Water purification ecosystem services in the Integrated Economic-Environmental Model (IEEM): An application to investing in water quality in Uruguay

Increasingly, integrated macroeconomic-ecosystem service models inform policy design. We advance two relevant research frontiers: (i) incorporation of a new ecosystem service, water purification, into the integrated framework and (ii) development of subnational scale analysis. We develop a multi-regional Integrated Economic-Environmental Model (IEEM) and link changes in water quality to tourism demand and water treatment costs, capturing previously unquantified interactions between natural capital assets and economic performance. The multi-regional approach reveals trade-offs and inter-regional disparities in costs and benefits, enabling spatially explicit policy insights and equity considerations at a more granular level than previously possible. We demonstrate these innovations by applying IEEM to Uruguay’s National Environmental Program for Sustainable Development. Results show that the Program would boost Gross Domestic Product and wealth by US$748.2 million and US$166.4 million, respectively and that the environmental and economic gains, including a 55 million ton-reduction in carbon emissions and a US$121 million increase in regulating ecosystem services, outweigh modest trade-offs in food provisioning services. Expost valuation of the carbon emissions avoided would result in a benefit of US$1.1 billion. The methods developed are replicable across countries for rapid, real-time policy evaluation for countries seeking to align economic development strategies with sustainability targets.