Modeling Economywide Impacts of Water Policies in Pakistan

Transcription

1 Modeling Economywide Impacts of Water Policies in Pakistan Sherman Robinson and Arthur Gueneau International Food Policy Research Institute (IFPRI) December 14, Islamabad

2 Plan of the Presentation Motivation of the work Presentation of the CGE-W model CGE model: IFPRI standard model Water model: IBMR Links: CGE-W Preliminary illustrative results Future work and conclusion 2

3 Motivation Pakistan is subject to increasing water stress Expanding agriculture relies heavily on irrigation Hydropower important for increased energy demand Water policies have a large impact on the agricultural and power sectors Impacts are transmitted to the rest of the economy through markets and changes in prices Potential use of simulation models to analyze water/economy/policy links 3

4 Modeling Paradigm CGE-W is a water/economic simulation model Water policies influence distribution of water Repercussion on crop yields Yield changes shock agricultural supply Economy reacts by reallocating production factors through market mechanisms and price changes Changes in prices affect farmers decisions for the following year Economic policies also have indirect impacts on the water sector 4

5 IFPRI Dynamic CGE-W Model CGE model Runs with economic policy options Base-year water stress Water demand Industrial and domestic water demand Agricultural area (based on prices) IBMR Optimizes the water distribution Calculates water shortages Water stress Calculates the impact of water stress on yields Calculates the depletion of groundwater associated CGE model The yield reduction (or increase) impacts the agricultural production Calculates the new economic output 5

6 Why a coupled model? There are economic models with water factors Do not capture the complexity of the Indus basin There are water models with economic variables Do not capture economywide links between agriculture and the rest of the economy Our paradigm: Let each model do what it is best at and make them talk to each other

7 Computable General Equilibrium CGE model Runs with economic policy options Base-year water stress Water demand Industrial and domestic water demand Agricultural area (based on prices) IBMR Optimizes the water distribution Calculates water shortages Water stress Calculates the impact of water stress on yields Calculates the depletion of groundwater associated CGE model The yield reduction (or increase) impacts the agricultural production Calculates the new economic output 7

8 Computable General Equilibrium (CGE) Models A standard tool of economic and policy analysis for the past 40 years Simulates operation of a market economy with supply/demand equilibrium determining prices IFPRI Standard CGE model (Lofgren and Robinson) 8

9 Stylized CGE Model Structure Factor Costs Activities Factor Markets Intermediate Input Cost Wages & Rents Taxes Households Government Sav./Inv. Transfers Domestic Private Savings Gov. Savings Sales Commodity Markets Private Consumption Government Consumption Investment Demand Exports Imports Foreign Transfers Rest of the World Foreign Savings 9

10 IFPRI Pakistan CGE Model Based on the SAM of Pakistan (Dorosh et al., 2012). 63 activities and 48 commodities Special focus on agriculture (15 agric commodities) Large, medium, and small farms Distinguishes 19 types of households and 10 types of labor Distinguishes Punjab, Sindh, and other provinces for agricultural sector 10

11 IBMR Water Model CGE model Runs with economic policy options Base-year water stress Water demand Industrial and domestic water demand Agricultural area (based on prices) IBMR Optimizes the water distribution Calculates water shortages Water stress Calculates the impact of water stress on yields Calculates the depletion of groundwater associated CGE model The yield reduction (or increase) impacts the agricultural production Calculates the new economic output 11

12 The Indus Basin Model Revised 12

13 CGE-W version of IBMR Standalone water model Water model does not have any internal representation of the economy Links to CGE model for economic variables Objective is to minimize the agricultural water shortage across all Pakistan 13

14 CGE-W IBMR Overview Represents the 45 main canals, as well as the link canals between rivers Takes into account fresh and saline groundwater, as well as public and private tubewell pumping Can represent droughts and floods Includes 16 representative crops Takes into account industrial, domestic and livestock water demand (assumed to be drawn from groundwater mostly) 14

15 Water Demand Module CGE model Runs with economic policy options Base-year water stress Water demand Industrial and domestic water demand Agricultural area (based on prices) IBMR Optimizes the water distribution Calculates water shortages Water stress Calculates the impact of water stress on yields Calculates the depletion of groundwater associated CGE model The yield reduction (or increase) impacts the agricultural production Calculates the new economic output 15

16 Water Demand Module Computes agricultural cropped area based on the CGE model results The water demand is then computed using FAO guidelines Industrial and Livestock water demand are proportional to the amount of activity in the sector Domestic water demand is proportional to household revenues 16

17 Water Stress Module CGE model Runs with economic policy options Base-year water stress Water demand Industrial and domestic water demand Agricultural area (based on prices) IBMR Optimizes the water distribution Calculates water shortages Water stress Calculates the impact of water stress on yields Calculates the depletion of groundwater associated CGE model The yield reduction (or increase) impacts the agricultural production Calculates the new economic output 17

18 Water Stress Module In case of water stress, the yield of crops is reduced using the FAO Ky approach (Doorenbos and Kassam, Yield Response to Water,1979) It is aggregated to the provincial level and to economically representative cropping activities The ratio of the current year yield to the base year yield is used to shock the production of crops in a second run of the CGE model 18

19 Linking the Models CGE model Runs with economic policy options Base-year water stress Water demand Industrial and domestic water demand Agricultural area (based on prices) IBMR Optimizes the water distribution Calculates water shortages Water stress Calculates the impact of water stress on yields Calculates the depletion of groundwater associated CGE model The yield reduction (or increase) impacts the agricultural production Calculates the new economic output 19

20 IFPRI Dynamic CGE-W Model Can be run dynamically over many years Economic actors act based on the previous years and have no forecast of the water situation A full optimization version is being developed Economic actors have perfect knowledge of water conditions in the year to come and make decisions accordingly Can test different scenarios of economic and water policies for Pakistan 20

21 Illustrative Results CGE model Runs with economic policy options Base-year water stress Water demand Industrial and domestic water demand Agricultural area (based on prices) IBMR Optimizes the water distribution Calculates water shortages Water stress Calculates the impact of water stress on yields Calculates the depletion of groundwater associated CGE model The yield reduction (or increase) impacts the agricultural production Calculates the new economic output 21

22 Illustrative Results We run the dynamic model for 20 years (2005 to 2025) using guesstimated growth coefficients We run three different scenarios: one base year (with average flow), one dry year and one wet year We run these scenarios again with the presence of the Basha dam to see its impact on the economy (considering only irrigation benefits for now) 22

23 Impact on GDP dry wet Bbase Bdry Bwet 23

24 Irrigated Wheat Production in Sindh dry wet Bbase Bdry Bwet 24

25 Sugar Cane Production in Sindh dry wet Bbase Bdry Bwet 25

26 Sindh Agricultural Production dry wet Bbase Bdry Bwet

27 Irrigated Wheat Production in Punjab dry wet Bbase Bdry Bwet

28 Basmati Production in Punjab dry wet Bbase Bdry Bwet 28

29 Punjab Agricultural Production dry wet Bbase Bdry Bwet -10

30 Illustrative Results: Conclusion Dry and wet years strongly impact GDP Building the dam does have a significant impact on agriculture: Basha has a strong positive impact on rabi crops in Sindh It has a positive impact on kharif crops in both Sindh and Punjab It has a somewhat smaller impact on rabi crops in Punjab 30

31 Future Work Define and run other policy experiments Water model improvements representation of non-indus basin water representation of groundwater representation of hydropower Consider effects of climate change Increased frequency of extreme events: floods and droughts Impacts on infrastructure (roads, bridges, buildings) 31

32 Future Work Program Disseminate the model in Pakistan UAF class in Faisalabad, Jan 28 Feb 1, 2013 Possible seminars in different institutions PSSP work program to develop collaborative research projects with institutions in Pakistan Work program on water models, economywide models, and linked models Develop and update the Social Accounting Matrix to get a better vision of the economy 32