A pipeline runs across oil fields.

As the climate crisis continues to worsen, natural resource challenges are exacerbated. Droughts, heat, and floods have become more frequent and severe, changing access to natural resources across regions. Take water for example. With growing global water stress caused by the combined effects of growing populations, increasing economic development, and climate change, it is crucial to allocate the use of water resources effectively. You can imagine that the decision on how to leverage an already strained resource is a complex one with multiple factors to consider—economic factors, political factors, legal factors, and equity to name a few. Climate adaptation and mitigation planning in water-dependent sectors such as energy and agriculture can further complicate decision-making around water resources.

Hydro-economic modeling is one tool that can help water resource managers make more informed, data-based decisions. It allows them to analyze and better understand the economic tradeoffs— the costs and the benefits— of different water allocation and planning scenarios. Instead of looking at Food-Energy-Water (FEW) systems individually or as separate components, it captures connections and feedbacks between water resources and water-dependent economic sectors like agriculture and energy.

Assessing how to best allocate resources can require assigning a value to those resources. When it comes to water, the value will depend on how, when, and where it’s being used. And while the use of water in one locale will provide value to that area, it will often mean there is less available for in other areas or in the future.

The growing water crisis in the Colorado River Basin offers an important example of the allocation challenges facing water managers. The prevailing water sharing agreement for the basin was made during a time of relative water abundance. But now, with a long-term drought likely made worse by climate change, restrictions on water use are becoming inevitable. But where and from whom should those restrictions come? A hydro-economic methodology can help water resource managers weigh their options and limit the economic losses caused by increasing water scarcity.

Like any method, there are limitations to hydro-economic models, and economic factors must be balanced against other considerations in formulating water policy. However, a strong case can be made that this systems-based modeling approach deserves to be an essential element of the FEW nexus toolkit.

Read the full report from RTI experts, A hydro-economic methodolofy for the food-energy-water nexus, to learn more about the core elements of an integrated systems-based modeling approach.