Roberto Roson. IEFE and CMCC. University of Milan, IEFE and CMCC

Transcription

1 Water Scarcity and Virtual Water Trade in the Mediterranean Martina Sartori University of Milan, IEFE and CMCC Roberto Roson Cà FoscariUniversity, it Venice, IEFE and CMCC

2 Outline Introduction and motivation Virtual water trade in the Mediterranean region Assessing future water availability and virtual water trade in a general equilibrium model Summing up 2

3 Introduction and motivation Water availability is key factor Especially true in the Mediterranean Growing concern about water availability in the Mediterranean region Water demandd has increased twofold (UNEP, 2006) Many countries are already overexploiting their resources Regional climate model estimates More competition in the near future Water pricing Inefficient allocation if prices are not in line with the social marginal values Regional economies structure t and trade flows are affected by water pricing (Berritella et al., 2008) 3

4 Introduction and motivation Water scarcity Higher production costs and lower production volumes for water intensive i industries i and water stressed regions Market and non market mechanism This paper is about applying the concept of virtual water to the problem of future water scarcity in the Mediterranean area, also induced by the climate change Our aim: assessing to what extent water trade is a viable adaptation option to the problem of water scarcity 4

5 VIRTUAL WATER TRADE IN THE MEDITERRANEAN REGION 5

6 The virtual water content: the volume of water that is actually used to produce that product (Hoekstra, 2003) production conditions (place and time) Our idea: trade flows in terms of virtual water equivalent flows estimates of total water consumption for 164 crops and 208 regions (Chapagain and Hoekstra, 2004) to get the unit virtual water coefficients for each agricultural industry and region Our model (GTAP model, 7.1 database) 14 regional economies: Albania, Croatia, Cyprus, Egypt, France, Greece, Italy, Morocco, Spain, Tunisia, Turkey, Rest of Middle East and North Africa, Rest of the World 7 agricultural industries: cereals, oilseeds, rice, sugar, vegetables and fruits, wheat and others 6

7 Table 1 - The virtual water balance of trade in millions of m 3 BT BTR Italy is the largest importer of virtual water Albania % BT: depends on the Croatia % magnitude of trade flows Cyprus % and on the size of the Egypt -12,640-65% economy France 16,932 32% BTR = BT over the sum of Greece -1,971-29% exports and imports Italy -20,467-63% It highlights how much Morocco -2,263-21% each individual Spain -3,521-8% economy depends on Tunisia -2,049-53% virtual water flows Turkey % Rest.Euro -98,397-48% Rest MENA -53,372-74% RoW 179,667 16% 7

8 Figure 1 - Largest net flows of virtual water trade in the Mediterranean The thickness of the arrow line depends on the magnitude of the flow The larger: > 1 billion of m 3 The smaller: > 300 millions and < 1 billion of m 3 8

9 ASSESSING FUTURE WATER AVAILABILITY AND VIRTUAL WATER TRADE IN A GENERAL EQUILIBRIUM MODEL 9

10 What is a Computable General Equilibrium model (CGE)? It is composed of a set of equations that describe the variables and the structure of an economy Endogenous variables (prices and quantities) Exogenous variables (technology, consumer preferences, fiscal tools) Most of them are based on the Walrasian theory Market clearing in each market, zero profit condition, rational behavior of all agents It is a powerful tool to assess and quantify the effects of specific policies CGE models use real data in order to estimate how an economy would react to specific policies or exogenous shocks (i.e., fiscal reforms, climate change policies, international trade agreements) 10

11 In the GTAP model: We assume that the multifactor productivity in all agricultural sectors varies by the same agricultural productivity it variation (see Table 2) This implies that if a country is already water constrained, any drop in surface water availability translates into lower yield for all crops The exogenous shock is introduced as a shift in multifactor productivity for agriculture We expect a new equilibrium i characterized by loss (gain) of competitiveness for those industries and regions which have high (low) water intensity 11

12 Table 2. Data on water consumption and future availability (Strzepek and Boehlert, 2009) MAR M.A.R Ag M I 2000 EFR WCI W 2050 D 2050 APV Albania Cyprus Egypt France Italy Morocco Spain Tunisia Turkey The water constraint index (WCI): it is the ratio of water consumption in agriculture over the MAR net of non-agricultural water use (i.e., M-I and EFR) The agricultural productivity variation (APV): it is the average percentage change of the MAR ( ) multiplied by the WCI 12

13 Table 3 - Simulation results: macroeconomic indicators EV var. GDP % (M US$) W M D W M D Albania Croatia Cyprus Egypt France Greece ,388 2,816 4,244 Italy ,450 5,830 8,210 Morocco ,529 6,891 6,253 Spain ,215 10,559 15,903 Tunisia ,897 Turkey ,684 2, Rest.Euro ,515 18,816 19,117 Rest MENA ,485 5,458 5,431 RoW ,122 86,142 86,161 13

14 Table 4 - Increases in virtual water imports (millions of m 3 ) W M D Albania Croatia Cyprus Egypt France 1,697 1,701 1,705 Greece 754 1,355 1,956 Italy 2,328 3,292 4,256 Morocco 12,671 11,644 10,617 Spain 3,524 6,740 9,958 Tunisia 674 1,295 3,265 Turkey 3,037 1, Rest.Euro 12,918 12,905 12,891 Rest MENA 16,501 16,501 16,502 RoW 51, ,025 52,490 This can be considered as a measure of water savings obtained through trade in agricultural goods 14

15 Figure 2 Relationship between agricultural productivity reductions and VW imports 1% reduction in agricultural productivity = +2.14% of the sum of baseline VW exports and imports 15

16 Further simulation assessment 1) How effective is the virtual water mechanism in curbing the effects of water scarcity? It is related to the degree of flexibility in the economic system: how easy it may be substituting factors in production processes, goods in consumption and imported products in terms of origin i We constraint only one country (Italy) not to increase its trade volume in agricultural l goods under the M scenario 16

17 Table 5 Macroeconomic indicators for the M-Italy constrained simulation var. GDP % EV (M US$) M Difference M Difference Albania Croatia Cyprus Egypt France Greece Italy Morocco Spain Tunisia Turkey Rest.Euro Rest MENA RoW

18 2) The global amount of virtual water trade depends on how easily it may be to substitute domestic production with imports, and imports sources among themselves The elasticities of substitution for all agricultural products are reduced by 50% We expect that countries which were importing virtual water now import much less, whereas virtual water exporters now export less 18

19 Table 6 - Increases in VW imports with reduced elasticities (millions of m 3 ) M M-low elasticities Albania Croatia Cyprus Egypt France -1,701-1,319 Greece 1, Italy 3,292 2,121 Morocco 11,644 7,196 Spain 6,740 4,057 Tunisia -1, Turkey 1, Rest.Euro 12, ,197 Rest MENA 16,501 9,269 RoW -52,025-30,050 19

20 Summing up Our simulations suggest that the virtual water mechanism can help in reducing the impact of water scarcity, but only marginally The effectiveness of virtual water trade is related to the degree of flexibility within the regional economic system More flexible production processes, more globalization and integration, lower transport costs and other barriers to trade would all contribute in making the economic systems more resilient to outside shocks Caveats: future water availability and reduction in each crop productivity should be better estimated better understanding of the link between water availability and productivity, in agriculture and elsewhere (what drives our simulations is an exogenous change in productivity, not water) 20

21 Thank you for your attention! 21