Tuesday 12 Feb 2013Optimisation-driven Simulation of Water Markets to Help Policy Design

Dr Julien Harou - University College London

Harrison 170 14:00-15:00

The presentation will start with a brief introduction of current and potential uses of systems analysis in UK water resources planning and management. The issue of water resource trading will be discussed and the type of models required for integrated assessments and planning studies where trading is relevant are outlined. The majority of the talk will consider a specific model built to investigate the design of new water rights in England which are more adaptable to future scarcity.

In many catchments in England no further water abstraction licenses are available from the Environmental Agency. The possibility of trading water between license holders has been recognized as a potentially effective and economically efficient strategy to mitigate increasing scarcity. The current water abstraction licence regime is a barrier to trade. What water licensing regime could most cost-effectively increase trading and allow it to reduce the economic cost of scarcity events? A screening tool that could help evaluate different water licensing solutions and test their impact on trading under specific conditions would be useful. We propose a water market simulator that predicts economically efficient pair-wise trade (between willing buyers and sellers) and represents the interaction of trades with natural hydrological flows, engineered infrastructure and a particular regulatory regime. The model emulates license-holders’ willingness to engage in short-term trade transactions. In their initial form different ‘agents’ (license holders) are represented using an economic benefit function of water use which is supplemented by rules to represent behavioral or other characteristics of realistic system behavior. A case study based on the river Ouse basin (UK) is made to test the model. The model simulates the catchment weekly considering reservoirs and pair-wise specific transaction costs. The interaction between licensing rules and water trading is examined for different regulatory options.

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