Distributing water between competing users in the Netherlands

The Netherlands is a delta country where water is usually abundant. Large investments in water infrastructure aim to prevent flooding, irrigate farmland and ensure the health of polder lands and nature. During the limited periods when water is scarce, agriculture is low on the priority list for water allocation: farmers may be restricted in expanding irrigation operations or be even temporarily forbidden from using the equipment already installed. This comes at a cost to agricultural production. Water in this context is a unique economic input that is not privately owned, not always scarce, and not always allocated according to market principles. Nonetheless, the framework of a computable general equilibrium model (CGE) can be very effective in assessing economy-wide changes from periods of water scarcity and weighing this against policy initiatives to reduce water scarcity. In this paper we explore adaptation possibilities to water scarcity from climate change with a particular focus on the challenges of interpretation of the CGE methodology for water in the context of the Netherlands. We explore this by examining three studies, each of which uses a CGE model. The first explores the extent of the autonomous market response. The second explores the planned adaptation of increased investment in irrigation water infrastructure in the agricultural sector, making a distinction between ground and surface water and the third study explores the planned adaptation of introducing explicit water markets between industry, agriculture and public water services. All three studies find that when assessing the economic impacts of climate change it is important to look at the larger economy wide effects including the sectors that are not directly affected by the aspect of climate change under examination. We further make a methodological point that even in a single country such as the Netherlands interpretations of water as a primary input can vary significantly.