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www.fao.org/climatechange/epic
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assess and monitor:
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Presented by IWMI's Ian Makin at the 4th African Regional Conference on Irrigation and
Drainage (ARCID), in Aswan, Cairo,
Egypt, on April 26, 2016
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www.fao.org/climatechange/epic
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Modeling Economy-wide impacts of water policies in pakistan
1. Modeling Economywide Impacts
of Water Policies in Pakistan
Sherman Robinson and Arthur Gueneau
International Food Policy Research Institute (IFPRI)
May 23, 2013 – GWSP Conference,
Bonn, Germany
2. Plan of the Presentation
• Motivation of the work
• Presentation of the CGE-W model
– CGE model: IFPRI standard model
– Water model: RWSM
– Links: CGE-W
• Results
– Impact of climate change
– Impact of Diamer-Basha dam
• Future work and conclusion
2
3. Motivation
• Pakistan is subject to increasing water stress
– Expanding agriculture relies heavily on irrigation
– Hydropower important for increased energy demand
– Groundwater mining is pervasive
– Climate change is likely to disrupt flow patterns
• Large water infrastructure projects are needed
and benefits have to be assessed:
– Impacts are transmitted to the rest of the economy
through markets and changes in prices
– Potential use of simulation models to analyze
water/economy/policy links
3
4. Modeling Paradigm
• CGE-W is a water/economic simulation model
– Water policies influence distribution of water
– Repercussion on crop yields
– Yield changes shock agricultural supply
– Economy reacts by reallocating production factors
through market mechanisms and price changes
– Changes in prices affect farmers’ decisions for the
following year
• Economic policies also have indirect impacts on
the water sector 4
5. Why a coupled model?
• There are economic models with water factors
– Do not capture the complexity of the Indus basin
• There are water models with economic variables
– Do not capture economywide links between
agriculture and the rest of the economy
• Our paradigm: Let each model do what it is best
at and make them talk to each other
6. IFPRI Dynamic CGE-W Model
6
Economic policy options and trends, with land variable
Previous (or base) year water stress
Industrial and Domestic Water Demand
Agricultural demand for water by crops
Optimizes water distribution over months in the year
Calculates water shortages per water region by month
Allocates supply of available water to crops
Calculates the impact of water stress on yields
Yield shocks affect agricultural production; land fixed by crop
CGE model solves for final equilibrium for current year
CGE
Model
Water
Demand
RWSM
Water
Stress
CGE
Model
7. Computable General Equilibrium
19
Economic policy options and trends, with land variable
Previous (or base) year water stress
Industrial and Domestic Water Demand
Agricultural demand for water by crops
Optimizes water distribution over months in the year
Calculates water shortages per water region by month
Allocates supply of available water to crops
Calculates the impact of water stress on yields
Yield shocks affect agricultural production; land fixed by crop
CGE model solves for final equilibrium for current year
CGE Model
Water
Demand
RWSM
Water
Stress
CGE Model
8. Computable General Equilibrium
(CGE) Models
• A standard tool of economic and policy analysis
for the past 40 years
• Simulates operation of a market economy with
supply/demand equilibrium determining prices
• IFPRI Standard CGE model (Lofgren and
Robinson)
20
9. 21
Stylized CGE Model Structure
Activities
Commodity
Markets
Factor
Markets
Rest of the
World
Households Government Sav./Inv.
Factor
Costs
Wages
& Rents
Intermediate
Input Cost
Sales
Private
Consumption
Taxes
Domestic Private Savings
Government
Consumption
Gov. Savings
Investment
Demand
ImportsExports
Foreign Savings
Transfers
Foreign Transfers
10. IFPRI Pakistan CGE Model
• Based on the 2007-2008 SAM of Pakistan
(Dorosh et al., 2012).
– 63 activities and 48 commodities
– Special focus on agriculture (15 agric commodities)
– Large, medium, and small farms
• Distinguishes 19 types of households and 10
types of labor
• Distinguishes Punjab, Sindh, and other provinces
for agricultural sector
27
11. Water Demand Module
28
Economic policy options and trends, with land variable
Previous (or base) year water stress
Industrial and Domestic Water Demand
Agricultural demand for water by crops
Optimizes water distribution over months in the year
Calculates water shortages per water region by month
Allocates supply of available water to crops
Calculates the impact of water stress on yields
Yield shocks affect agricultural production; land fixed by crop
CGE model solves for final equilibrium for current year
CGE Model
Water
Demand
RWSM
Water
Stress
CGE Model
12. Water Demand Module
• Computes agricultural cropped area based on
the CGE model results
• The water demand is then computed using FAO
guidelines
• Industrial and Livestock water demand are
proportional to the amount of activity in the
sector
• Domestic water demand is proportional to
household revenues
29
13. RWSM-Pak Water Model
31
Economic policy options and trends, with land variable
Previous (or base) year water stress
Industrial and Domestic Water Demand
Agricultural demand for water by crops
Optimizes water distribution over months in the year
Calculates water shortages per water region by month
Allocates supply of available water to crops
Calculates the impact of water stress on yields
Yield shocks affect agricultural production; land fixed by crop
CGE model solves for final equilibrium for current year
CGE Model
Water
Demand
RWSM
Water
Stress
CGE Model
15. CGE-W version of IBMR: RWSM
• Standalone water model: Regional Water System
Model (RWSM).
• RWSM-Pak: Pakistan version
– Hydrology similar to IBMR.
• RWSM does not have any internal representation
of the economy
– Links to CGE model for economic variables
• Objective is to minimize agricultural water
shortages across all Pakistan
35
17. RWSM-Pak Overview
• Represents the 45 main canals, as well as the link
canals between rivers
• Takes into account fresh and saline groundwater,
as well as public and private tubewell pumping
• Can represent droughts and floods
• Includes 16 representative crops
• Takes into account industrial, domestic and
livestock water demand (assumed to be drawn
from groundwater mostly)
37
18. Water Allocation Module
39
Economic policy options and trends, with land variable
Previous (or base) year water stress
Industrial and Domestic Water Demand
Agricultural demand for water by crops
Optimizes water distribution over months in the year
Calculates water shortages per water region by month
Allocates supply of available water to crops
Calculates the impact of water stress on yields
Yield shocks affect agricultural production; land fixed by crop
CGE model solves for final equilibrium for current year
CGE Model
Water
Demand
RWSM
Water
Allocation
CGE Model
19. Water Allocation Module
• In case of water stress, the yield of crops is
reduced using the FAO Ky approach (Doorenbos
and Kassam, “Yield Response to Water”,1979)
• We separate the stress during the four main
growing stages of the crops and use a
multiplicative approach to get the final value
• The allocation objective is to maximize the value
of production in each of the water model areas,
while minimizing risks for the farmers
40
20. Computable General Equilibrium
44
Economic policy options and trends, with land variable
Previous (or base) year water stress
Industrial and Domestic Water Demand
Agricultural demand for water by crops
Optimizes water distribution over months in the year
Calculates water shortages per water region by month
Allocates supply of available water to crops
Calculates the impact of water stress on yields
Yield shocks affect agricultural production; land fixed by crop
CGE model solves for final equilibrium for current year
CGE Model
Water
Demand
RWSM
Water
Stress
CGE Model
21. The Two-Step Procedure
• The productions from the different areas are
aggregated to the provincial level and to
economically representative cropping activities
• The ratio of the current year yield to the base year
yield is used to shock the production of crops in a
second run of the CGE model
22. Illustrative Results
49
Economic policy options and trends, with land variable
Previous (or base) year water stress
Industrial and Domestic Water Demand
Agricultural demand for water by crops
Optimizes water distribution over months in the year
Calculates water shortages per water region by month
Allocates supply of available water to crops
Calculates the impact of water stress on yields
Yield shocks affect agricultural production; land fixed by crop
CGE model solves for final equilibrium for current year
CGE Model
Water
Demand
RWSM
Water
Stress
CGE Model
23. Illustrative Results
• We run the dynamic model for 45 years (2005 to
2050) using “guesstimated” growth coefficients
• Capital growth is endogenous in the CGE model
50
25. GDP change adding variability and/or
Basha dam
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
Average with Basha
Historic Inflows
Historic with Basha
26. Decadal GDP change under climate
change with or without Basha dam
Scenario 2010s 2020s 2030s 2040s
MIROC A1B -0.18 -0.44 -0.56 -0.77
MIROC A1B with Diamer-Basha Dam 0.24 0.06 -0.01 -0.19
MIROC B1 -0.16 -0.40 -0.53 -0.72
MIROC B1 with Diamer-Basha Dam 0.26 0.11 0.01 -0.11
CSIRO A1B -0.12 -0.30 -0.47 -0.73
CSIRO A1B with Diamer-Basha Dam 0.30 0.19 0.07 -0.15
CSIRO B1 -0.05 -0.16 -0.25 -0.42
CSIRO B1 with Diamer-Basha Dam 0.36 0.32 0.26 0.16
27. Decadal agricultural production change
under climate change
Scenario 2010s 2020s 2030s 2040s
MIROC A1B -2.00 -4.21 -3.74 -3.42
MIROC A1B with Diamer-Basha Dam 2.36 -0.38 -0.76 -1.60
MIROC B1 -1.79 -3.80 -3.64 -3.02
MIROC B1 with Diamer-Basha Dam 2.58 0.10 -0.68 -1.04
CSIRO A1B -1.33 -2.88 -3.41 -3.45
CSIRO A1B with Diamer-Basha Dam 3.05 0.93 -0.49 -1.63
CSIRO B1 -0.58 -1.58 -1.86 -1.95
CSIRO B1 with Diamer-Basha Dam 3.75 2.23 0.95 -0.03
28. Conclusion
• Climate variability (and water availability change)
leads to wide GDP dips for Pakistan
• Climate change represents a serious threat to the
economy of Pakistan due to its reliance on
irrigated agriculture
• The Diamer-Basha dam can mitigate some of
these effects until the 2030s in most climate
change scenarios
Editor's Notes
The left image is a picture from space of the lowest three quarters of Pakistan. It makes clear that Pakistan is a desert country irrigated by one river system. Western Punjab receives up to 500mm of rain a year (during the monsoon) while Eastern Pakistan receives barely 100mm.The Indus Basin Irrigation System (IBIS), whose command area is pictured on the right is the world largest contiguous irrigation system. The IBIS serves 45 million acres of farm land which produces wheat, rice, fruits, vegetables, sugarcane, maize and cotton. It is mostly serving the provinces of Punjab, upstream, and Sindh, downstream, with a some water diverted to Eastern Balochistan and NWFP.