2005 AGU Fall Meeting: Session: Economic Modeling for Water Resource Management

American Geophysical Union

"Water scarcity is forcing a re-evaluation of existing water resource planning strategies in many regions. Traditional approaches to water resource development have relied on large supply projects with sufficient capacity to meet demand under all, or practically all, conditions. This leads to a considerable volume of excess capacity in all but the driest years, capacity whose building and maintenance have become increasingly expensive, in terms of both economic and environmental costs. Concerns over these issues have resulted in a sharp reduction in the number of large-scale water supply projects being developed in the United States and other industrialized nations. In the future, water demand is less likely to be met by massive infrastructure projects, and instead satisfied through the coordination of multiple smaller supplies. The focus will be on meeting peak demands while minimizing the maintenance of excess capacity through the use of more flexible alternatives (e.g., market-based transfers, portable desalination facilities), as well as more approaches involving conjunctive use of surface and groundwater. Identifying optimal strategies requires the development of stochastic risk management techniques that weigh the costs of achieving desired supply reliability levels against the economic impacts of periodic shortfalls.

This session will provide a forum for exploring the challenges and recent advances in probabilistic modeling/optimization approaches designed to maximize the benefits derived from increasingly scarce water resources. There will be a particular emphasis on the integration of stochastic hydrologic modeling techniques with the science of "decision under uncertainty", an increasingly vibrant area of economics/finance research. Developing diversified “portfolios” of supply assets facilitates more flexible approaches to water resource management, but requires an ability to manage the supply risk imposed by the greater uncertainty that accompanies dependence on multiple sources. Nonetheless, these more diversified approaches can have distinct advantages in terms of reducing supply costs and facilitating more rapidly responses to changes in hydrologic variability (i.e. climate change)."