Basin-wide Water Demand Management: Transfers and Compensation among Competing Users

Abstract

Water demand management is incorporated into a two-step water allocation process in order to motivate water users to implement water demand management strategies. In the first step, the initial allocation of water is based on existing water rights systems or agreements to form a baseline scenario for the next step involving the adoption of water demand management strategies. In the second step, two principles are identified for water demand management: either to increase aggregated benefits given the currently available water or to decrease aggregated water consumption while achieving benefits not less than the current ones. These two principles are considered in depth in this research in the development of various water demand management methodologies. Within the first principle, a centralized basin-wide hydrologic-economic optimization model is designed to motivate certain users to conserve water in order to maximize the total net benefits of the river basin system, and then to allocate additional net benefits using cooperative game theory. The optimal aggregated net benefits with and without water demand management plans for various coalitions of users subject to physical, policy and water availability constraints are obtained. A modified cooperative reallocation game is developed to distribute additional net benefits such that positive economic gains are provided to users. From a decentralized viewpoint, agent-based modeling techniques are utilized to simulate water users’ behavioral responses to water demand management strategies. Within the agent-based framework, each user individually decides whether or not to conserve water or to consume more water; water conservers are compensated while water consumers are charged. Incentive functions are introduced to calculate how much to compensate or how much to charge. Individual optimization problems are designed for each water user who considers the maximization of its own benefits as the primary objective. Coordination procedures are developed to reach the system-wide maximum net benefits objective. To achieve the second principle, a centralized conservation-targeted hydrologic-economic optimization method is constructed to estimate the minimum water consumption requirement to produce the same amount of benefits in a river basin in order to better understand the present status of water use. Two formulations for representing different interpretations of water consumption are examined. The formulations take conservation limits and diverse characteristics of different users into consideration. The method is applied to the South Saskatchewan River Basin (SSRB) in southern Alberta, Canada, where water scarcity is a severe issue. The foregoing approaches within each of the two principles are applied to illustrative case studies to facilitate a better understanding of the impact of water demand management on individual users and the overall system, and how to encourage water users to utilize water wisely. Meaningful insights are provided for achieving better water demand management to mitigate the stress brought by the dramatically increasing demand.