Payments for Watershed Services as Adaptation to Climate Change: Upstream Conservation and Downstream Aquifer Management

James Roumasset and Christopher Wada

Water Economics and Policy (WEP), 2015, vol. 01, issue 01, 1-19

Abstract: Economically optimal groundwater extraction allocates water over space and time to its highest and best social use. But optimal management of water resources also requires optimal investment in watershed capital, even as the climate is changing. We augment a standard coastal groundwater management model with stock-dependent extraction costs to include recharge-enhancing natural and produced capital whose depreciation can be offset by investment in each period. In some parts of the world, including Hawaii, results from climate models suggest that mean annual rainfall will decrease but that the frequency of storms may increase. In the case of coastal aquifers, the implication is that runoff to the ocean will increase and groundwater recharge will decrease. Accordingly, the groundwater-extraction/watershed-investment problem is further extended to allow natural recharge to decline in response to climate change. The tendency of falling recharge is partially offset by increasing investment in watershed capital. If precipitation decreases sufficiently, however, it may be that optimal conservation eventually declines as the cost of increasing groundwater recharge correspondingly increases. Thus adaptation to climate change may involve an initial stage of increased conservation investment followed by controlled depreciation of natural capital. That is, instruments of adaptation may become increasingly ineffective as climate change progresses.

Keywords: Groundwater optimization; watershed conservation; climate change adaptation; integrated management (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1142/S2382624X14500039

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