Definition of efficient scarcity-based water pricing policies through stochastic programming

Abstract

Finding ways to improve the efficiency in water usage is one of the most important challenges in integrated water resources management. One of the most promising solutions is the use of scarcity-based pricing policies. This contribution presents a procedure to design efficient pricing policies based on the opportunity cost of water at the basin scale. Time series of the marginal value of water are obtained using a stochastic hydro-economic model. Those series are then post-processed to define step pricing policies, which depend on the state of the system at each time step. The case study of the Mijares River basin system (Spain) is used to illustrate the method. The results show that the application of scarcity-based pricing policies increases the economic efficiency of water use in the basin, allocating water to the highest-value uses and generating an incentive for water conservation during the scarcity periods. The resulting benefits are close to those obtained with the economically optimal decisions.