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Abstract: This paper examines the effect on economic welfare of alternative surface water allocations in the Alberta portion of the South
Saskatchewan River Basin in Canada. Growing demands for urban and instream water uses add to significant irrigation withdrawals, all
contributing to relative water scarcity. A computational model optimizes the annual value derived from spatially diverse water withdraw-
als, fully respecting their hydrologic and economic linkages. The model simulates current allocation practices and defines optimal
allocations under alternative demand and supply scenarios. The use of the publicly developed Aquarius modeling software illustrates its
comparative strengths relative to other models that optimize explicitly with respect to economic values. The model’s numerical estimates
support the conclusion that there are sufficient surface water resources for users to adapt to a range of alterations in water supply or water
demand, but that substantial short-term reallocations of water among users might be required to achieve the greatest benefit.
DOI: 10.1061/共ASCE兲WR.1943-5452.0000092
CE Database subject headings: Economic factors; Optimization; Water shortage; Decision support systems; River basins; Canada.
Author keywords: Economics; Optimization; Water allocation; Aquarius model; Decision support system; South Saskatchewan River
Basin.
water from one licensee to another. Procedural restrictions each node兲 and estimate the dollar value of marginal changes for
coupled with monetary and nonmonetary transactions costs tend each month at each node.
to limit the actual use of these transfer provisions in practice. The The objective of the current modeling exercise is to examine
current and forecast demand for water resources is so large that, optimal water allocations within a single 12-month period, as
under recent policy directives, the authorities have effectively would be relevant for decisions involving water management and
closed the basin by deciding not to issue new or expanded li- short-term water trading prior to making cropping and irrigation
censes. commitments. Within-year optimization can efficiently deploy
The approximate area of the SSRB watershed is 120,000 km2, water storage reservoirs to reallocate water between months, but
and the average annual precipitation is in the range of 34–53 cm/a there is no scope in the current model to reallocate across years.
共Alberta Environment 2002, 2005; Bow River Basin Council This implies that closing balances in reservoirs are constrained to
2005兲. Calgary is the largest of the four principal cities in the return to their opening levels. Although the Aquarius software
basin, and these cities’ combined population 共1,325,000兲 共Statis- does have some capacity to model multiple-year decision periods,
tics Canada 2008兲 represents about 75% of the SSRB population. those features are not explored here. A move to explore multiple
The principal irrigated crops are grains, forages, oilseeds, and year versus single-year optimization periods not only influences
some specialty crops, which typically receive 39–68 cm/a of irri- the optimal use of storage capacity, it also requires careful cali-
gation water, applied mainly by central pivot irrigation systems bration of the corresponding increase in water users’ flexibility
with some continuing use of wheel-move sprinklers and other 共demand elasticity兲 as the time horizon lengthens.
methods 共Irrigation Water Management Study Committee 2002兲. Prior studies that seek to optimize economic gains from alter-
Historically, there has been little use of drip or microirrigation native water allocations in the SSRB include Horbulyk and Lo
technologies and there is little use of groundwater for irrigation. 共1998兲 and Mahan et al. 共2002兲. Using customized solution algo-
rithms other than Aquarius, those models operate with a seasonal
time step, and are unable to characterize a month-by-month pat-
Optimization of Economic Values Using Aquarius tern of water allocations or values. Nor can they characterize the
interplay of water storage and instream flows outside the irriga-
To investigate the effects on economic welfare of alternative tion season. The principal computational modeling tool that is
water allocations using computational optimization, the current used by Alberta’s government resource managers for the SSRB is
research strategy assigns dollar values to competing water uses, the water resources management model 共WRMM兲, as employed
where these dollar values vary according to location, time of the by Ilich 共2008兲. The WRMM does not incorporate economic cri-
year, and quantity of water allocated, among other factors. With teria reflecting dollar values of benefits, but simulates alternative
maximization of aggregate dollar benefits over a 1-year optimiza- allocations based on a system of rules and penalty points.
tion period as the algorithm’s objective function, one solves for Prior research from other watersheds that captures water val-
optimal water allocations in a series of hypothetical scenarios, ues and hydrology within a comprehensive optimization frame-
each reflecting specified changes within the watershed. Each so- work includes numerous applications of the CALVIN model
lution simulates the level and distribution of economic gains and developed for California 共Jenkins et al. 2004兲. Tilmant et al.
losses “as if” water resources were perfectly managed in each 共2008兲 modeled the economic benefits from alternative water al-
such case. locations in the Euphrates River Basin using a computational
The Aquarius software package used here 共Version 10兲 共Diaz model that also includes stochastic elements. No similar models
and Brown 1997; Diaz et al. 2000兲 is a publicly developed and yet exist for the SSRB.
freely distributed modeling platform designed for such analyses
关see: http://www.fs.fed.us/rm/value/aquariusdwnld.html.兴 Other Calibration of the Base Model
studies reporting its use include Brown et al. 共2002兲, Alfieri et al.
共2006兲, and Cutlac et al. 共2006兲. The researcher chooses the desired degree of spatial detail when
The computational model developed here employs Aquarius to compiling and entering physical and economic data for each lake,
represent the SSRB as a network of approximately 40 demand river, demand node, or storage site in the basin. To reduce both
and supply nodes for surface water. Using a monthly time step to the data and computational requirements, the present representa-
optimize the benefits derived in a single year, quantitative data tion of the study area 共Fig. S1兲 has grouped together a series of
describe the physical characteristics of these demand and supply smaller reservoirs and adjacent hydroelectric generation facilities
nodes, including the spatial relationships among upstream uses, as if they formed a “composite” regional reservoir and hydroplant
return flows, and downstream outcomes. Economic data describe in a specific subbasin. This abstraction process is also reflected
the demand curves and social marginal benefit for allocations of temporally, where daily and weekly flow data are captured as
water to various uses. Constraints that are imposed on the opti- monthly means, minima, or maxima. Data requirements include
mization process include limits on reservoir storage capacity, sea- water supply from headwater catchments, hydroelectric power
Unlike the other demand curves 共1兲, the Aquarius specification for
100,000
recreational benefits follows a hyperbolic tangent function de-
0 scribed by Diaz et al. 共2000兲. The benefits from reservoir recre-
- 25 50 75 100 125 ational activities are assumed to vary with the volume of water
Quantity (Mcm)
stored 共as governed by size of the lake兲, and with access and the
CS+PS Initial demand Increased demand
extent of possible recreational activities. The maximum recre-
Fig. 1. Exponential water demand function. Areas under each expo- ational benefit is reached at maximum storage. Whereas the total
nential demand function up to the volume of monthly usage provide annual value of recreational benefits can be varied according to
a measure of economic benefits 共in dollars/month兲 representing the alternate assumptions about travel costs and resulting visitor days
sum of consumers’ surplus 共CS兲 and producers’ surplus 共PS兲. The to each site, it is the change in these valuations across alternative
dashed line shows the relative position of a new demand curve when water allocations that will influence water management. Some
demand increases. features of the Aquarius model, such as the ability to model in-
stream recreation benefits 共boating, fishing兲 as a function of flows
in each reach of the river, are not employed here due to a lack of
data. Foreshadowing the optimization results reported below, the
Y = a expX/b 共1兲 optimal allocation results do not appear to be highly influenced by
changes in these recreational benefits or by plausible alternative
where Y = water price, in dollars per MCM, in the case of urban specifications of reservoir characteristics.
and agricultural irrigation water demand, and dollars per MWh in
the case of hydropower production 共all dollar values are in Cana- Modeling Strategy and Alternative Allocation
dian currency兲; X = quantity of water demanded per month, in Scenarios
MCM 共or in MWh for hydropower兲; and a , b = functional param-
eters, where a ⬎ 0 and b ⬍ −1. The valuation of water volumes in the SSRB and the simulation
This exponential functional form causes each demand curve to of alternative optimized water allocations provide a means of
intersect with the price 共vertical兲 axis, indicating that, if price is comparing outcomes that are counterfactual to the status quo,
high enough, consumption for this use ceases, such as by users specifically in terms of when and where various water volumes
finding an alternative source of supply 共Fig. 1兲. This specification are withdrawn from surface flows. After the water is withdrawn,
enables estimation of consumers’ and producers’ surplus for any each type of user 共e.g., a town or city, an irrigation district, a
quantity of water use 共CS+ PS area in Fig. 1兲. The own-price producer of hydroelectricity兲 is expected to incur specific costs
elasticity of demand is variable along these exponential demand for further pumping, treatment, storage, wastewater processing,
curves. These exponential functions can be calibrated using as and so on. Important for the analysis that follows, there are no
few as two price-quantity combinations: one that characterizes no significant quantity-dependent costs of supply prior to the point of
consumption 共i.e., at the vertical intercept兲, and one at the market water abstraction. There are numerous fixed or annual costs that
equilibrium. are incurred to operate, oversee, and maintain the entire system,
To calibrate the model to replicate the status quo, these but these costs are essentially independent of which user with-
monthly demand curves plot the estimated choke prices and the draws relatively more or less water than another. Thus, the current
combination of the actual price and volume of raw water typically approach to estimate social values across alternative allocations is
allocated. For urban demand, satiation prices are similar to values based only on the demand curves that reflect the relative values of
derived by Lo 共1995兲. Choke prices for irrigation usage are in- water. There is no analytical role here for average and marginal
ferred from Mahan 共1997兲 who plotted agricultural production cost curves for flows at each demand node.
functions for major irrigation districts. Water prices and volume When water is allocated from the SSRB without the payment
estimates are inferred from the estimated monthly consumption of volumetric fees by users, all of the imputed value for a given
and the price actually paid in 2003 共excluding sewage charges兲 allocation can be characterized as consumers’ surplus. Under an
for urban consumption 共$0.86/ m3 in Calgary, $0.44/ m3 in Leth- alternative policy where a price is charged to each user by the
bridge, $0.40/ m3 in Medicine Hat, and $0.41/ m3 in Red Deer兲, government at the point of 共bulk兲 surface water withdrawal, the
and from the equilibrium prices estimated by Mahan 共1997兲 for values in a given allocation will reflect a combination of consum-
irrigation 共values range between $0.026/ m3 and $0.053/ m3兲. er’s and producers’ surplus. With or without specific water ab-
Under such an approach, and in the absence of other major straction fees, the sum of these surpluses across all users is
distortions in these markets, the height of these demand curves is reflected in the maximized value of the model’s objective func-
interpreted to reflect the social marginal benefit 共in dollars兲 for tion. Changes in this value across scenarios monetize the relative
incremental allocations in each use. Table S13 shows specific social gains or losses.
parameters. The initial calibration of the Aquarius model provides a solu-
actually taken. That is, to replicate the current situation as a con- As configured for these six scenarios 关i.e., the current alloca-
strained optimum, the analyst prevents the model’s optimization tion, the optimized base case plus Scenarios 共1兲–共4兲 described
algorithm from reallocating some water from lower-valued to above兴, the solution of each optimization problem is the surface
higher-valued uses, causing the current allocation to be recovered water allocation that maximizes total economic benefits to users
as the “best” outcome. From there, one may then remove those by choosing values for 126 decision variables. These allocations
restrictions to solve for an optimized “base case.” This optimized correspond to flows every month to the four types of water users
allocation shows how much more value could be gained from the represented by demand functions 共urban use, irrigation, hydro-
available water resources, if only the water could be used in those power, and reservoir recreation兲. This optimization is subject to
times and places where its value is highest. Under this approach, 412 constraints 共including 72 monthly constraints for minimum
this optimized base case can now be compared to what would be instream flows, 12 monthly constraints on interprovincial appor-
optimal under other cases of interest, such as those with alternate tionment, eight constraints on minimum and maximum reservoir
levels of water supply or demand. storage capacity, eight constraints on initial and final reservoir
A second approach to simulating current 共suboptimal兲 practice storage volumes, 144 diversion node constraints, and 168
as the outcome of computational optimization is to alter the ob- monthly constraints characterizing the SSRB inflows兲. The objec-
jective function through changes in the value of water at various tive function is nonlinear, and the computational algorithm em-
times and locations. This approach maintains the assumption that ploys sequential quadratic programming to iterate to each
the current agents and allocation processes are indeed optimizing, solution.
but allows that, individually or collectively, users may face other A model solution includes the optimized value of the objective
costs or barriers not readily observed by the modelers. For ex- function and the levels of each of the 126 decision variables, such
ample, various transactions costs and information costs could be as hydropower and reservoir releases, and flows of water to irri-
the reason that the current outcome is suboptimal. Accordingly, gators and to each city. One can aggregate these data temporally
additional costs to users would be introduced through an econo- and spatially to see the allocations and values of water to users at
metric calibration exercise—effectively reducing some demands each demand node or in each sector. The solution values also
in the objective function. describe the “shadow value” of water at each demand node,
This second calibration methodology is presented by Howitt which can be interpreted as the potential increase in the dollar
共1995兲 as “positive mathematical programming,” and it would value of the objective function from increasing any one of the 412
remove the need to distinguish between the so-called current al- model constraints, holding all else constant.
location and the base case 共or “optimized” current allocation兲.
This approach cannot be implemented directly with the Aquarius
software. Fortunately, both methodologies ultimately allow a rela- Results
tive comparison between the same counterfactual scenarios and a
共suboptimal兲 base case, although the two approaches’ cost as- Table 1 presents the aggregate economic benefits obtained in each
sumptions will differ. scenario, and Table 2 reports the corresponding allocations of
In the analysis that follows, the current allocation and the op- annual water volumes. The current value of economic benefits
timized base case are computed and compared to four alternative 共estimated as consumers’ surplus兲 is about $930 million per year,
scenarios. The first three counterfactual scenarios are imple- which could be increased to about $1,123 million per year if
mented one at a time, holding constant all other data and assump- water could be moved freely and costlessly to its highest valued
tions in the optimized base case. These scenarios are 共1兲 holding uses. The allocated annual volumes are about 10,800 MCM in the
constant the vertical intercepts, the demand curves for all urban current allocation and would increase to about 14,100 MCM in
demanders have a 30% higher valuation of the current allocated the optimized base case, where these figures include the reuse of
volume; 共2兲 holding constant the vertical intercepts, the demand return flows. Since the spatial scope of the valuation estimates is
curves for all irrigation demanders have a 30% higher valuation the province of Alberta, only the value of changes affecting Al-
of the current allocated volume; and 共3兲 holding constant the ini- berta residents is considered, as in the examination of water
tial demand valuations, the inflow water supplies to the basin are policy alternatives at the province level. Subject to meeting the
decreased by 30%. For the fourth scenario, all of the changes existing water sharing agreement in each scenario, further de-
共1兲–共3兲 occur together. That is, in 共4兲, a water basin with consid- creases in water allocations to downstream jurisdictions do not
erably increased water valuations 共relative to now兲 faces a 30% diminish economic benefits to Alberta.
decline in water supply. Both Tables 1 and 2 describe the changes in outcomes between
These scenarios represent the adjustments that might be made, pairs of scenarios in absolute terms and as percentages of the
if, for example, there were to be higher consumptive demands for optimized base case values. In these tables, the annual values
water, either due to growth in population or irrigated acreage, or have been aggregated over the calendar year, although the model
because there were a desire for more water by existing users, such output includes full month-by-month details. In the optimized
base case in Table 1, urban and agricultural uses of water account 共220%兲, as measured by gross withdrawals, as do the urban 共i.e.,
for the largest share of benefits 共45 and 48%, respectively兲, municipal and industrial兲 water users. Fig. 2 illustrates the key
whereas the shares to hydropower 共7%兲 and reservoir recreation allocation results.
共⬍1%兲 are relatively small. Table 2 shows that to achieve these In the hypothetical Scenario 共1兲 where the urban demand in-
relatively similar levels of benefits in the optimized base case, creases, the urban withdrawals increase by about 18.5%, yet the
agricultural water users use more than twice as much water decline in withdrawals for irrigation is only about 4%. This real-
Table 2. Water Flows Allocated to Each Water Use across Six Allocation Scenarios
Municipal Agricultural Hydropower Reservoir Total annual
and industrial irrigation generation releases allocated flows
Allocated flows to each water use Millions of cubic meters per year
Current allocation scenario 238.9 2,051 2,462.3 6,046.3 10,798.50
Base model 1,624.3 3,579.3 2,462.3 6,436.9 14,102.80
共1兲 Increased population scenario 1,924.2 3,439.1 2,462.3 6,445.8 14,271.40
Absolute value change relative to the base model 299.9 ⫺140.2 0 8.9 168.6
Percent change relative to the base model 18.5% ⫺3.9% 0.0% 0.1% 1.2%
共2兲 Increased agricultural irrigation scenario 1,424.7 3,821.6 2,462.4 6,447.1 14,155.80
Absolute value change relative to the base model ⫺199.6 242.3 0.1 10.2 53
Percent change relative to the base model ⫺12.3% 6.8% 0.0% 0.2% 0.4%
共3兲 Low hydrologic regime scenario 1,433.0 3,283.1 1,723.6 5,184.2 11,623.90
Absolute value change relative to the base model ⫺191.3 ⫺296.2 ⫺738.7 ⫺1252.7 ⫺2,478.9
Percent change relative to the base model ⫺11.8% ⫺8.3% ⫺30.0% ⫺19.5% ⫺17.6%
共4兲 Increased population, increased agricultural irrigation and 1,573.0 3,247.9 1,723.6 5,346.9 11,891.40
low hydrologic regime scenario
Absolute value change relative to the base model ⫺51.3 ⫺331.4 ⫺738.7 ⫺1,090 ⫺2,211.4
Percent change relative to the base model ⫺3.2% ⫺9.3% ⫺30.00% ⫺16.9% 0%
not address, such as for basin hydrology and for the benefits from issues2.asp典.
water use. For instance, in a basin where the relatively high rate Brown, T. C., Diaz, G. E., and Sveinsson, O. G. B. 共2002兲. “Planning
of urban return flows upstream makes water available water allocation in river basins—Aquarius: A system’s approach.”
downstream—both for instream flows and for seasonal Proc., 2nd Federal Interagency Hydrologic Modeling Conf., USGS,
irrigation—the characterization of each sector’s optimal water al- Office of Water Quality, Advisory Committee on Water Information,
locations depends on specific economic tradeoffs that are too nu- Reston, Va., 具http://www.fs.fed.us/rm/value/docs/planning_water_
merous to analyze by simpler methods. allocation_river_basins.pdf典.
Some analysts may feel constrained by their inability to re- Cutlac, I. M., He, L., and Horbulyk, T. M. 共2006兲. “Integrated modeling
for river basin management: The influence of temporal and spatial
place or to program around some of the hypotheses, assumptions,
scale in economic models of water allocation.” Water Sci. Technol.,
and methods that are built into this Aquarius modeling platform. 53共10兲, 55–63.
For example, there is no evident capacity with this software to Diaz, G. E., and Brown, T. C. 共1997兲. “AQUARIUS: A general model
employ alternative demand specifications, or to examine deci- for efficient water allocation in river basins.” Proc., 27th Congress of
sions about the relative roles of alternative crops and irrigation the Int. Association for Hydraulic Research, Theme A: Managing
technologies as potential responses to changing water flows or Water: Coping with Scarcity and Abundance, ASCE, New York,
policies. However, in watersheds such as this one, where more 具http://www.fs.fed.us/rm/value/docs/aquarius_general_model_water_
specialized economic allocation models have not yet been devel- allocation_river_basins.pdf典.
oped and calibrated, the use of the Aquarius platform offers a Diaz, G. E., Brown, T. C., and Sveinsson, O. 共2000兲. “AQUARIUS: A
valuable and accessible analytical platform, against which the re- modeling system for river basin water allocation.” General Technical
sults of any more highly specialized future approaches might be Rep.RM-GTR-299-revised, USDA Forest Service, Rocky Mountain
compared. As illustrated here, in jurisdictions with diverse water Forest and Range Experiment Station, Fort Collins, Colo. 具http://
uses, careful reference to relative economic valuations can play www.fs.fed.us/rm/value/aquariusdwnld.html典.
an important role in informing the large set of allocation decisions Enmax Corporation. 共2004兲. “Plan sign-up: Plan pricing.” 具http://
www.enmax.com/Energy/Residential/ElectricityGas/Regulated⫹Rate
that potentially might arise.
⫹Tariff.htm典 共Jan. 22, 2004兲.
Environment Canada. 共2004兲. “Water survey of Canada national water
data archive—HYDAT archived hydrometric data.” 具http://
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Fig. S1 and Tables S1–S13 are available online in the ASCE Horbulyk, T. M., and Lo, L. J. 共1998兲. “Welfare gains from potential
Library 共www.ascelibrary.org兲. water markets in Alberta, Canada.” Markets for water: Potential and
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Acknowledgments Agric. Econom., 77共2兲, 329–342.
Ilich, N. 共2008兲. “Shortcomings of linear programming in optimizing
river basin allocation.” Water Resour. Res., 44, W02426.
The writers acknowledge research funding support from the Ca-
Irrigation Water Management Study Committee. 共2002兲. “South
nadian Water Network, a member of the Networks of Centres of
Saskatchewan River Basin: Irrigation in the 21st Century.” Summary
Excellence of Canada. Rep., Vol. 1, Alberta Irrigation Projects Association, Lethbridge, Alta.
具http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/irr4421/
$FILE/v1_toc.pdf典.
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