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Economics of Water Management in Soyang Watershed

TERRECO Cluster H-04

From 04/2012

Principal Investigator: Trung Thanh Nguyen, Hio-Jung Shin, John Tenhunen, Thomas Koellner
Staff: Ik-Chang Choi

Abstract: The Korean government has regulated the domestic water charge for political purposes. As a result, the price covers only part of the production cost (about 80%). It has become one of the causes of wasting water and an efficiency decrease in the water industry. The agricultural water use accounts for about 62% of the total water use. It is, nevertheless, free and the charge exemption has prevented efficient water use and management. Water yield and quality are highly affected by climate change and agricultural intensification. This study is aimed to contribute to a more sustainable water management in South Korea. Thus, the objectives of this study are (1) to identify the water price with external costs internalized for drinking and agricultural water, (2) to determine the marginal abatement cost for nutrients in water, and (3) to stimulate the impacts of climate, land use and water policy change on water pricing and abatement costs. The study area is Soyang Watershed in Gangwon Province, South Korea, which is one of the most important sources supplying water to the metropolitan areas, and its water storage is considered as the water supply. Monthly and yearly data on water consumption of each demand sector (domestic, agricultural, industrial, other uses) are needed for estimating each demand function. The water price is determined through the equilibrium of the supply and demand. Water pollution by nutrients is one of the typical externalities that must be taken into account. Actual equilibrium of supply and demand does not reflect external costs, and the social benefit is less than the social cost. The problem is that people are consuming and wasting too much water. Thus, the water price should be determined with external costs to be internalized. For the determination of marginal abatement costs, a hydrological water quality model (SWAT, Soil and Water Assessment Tool) will allow us to determine the relationship between the modelled in-stream concentration at the Soyang river basin outlet and the associated emission reduction (see poster of Rim Ha et al. for details). Then the Economic Optimization Model (EOM) is used to set up marginal abatement cost curves for demanding nutrient substances. It not only determines the least-cost combination and calculates cost of pollution abatement measures, but also minimizes the objective function. The stationary coupling between SWAT and EOM is adequately considered for the long-term planning purposes in the Soyang Watershed management plans. The equilibrium price changes will be simulated under climate, land use and water policy change. First, climate change will directly influence the water supply and land use change, and also the demand for drinking water, irrigation, etc. will change. Second, water policy change such as a tax or fee can be levied for irrigation water which is free now or an increase in charge for drinking water may be imposed. The coupling of SWAT and EOM will quantify the required emission reduction to reach an in-stream concentration target and to compare the cost-effectiveness of measures across sectors. The variation in marginal costs will show a potential for cost savings and a cost-effectiveness analysis will be able to provide an added value for the watershed and water resource management.

Key Words: water pricing, abatement costs, hydrological water quality (SWAT) and economic optimization model (EOM)


Poster January 2013

last modified 2013-02-28