Modeling Economy-wide impacts of water policies in pakistan

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Presented by Sherman Robinson at the Global Water Systems Project: Water in the Anthropocene Conference May 21-24th in Bonn, Germany.

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  • 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.
  • Modeling Economy-wide impacts of water policies in pakistan

    1. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
    14. 14. The Indus Basin Source: NASA Earth Observatory Source: IWMI 32
    15. 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
    16. 16. Regional Water Simulation Model – Pakistan (RWSM-Pak) 36
    17. 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. 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. 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. 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. 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. 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. 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
    24. 24. 0 50 100 150 200 250 300 350 2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2050 Baseline Projections - Historic Average Water Stress GDP of Pakistan Punjab Ag Production Sindh Ag Production OthPak Ag Production
    25. 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. 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. 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. 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

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