Global Warming and Water Management: Water Allocation and Project Evaluation

This paper explores the sensitivity of the benefits of alternative water allocation schemes and of project evaluation to global warming. If global warming shifts the mean of annual water supplies, there could be large impacts on the expected values of alternative water allocation schemes. The first section of the paper explores how well alternative schemes (such as market mechanisms, prior rights, or percentage flows) perform if the distribution of flows changes. In a case study of the Colorado River, market mechanisms and flow guarantees result in smaller impacts than rules which allocate inefficient percentages of flows to heterogeneous users. The second part of the paper explores the effect of a gradually changing distribution of flows on project evaluations. Project evaluation is sensitive to predicted future changes in mean flows. Project evaluation is not sensitive to changes in the variance of future flows unless the variance increase is large and the benefit measure is highly curvilinear. Because basin-specific changes in runoff from global warming are currently uncertain and much delayed, most project analyses will be unaffected by global warming. The most important response by water managers to climate change may simply be to closely monitor runoff and incorporate flexible rules in order to adapt their behavior to observed changes.