn, Yoshihide Wada Many of the major aquifers in the world experience groundwater over- exploitation leading to the depletion of groundwater resources. The Figure shows the groundwater footprint: how much area is needed to sustain current groundwater withdrawal compared to the aquifer area (Wada et al., 2010; Gleeson et al., 2012). Background Introduction Methods Knowledge about the actual value of water as a resource is limited (Ziolkowska, 2015). The value of (ground)water for irrigation is represented as the costs of extracting water from aquifers and delivering it to the final consumer. This value does not reflect the value of water as a depletable (non-renewable) resource. Water for irrigating crops may be under-priced, which can lead to irreversible depletion. The actual value of water for irrigation can be represented by the shadow price of water. The higher the shadow price the smaller will be the gap with the unknown value of water as a non-renewable resource. Shadow price: defined as being equal to the benefits produced by the last m 3 of non-renewable groundwater 12 countries with largest groundwater depletion; 5 crops For each crop, each country and each year: 1. Yield, area irrigated and prize (FAO statistics) 2. Actual evapotranspiration without irrigation (Green water) 3. Surface water and renewable groundwater consumption (Blue water) 4. Non-renewable groundwater use (NRG water) 2,3 and 4: Global hydrological model PCR-GLOBWB (Wada et al., 2012) Methods Econometric analysis: fitting panel data per crop (country, yield, year) Fitting the Cobb-Douglas functional form of the production function: The shadow price of the current year t: = $ % ’( % ’+ % ’- % ’/ % ’2 % ’4 % Results: yields and shadow prices Results: shadow price per crop/country Predicted yield (Eq. 1) versus reported yield (FAO) of wheat (left) and rice (right) for five countries (1) (2) Time series of estimated shadow prices for 5 countries and 5 crops over the period 1991-2010. Estimated average shadow prices for the period 1990-2010 ($/m 3 ): Results: re-allocating NRGW References Gleeson, T., Wada, Y., Bierkens, M.F.P. & van Beek, L.P.H (2012). Water balance of global aquifers revealed by groundwater footprint. Nature 488: 197-200. Wada, Y., van Beek, L.P.H., van Kempen, C.M., Reckman, J.W., Vasak, S. & Bierkens, M.F.P. (2010). Global depletion of groundwater resources. Geophysical research letters 37(20). Wada, Y., Wisser, D. & Bierkens, M.F.P. (2014). Global modeling of withdrawal, allocation and consumptive use of surface water and groundwater resources. Earth System Dynamics 15:3785–3808. Ziolkowska, J.R. (2015). Is desalination affordable?—regional cost and price analysis. Water Resources Management 29: 1385-1397. EGU2018-6242 8,: = 8,: = 8,: . 4 Country Wheat Potato Maize Rice Citrus China 0.058 0.073 0.179 0.105 0.160 Egypt 0.060 0.048 0.575 0.043 0.095 India 0.023 0.022 0.033 0.054 - 1 Iran 0.066 0.048 0.194 0.027 0.090 Italy 0.065 0.075 0.138 0.017 0.368 Mexico 0.018 0.116 0.040 0.004 0.066 Pakistan 0.013 0.006 0.023 0.003 2 0.043 South Africa 0.032 0.082 0.048 0.000 0.193 Spain 0.044 0.089 0.158 0.009 0.317 Turkey 0.049 0.039 0.089 0.002 0.732 United States 0.046 0.044 0.136 0.008 0.056 Average 0.043 0.058 0.147 0.025 0.212 1. No estimate due to lack of yield and or price data 2. Estimates based on 1991-2002 due to lack of yield or price data in later years We have shown that the shadow price for non-renewable or fossil groundwater can be determined from the econometric analysis of historical yield and price data supplemented with simulations of crop-water use from a global hydrological model. Our results show that shadow prices per crop and per country vary significantly. This provides opportunities for changing the crop mix within and between countries in order to limit groundwater depletion or to generate more revenue from non- renewable groundwater use. Conclusions Country From crop 1 To crop 2 China Potato Maize 681 139 Egypt Rice Maize 5 62 India Maize Wheat 50 761 Iran Wheat Potato 1798 2827 Italy Rice Potato 4 41 Mexico Rice Potato 14 167 Pakistan Rice Wheat 47 3358 South Africa Rice Potato 3·10 -2 3·10 -2 Spain Rice Potato 1 3 Turkey Rice Potato 1 4 United States Wheat Potato 413 459 Maximal increase in revenue(M$ year -1 ) and maximum reduction in non-renewable groundwater consumption (MCM year -1 ) when re-allocating non-renewable groundwater consumption between crops 0 50 100 150 200 250 Green Blue NRGW Consumptive use km 3 USA 0 100 200 300 Green Blue NRGW Consumptive use km 3 China 0 5 10 15 20 Green Blue NRGW Consumptive use km 3 Eqypt 0 100 200 300 400 Green Blue NRGW Consumptive use km 3 India 0 10 20 30 40 Green Blue NRGW Consumptive use km 3 Iran 0 5 10 15 20 Green Blue NRGW Consumptive use km 3 Italy 0 10 20 30 40 Green Blue NRGW Consumptive use km 3 Mexico 0 10 20 30 40 50 Green Blue NRGW Consumptive use km 3 Pakistan 0 5 10 15 Green Blue NRGW Consumptive use km 3 Saudi Arabia 0 5 10 15 20 Green Blue NRGW Consumptive use km 3 South Africa 0 10 20 30 Green Blue NRGW Consumptive use km 3 Spain 0 5 10 15 20 25 Green Blue NRGW Consumptive use km 3 Turkey Consumptive use per water type in 12 major groundwater depleting countries Wheat Rice Wheat Rice Y: Yield (kg/ha) A: Area under irrigation (ha) GW: Green water (actual evaporation; m 3 /ha) IW: Irrigation water = blue water (renewable irrigation water) plus non-renewable groundwater (NRGW; m 3 /ha) CF: Country specific factor to account for differences in productivity (-) t: Time (trends in cropping technology) (years) p c,t : Country-specific price for crop ($/kg)

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Theshadowpriceofnon-renewablegroundwaterMarcF.P.Bierkens,StijnReinhard,JensdeBruijn,YoshihideWada

Manyofthemajoraquifersintheworldexperiencegroundwaterover-exploitationleadingtothedepletionofgroundwaterresources.TheFigureshowsthegroundwaterfootprint:howmuchareaisneededtosustaincurrentgroundwaterwithdrawalcomparedtotheaquiferarea(Wadaetal.,2010;Gleesonetal.,2012).

Background Introduction

Methods

Knowledgeabouttheactualvalueofwaterasaresourceislimited(Ziolkowska,2015).Thevalueof(ground)waterforirrigationisrepresentedasthecostsofextractingwaterfromaquifersanddeliveringittothefinalconsumer.Thisvaluedoesnotreflectthevalueofwaterasadepletable (non-renewable)resource.Waterforirrigatingcropsmaybeunder-priced,whichcanleadtoirreversibledepletion. Theactualvalueofwaterforirrigationcanberepresentedbytheshadowpriceofwater.Thehighertheshadowpricethesmallerwillbethegapwiththeunknownvalueofwaterasanon-renewableresource.

• Shadowprice:definedasbeingequaltothebenefitsproducedbythelastm3 ofnon-renewablegroundwater

• 12countrieswithlargestgroundwaterdepletion;5crops• Foreachcrop,eachcountryandeachyear:

1. Yield,areairrigatedandprize(FAOstatistics)2. Actualevapotranspirationwithoutirrigation(Greenwater)3. Surfacewaterandrenewablegroundwaterconsumption(Bluewater)4. Non-renewablegroundwateruse(NRGwater)

• 2,3and4:GlobalhydrologicalmodelPCR-GLOBWB(Wadaetal.,2012)

Methods• Econometricanalysis:fittingpaneldatapercrop(country,yield,year)• FittingtheCobb-Douglasfunctionalformoftheproductionfunction:

• Theshadowpriceofthecurrentyeart:

𝑌 = 𝛽$ % 𝐴'( % 𝐺𝑊'+ % 𝐵𝑊'- % 𝐼𝑊'/ % 𝐶𝐹'2 % 𝑡'4 % 𝑒

Results:yieldsandshadowprices Results:shadowpricepercrop/country

Predictedyield(Eq.1)versusreportedyield(FAO)ofwheat(left)andrice(right)forfivecountries

(1)

(2)

Timeseriesofestimatedshadowpricesfor5countriesand5cropsovertheperiod1991-2010.

Estimatedaverageshadowpricesfortheperiod1990-2010($/m3):

Results:re-allocatingNRGW

ReferencesGleeson,T.,Wada,Y.,Bierkens,M.F.P.&vanBeek,L.P.H(2012).Waterbalanceofglobalaquifersrevealedby

groundwaterfootprint.Nature 488:197-200.Wada,Y.,vanBeek,L.P.H.,vanKempen,C.M.,Reckman,J.W.,Vasak,S.&Bierkens,M.F.P.(2010).Globaldepletionof

groundwaterresources.Geophysicalresearchletters37(20).Wada,Y.,Wisser,D.&Bierkens,M.F.P.(2014).Globalmodelingofwithdrawal,allocationandconsumptiveuseof

surfacewaterandgroundwaterresources.EarthSystemDynamics 15:3785–3808.Ziolkowska,J.R.(2015).Isdesalinationaffordable?—regionalcostandpriceanalysis.WaterResourcesManagement

29:1385-1397.

EGU2018-6242

𝑆𝑃8,: = 𝑝8,: 𝜕𝑌

𝜕𝑁𝑅𝐺𝑊= 𝑝8,:. 𝛽4

𝑌𝑁𝑅𝐺𝑊

Country Wheat Potato Maize Rice CitrusChina 0.058 0.073 0.179 0.105 0.160Egypt 0.060 0.048 0.575 0.043 0.095India 0.023 0.022 0.033 0.054 -1

Iran 0.066 0.048 0.194 0.027 0.090Italy 0.065 0.075 0.138 0.017 0.368

Mexico 0.018 0.116 0.040 0.004 0.066Pakistan 0.013 0.006 0.023 0.0032 0.043

SouthAfrica 0.032 0.082 0.048 0.000 0.193Spain 0.044 0.089 0.158 0.009 0.317Turkey 0.049 0.039 0.089 0.002 0.732

UnitedStates 0.046 0.044 0.136 0.008 0.056Average 0.043 0.058 0.147 0.025 0.212

1. Noestimateduetolackofyieldandorpricedata2. Estimatesbasedon1991-2002duetolackofyieldorpricedatainlateryears

Wehaveshownthattheshadowpricefornon-renewableorfossilgroundwatercanbedeterminedfromtheeconometricanalysisofhistoricalyieldandpricedatasupplementedwithsimulationsofcrop-waterusefromaglobalhydrologicalmodel.Ourresultsshowthatshadowpricespercropandpercountryvarysignificantly.Thisprovidesopportunitiesforchangingthecropmixwithinandbetweencountriesinordertolimitgroundwaterdepletionortogeneratemorerevenuefromnon-renewablegroundwateruse.

Conclusions

Country Fromcrop1 Tocrop2China Potato Maize 681 139Egypt Rice Maize 5 62India Maize Wheat 50 761Iran Wheat Potato 1798 2827Italy Rice Potato 4 41Mexico Rice Potato 14 167Pakistan Rice Wheat 47 3358SouthAfrica Rice Potato 3·10-2 3·10-2

Spain Rice Potato 1 3Turkey Rice Potato 1 4UnitedStates Wheat Potato 413 459

Maximalincreaseinrevenue(M$year-1) and maximum reduction in non-renewable groundwaterconsumption(MCMyear-1) when re-allocating non-renewablegroundwaterconsumptionbetweencrops

050100150200250

Green Blue NRGWConsum

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USA

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China

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Eqypt

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100

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400

Green Blue NRGWConsum

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India

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40

Green Blue NRGWConsum

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Iran

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Green Blue NRGWConsum

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Italy

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Mexico

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Green Blue NRGWConsum

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Pakistan

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SaudiArabia

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SouthAfrica

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Spain

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Turkey

Consumptiveuseperwatertypein12majorgroundwaterdepletingcountries

Wheat Rice

Wheat Rice

Y: Yield(kg/ha)A: Areaunderirrigation(ha)GW: Greenwater(actualevaporation;m3/ha)IW: Irrigationwater=blue water (renewable irrigation water)

plusnon-renewablegroundwater(NRGW;m3/ha)CF: Countryspecificfactortoaccountfordifferences

inproductivity(-)t: Time(trendsincroppingtechnology)(years)pc,t: Country-specificpriceforcrop($/kg)