Water Security and Multi-Sector Trade-Offs Under Climate Change: A Hydro-Economic Model for the Biobío River Basin, Chile

Water availability has been declining in recent years due to climate change. These decreases, in conjunction with rising temperatures and environmental changes, affect the behavior of various stakeholders, increasing the competition among water-consuming sectors to obtain this limited resource. In this study, we perform a hydro-economic model to analyze how the agricultural and residential sectors adapt to diverse climatic, social and regulation changes, using the Biobío basin in southern Chile as the case study. The model quantifies their economic welfare derived from using water as an input for their cropping activities and direct consumption, respectively, while maintaining environmental flows, rural drinking water, and supporting tourism activities. Furthermore, we assess the economic effects of increasing water security for the environment and tourism sectors. Results show that climate change and water security policies will have heterogeneous effects on water-consuming agents across different basin levels — higher-, medium-, and lower-basin levels — with the greatest effects being addressed by the higher-level basin. This heterogeneity is observed not only within the basin levels but also across economic sectors, being the agricultural sector significantly more affected by these policies than the residential sector. We conclude our analysis by suggesting that policymakers should tailor compensation measures to the most affected communities.