Water Markets as a Coping Mechanism for Climate-Induced Water Changes on the Canadian Economy: A Computable General Equilibrium Approach

TL;DR

This study models the economic impact of implementing water markets in Canada to address climate-induced water supply changes, showing they mitigate losses but also limit growth.

Contribution

It introduces a computable general equilibrium model to analyze the effects of water markets at the national level in Canada, filling a significant research gap.

Findings

Water markets reduce economic losses from water shortages.

They also limit economic expansion from increased water supply.

Results support water markets as a policy tool for climate adaptation.

Abstract

Water markets represent a policy tool that aims at finding efficient water allocations among competing users by promoting reallocations from low-value to high-value uses. In Canada, water markets have been discussed and implemented at the provincial level; however, at the national level a study about the economic benefits of its implementation is still lacking. This paper fills this void by implementing a water market in Canada and examine how water endowment shocks would affect the economy under the assumptions of general equilibrium theory. Our results show a water market would damp the economic loss in case of reductions in water endowment, but it also cuts back on the economic expansion that would follow from an increase on it. These results provide new insights on the subject and will provide a novel look and reinvigorate informed discussions on the use of water markets in Canada as a potential tool to cope with climate-induced water supply changes.