The economic impact of irrigation water scarcity from climate change: A CGE analysis distinguishing between surface and ground water

A number of climate change scenarios show an increased frequency and severity of droughts in The Netherlands due to reduced precipitation and warming summer temperatures (van den Hurk et al., 2006). Depending on their location farmers may have access to surface water, ground water or both as their irrigation source. In times of water scarcity these different irrigation sources have distinctive characteristics that water managers need to consider in making allocation decisions. To determine the extent of the benefit of increased access to river water in times of water scarcity we employ the multi-regional computable general equilibrium model GTAP-W (Calzadilla et al., 2010), which includes water as an explicit input in agricultural production. The model has been expanded to allow for differentiation between surface and groundwater endowments within individual regions in order to quantify the importance of increased surface water in irrigation as an adaptation response to climate change. The model has been applied to analyze the impact of a drier climate on the agricultural sector and the economy as a whole both in The Netherlands and its upstream neighbors in the Rhine and Meuse river basin, Belgium and Germany. We further examine the benefit of increased water irrigation infrastructure as an additional adaptation response for Dutch agricultural producers and the subsequent effect that the Dutch adaptation response might have on the agricultural markets for the upstream countries Belgium and Germany. The results show that a limited increase in surface water irrigation infrastructure increases the output of all crop sectors including rain fed sectors. However a much larger expansion of irrigated areas increases the demand and price for labor and capital to such an extent that rain fed agricultural sectors decrease as a result. The impacts on the upstream countries are limited but non-negligible.