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Journal of Hydrology 464–465 (2012) 216–232

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Journal of Hydrology

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Incentives to adopt irrigation water saving measures for wetlands preservation: An integrated basin scale analysis ⇑ Alireza Nikouei a, , Mansour Zibaei a, Frank A. Ward b a Department of Agricultural Economics, Agricultural Faculty, Shiraz University, Shiraz, Iran b Department of Agricultural Economics and Agricultural Business, New Mexico State University, Las Cruces, NM 88003, USA article info summary

Article history: Preserving natural wetlands is a growing challenge as the world faces increased demand for water. Received 23 July 2011 Drought, climate change and growing demands by users aggravate the issue. The conflict between irri- Received in revised form 5 July 2012 gated agriculture and wetland services presents a classic case of competition. This paper examines an Accepted 8 July 2012 institutional mechanism that offers an incentive to farmers to adopt water conservation measures, which Available online 20 July 2012 in turn could reduce overall water use in irrigated agriculture within a selected basin. Reduced water This manuscript was handled by Geoff Syme, Editor-in-Chief, with the assistance of demands could provide the additional water needed for wetland preservation. We present an analytical Muhammad Ejaz Qureshi, Associate Editor empirical model implemented through the development of an integrated basin framework, in which least-cost measures for securing environmental flows to sustain wetlands are examined for the Zayan- Keywords: deh-Rud River Basin of central Iran. To test this idea, two policies – one with and one without an incentive Wetland – are analyzed: (a) reduced agricultural diversions without a water conservation subsidy, and (b) reduced Water conservation agricultural diversions with a water conservation subsidy. The policies are evaluated against a back- River basin ground of two alternative water supply scenarios over a 10-year period. Results reveal that a water con- Integrated water management servation subsidy can provide incentives for farmers to shift out of flood irrigation and bring more land Climate into production by adopting water-saving irrigation technologies. The policy increases crop yields, raises Drought profitability of farming, and increases the shadow price of water. Although the conservation subsidy policy incurs a financial cost to the taxpayer, it could be politically and economically attractive for both irrigators and environmental stakeholders. Results open the door for further examination of policy measures to preserve wetlands. Ó 2012 Elsevier B.V. All rights reserved.

1. Introduction Wetlands preservation faces growing challenges in an era of increased scarcity as a result of drought, climate change or increased Wetlands are an important environmental resource in many water uses by competitors in river basins (UN, 2009). Wetlands parts of the world (Smardon, 2009). Their open-access nature represent an interface between the catchment area and the aquatic and public-good characteristics often cause them to be underval- environment (Hattermann et al., 2006). Dams, diversions and river ued in decisions relating to their use and conservation (Akter management reduce flooding to wetlands, altering their ecology, et al., 2009). Wetlands provide a wide and diverse range of and contributing to poor health of aquatic biota (Kingsford, environmental services including habitat for endangered species, 2000). Conflict between irrigated agriculture and wetland services flood protection, water purification, amenities and recreational are a classic case of competition for scarce water (Allan, 2003) opportunities (Woodward and Wui, 2001). These services typically especially in developing dry countries where irrigation can account have a low to zero market price (Brouwer et al., 1999), and in some for 90% or more of water withdrawals (Kijne et al., 2003). Despite cases may provide services for which resource users have a greater the importance of wetlands, agriculture is the strategic water- willingness to pay than the opportunity cost of the same water if using sector that supports food security planning in many coun- used for agricultural production (De Laporte, 2007; Smardon, tries (FAO, 2006). That is particularly important in light of rapidly 2009); This characteristic of wetlands gives rise to undervalued rising non-agricultural water uses and periodic droughts linked to losses in wetland area when policy decisions promote irrigation climate variability and climate change (IPCC, 2007; Kijne et al., uses (De Laporte, 2007; Mallawaarachchi et al., 2001). 2003; OECD, 2006). The future of water allocated for the protection and security of wetlands depend on economic, social, and political development trends and the results of litigation, legislative, and ⇑ Corresponding author. Tel.: +98 913 116 2826; fax: +98 311 626 8324. E-mail addresses: [email protected] (A. Nikouei), [email protected] (M. administrative debates (Smardon, 2009). Policy makers need Zibaei), [email protected] (F.A. Ward). economic evaluation measures to make decisions on preservation

A. Nikouei et al. / Journal of Hydrology 464–465 (2012) 216–232 217 of wetlands versus the demands for water by irrigated agriculture between consumptive and environmental water uses (Fig. 1). The (Qureshi et al., 2010a; Ringler and Cai, 2006). basin has an area just over 42,000 square kilometers, with 57% in An improved understanding of the interaction between river flat lands containing a wide range of water uses and the other diversions for agriculture, floodplain ecology, and investigations 43% in more mountainous landscapes. The ZRB has an average into ecological impacts of management practices is essential to rainfall of 130 mm and a monthly average temperature ranging avoid further loss of wetlands (Kingsford, 2000). Integrating ripar- from 3 °Cto29°C(IWMI, 2009). The Zayandeh-Rud (ZR) is the ian water uses and wetlands’ needs into eco-hydrological river basin ZRB’s main river, rises in the Zagros Mountains and flows 400 km processes is a state-of-the arts management approach to support eastward before ending in the Gavkhouni swamp (wetland), a ecosystem functions related to flood events while producing eco- seasonal salt lake southeast of the city of Esfahan. There are several nomic benefits for the local population (Hattermann et al., 2006; recreation and environmental sites on the reservoirs and along the Nakamura, 2003; O’Neill et al., 1997; Ringler and Cai, 2006). Recent river banks that are important tourist destinations. The ZR studies show that more widespread use of a river basin scale analy- passes through the desert city of Esfahan, a major cultural and sis would considerably enhance the effectiveness of water resource economic center of Iran with a population of about 1.6 million management initiatives. Examples are found, for instance, in Aus- (Statistical Center of Iran, 2009). For centuries Esfahan has been tralia (Mainuddin et al., 2007; Qureshi et al., 2010b), USA (Brinegar an oasis settlement, noted for its surrounding fertile lands and and Ward, 2009), Turkey (Gürlük and Ward, 2009), South Africa prosperity. (Jonker, 2007), Brazil (Maneta et al., 2009), France (Lanini et al., Until the 1960s industrial demand for water was minimal 2004), Spain (Pulido-Velazquez et al., 2008), Botswana (Swatuk because of weak industrial development in the ZRB, which enabled and Motsholapheko, 2008), and Egypt (Gohar and Ward, 2010). the basin’s available water to be used mostly for irrigated agricul- Despite these contributions described above, few studies have ture. The Chadegan Reservoir dam project in 1972 was a major examined policy options available for resolving the competition hydroelectric project built to stabilize and sustain downstream for water between agriculture and other water using sectors while water demands and to generate power. Since 1972, that reservoir focusing special attention on requirements for and water needs for has helped prevent seasonal flooding of the ZR River that would wetlands water supply. The objective of this paper is to examine have otherwise occurred. An estimated 80% of the ZR’s diverted alternative policy approaches to promote farmers’ adoption of water is used for irrigated agriculture, with 10% for urban house- water conservation measures that would make saved water avail- hold use, 7% for industry. Industrial use includes the Zobahan-e- able for wetlands ecological functions under conditions of climate Esfahan and Foolad Mobarekeh steel companies and Esfahan’s pet- variability. Our objective is implemented through the development rochemical, refinery and power plants, with the final 3% for other of an integrated basin analysis, in which least cost measures for uses. There have been a number of inter-basin transfer projects securing environmental flows to sustain wetlands are examined (Koohrang) to redirect water from the Karun River to the ZR. In for the Zayandeh-Rud River Basin of central Iran (Fig. 1). the year 2012, freshwater resources including both surface and groundwater in the ZRB are overexploited. Water demands con- 2. Study area tinue to grow while supply has become increasingly constrained or unreliable due to droughts (Salemi et al., 2000). Attempts to cur- Water resources management in the Zayandeh-Rud River Basin tail agricultural and municipal river diversions that threaten the (ZRB) in central Iran faces serious choices conflicts or trade-offs water environment have had only mixed success. Moreover, the

Fig. 1. Iran’s Zayandeh-Rud Basin and studied area. Author's personal copy

218 A. Nikouei et al. / Journal of Hydrology 464–465 (2012) 216–232

a. Reservoir b. Wetland

Data Source: Esfahan Regional Water Company (2009)

Fig. 2. Historical inflows to Zayandeh-Rud’s reservoir and Gavkhouni Wetland. basin suffered considerably from a decade long period of drought means is that even if a water conservation subsidy stands to in- (Fig. 2a) from 2001 to 2010. crease the economic welfare of water users who take advantage Overall, the basin presents an example of a physically, econom- of the subsidy, there is no guarantee that the economic benefits ex- ically, and institutionally complex watershed system for which the ceed the financial cost of the subsidy to taxpayers. In this light, the lack of sound scientific knowledge about the interacting subsys- rate of assistance supporting water conservation is a critical issue tems has made it difficult for policy makers to comprehensively that requires close scrutiny. When providing state aid, govern- address recurrent water shortages. While water shortages occur of- ments should ensure that subsidies do not distort competitiveness ten and new water infrastructure has been built many times in re- and innovation that water users could have otherwise developed cent years, little discussion has centered on ways by which on their own. environmental demands for water such as wetlands can be traded Governments pursuing an economic efficiency goal will seek to off against agricultural, urban, and industrial uses of water. Inte- encourage restructuring of water-using sectors towards more sus- grated basin scale analysis provides a unique framework for inte- tainable water resource use systems for which benefits exceed grating the diverse physical, economic, technical, agronomic, and costs. A major purpose of public support is to provide incentives institutional systems important to inform a more sustained wa- to local communities and enterprises to undertake environmental tershed management. investments by spending more of their own resources where social benefits exceed social costs. Therefore, the rate of assistance 3. Criteria for water policy should be set in such a way as to ensure that it does not replace, but rather leverages the recipient’s own spending. Implementing An important policy debate for a sustainable water and wetland public agencies are best seen as a source of last resort for covering conservation centers on choices that provide economic incentives the financing gap of priority environmental projects drawing on for existing water users to save water (Peck et al., 2004; Sisto, the principle of additionality. For this reason, the level of the sub- 2009), especially where the economic value of the saved water sidy should be kept at a level that meets an economic performance made available for alternative uses would be considerable. The criterion. That criterion can be defined as the rate of assistance that need for these incentives is especially pronounced where poorly makes potential environmentally sustainable projects financially defined or administered water rights make it unlikely that existing viable to the beneficiary of the subsidy. Unfortunately, the existing water users benefit from saving water. Examples of water conserv- literature is mostly silent on what level of subsidy this suggests for ing approaches include measures such as directly reducing their the best program of measures to reduce water use in irrigated agri- water use, implementing water conservation methods that substi- culture to support wetlands preservation. In light of our more lim- tute capital for water (De Laporte, 2007; Morardet and Koukou- ited scope, this paper describes outcomes on water saved and Tchamba, 2005), or even securing water for the environment (Peck financial impacts to irrigation farmers of two water conserving et al., 2004; Qureshi et al., 2007; Tisdell, 2010). One way to imple- subsidies, described in more detail below. ment a policy of greater wetlands preservation is to find ways to More widespread use of water saving irrigation technology is reduce some of existing irrigation water use in regions where irri- one way to promote water conservation in irrigated land, for which gation is a major water user, either with or without supporting saved water could be used to improve, protect, and sustain wet- economic incentives. lands (De Laporte, 2007; Peck et al., 2004). Policies that implement Placing restrictions on historical water use by reducing the his- water conserving irrigation technologies have been found to result torical water allocation without economic incentives to conserve in less water applied to crops, increase farm income, produce water puts at risk water users’ economic welfare and undermines greater crop yields, and improve total water-related economic ben- 1 their political support. These challenges become more pronounced efits for the basin (Brinegar and Ward, 2009). Public subsidies can when climate changes and periodic drought press up against avail- provide important incentives for farmers to adopt water-conserving able water supplies. Financial support through a water conserva- technologies and raise their incomes. A political–institutional mech- tion subsidy is one approach to maintain or increase water users’ anism can provide needed incentives for farmers to convert to economic welfare. water-conserving irrigation systems. The subsidy mechanism evalu- Despite the attractive incentives to water users offered by water conservation subsidies, the golden rule of public funding suggests 1 However, they may also increase water consumption. Applying these systems that governments should support only those investments that alone do not guarantee that in-stream flows will increase because the farmers with are economically efficient but not financially viable. What this junior water right or decreased water share in dry years may still withdraw the water. Author's personal copy

A. Nikouei et al. / Journal of Hydrology 464–465 (2012) 216–232 219 ation needs to identify how much, at what price, and where the pub- Water use has an economic value to these users who are willing lic subsidies should be distributed for irrigation investments to pro- to pay for it. Total benefit is defined by the total willingness to pay mote water-saving technologies that are economically efficient but (WTP) by those who benefit from any water use. The total WTP for not financially viable as well as provide incentives for farmers to irrigated land is measured by the contribution of water to net farm adopt these systems for releasing enough water to supply the wet- income. For the irrigated regions, that benefit is expressed as total land water requirements. gross margin of water-related farm income earned by crop irrigation. The gross margin includes the unit crop prices, crop output, subsidy,2 and average variable cost function (Appendix). Gross mar- 4. Methodology gin equals price multiplied by yield minus average variable cost, including the cost of water. We introduce an integrated basin scale analysis to support Water also produces benefits to urban residents willing to pay assessment of alternative policy options affecting water uses and for the use of water. The total WTP for urban use is based on price resources in a watershed in central Iran. This model integrates elasticity of demand for urban water, and includes total profitabil- the hydrology, agronomy, institutions, economics, and policy ity for the water supplier (if any) plus consumer surplus for the choices at the basin scale. Its main structure is based on similar re- water consumer. A quadratic function is used to characterize urban cent studies carried out in integrated river basin analysis (e.g., benefits following methods described in a previous study (Booker Pulido-Velazquez et al., 2008). Physical interactions are integrated et al., 2005). The marginal benefit of additional urban water supply among water uses. These include competing uses (irrigation, ur- is a linear function of total per capita urban water use. The inter- ban, industry, recreation, and environment), storage (reservoirs cept of the marginal benefit function is typically high and positive, and aquifers), flows (diversions, pumping, water applied, water de- which means that incremental benefits from added use begin high pleted, and return flows), and losses (field, conveyance, and reser- as basic human requirements are met, such as drinking, washing, voir evaporation). The model description below with additional and sanitation, then fall off quickly as water is used for lower detail in the Appendix includes the objective, economics, hydrol- valued urban uses, such as landscape irrigation and outdoor ogy, land use, and institutions. cleaning. Industrial and urban benefits are aggregated to form a single mathematical function (see Booker et al., 2005), reflecting all water 4.1. Objective function demands supplies by urban water utilities. This approach is an imperfect approximation. For instance, in watersheds where large The model objective is to maximize the discounted net present industries (such as steel companies, oil refineries and power value of the sum of total measured economic benefits over a plants) are important industrial users, we hope to account for sep- 10 year time horizon, subject to the basin’s hydrological, agro- arate benefit function for urban and industrial uses in future work. nomic, institutional, and economic structure, including its starting Supplying urban and industrial water use demands requires the values for reservoirs and aquifer levels. The land and water deci- water supplier to incur incremental costs. The total cost is mea- sion variables are an outcome of the optimal solution of the objec- sured by energy, operation, maintenance, and treatment costs for tive function. A separate model optimization is run for each water diversion and pumping at application nodes (Booker et al., 2005). supply scenario and each policy options (Appendix). The urban water uses includes considerable delivery cost for puri- Private irrigation farm incomes and irrigation water prices are fication to make water safe for human consumption. That cost is typically so low in the ZRB that that using water saving technolo- typically not required for agricultural water use. gies are not economically attractive for most growers without a subsidy to convert from flood to modern irrigation technologies. In addition, because of high (but unknown) external benefits 4.2.2. Environmental economics resulting from water saved in irrigated agriculture, we believe that Rivers supply many human valued ecosystem services that private income values of irrigation water saved (gross margins) make them an important environmental resource. This resource understate their social value to alternative uses such as wetlands. provides use or non-use related benefits that can compete with So an irrigation water conservation subsidy stands to bring about other use-related services in an over appropriated watershed (Loo- a more economically efficient solution to water use in the ZRB. mis et al., 2000). In environmental economics, benefits are mea- A 136 MCM water use reduction in irrigated agriculture (98 sured by on site visitors’ or off site environmental stakeholders’ MCM in drought periods) was a target that our water conservation willingness to pay for preserving or improving environmental re- subsidy was set to achieve to supply water needed for wetlands. sources. Examples include recreational facilities such as sport fish- After setting those conservation targets for water to be released ing, boating, scenic viewing, picnicking, bird watching, and the like from irrigated agriculture, we calculated the subsidy required to (Haab and McConnell, 2002). Those facilities as public goods can be make those water use reductions sufficiently profitable for farmers categorized in three groups including: (a) off-stream facilities pro- to invest in those conservation measures. vided by water reservoirs, (b) in-stream facilities along the river provided by a flowing river, and (c) off-stream facilities provided 4.2. Economics by wetlands. We incorporate the economic value of these three groups in the model, and account for the total benefits for environ- 4.2.1. Use-related economic values mental services as a quadratic algebraic form (Appendix). Agriculture, urban, and industry are the Basin’s three main For each reservoir’s recreation benefit, total benefits increase up water uses. Our basin scale analysis measures the willingness to to a point where beaches and other facilities are flooded by water pay (WTP) for each use. This measurement permits accounting while further volume increases beyond that point at which the for the WTP as an opportunity cost when part of that current use quadratic function tops out reduce visitation and total recreation is displaced by any alternative use. Comparing the WTP from benefits. Similarly the river’s flow that produce environmental expanding a given use along with the opportunity cost of an alter- benefits increase up to a point as long as recreation villages can native existing use’s WTP displaced is desirable. It permits a rigor- ous economic evaluation of the kinds of water policy proposals this 2 The public water conservation subsidy is included as a factor that raises the gross paper examines. margin of conversions from flood to sprinkler or drip irrigation technologies. Author's personal copy

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Fig. 3. River–aquifer mass balance and interaction of elements. put to use the ecosystem facilities provided by flowing river. sources, changes in water stocks, and water applications for each Further flow increases beyond that point at which the quadratic water use. The river–aquifer mass balance and interaction of ele- function tops reflect flooding conditions that reduce visitation ments are used to measure the hydrologic functions in the river ba- and total recreation benefits. sin (Fig. 3) as the following sections describe. When inflows to wetlands can be secured, environmental benefits can be increased by selecting wetlands ecological require- 4.3.1. Supply sources ments at which overall environmental benefits exceed environ- Supplies into the basin involve two sources including surface mental costs by the largest amount. Where wetlands’ inflows are runoffs and inter-basin transfers through canal, pipe, and moun- scarce, each wetland node’s marginal environmental net benefits tain tunnels. Those inflows are defined as total annual inflows at will be nonzero because additional flows to wetlands can increase any given node. Surface runoff produced by snow pack and rainfall the quality and value of ecological resources. affect the hydrologic balance throughout the basin. Since there are Securing environmental benefits from the water environment few reliable stream gauges in this basin to measure surface runoff, requires shouldering costs. The total cost is defined in our model the volume of total annual precipitation translated into runoff3 is to include both explicit and implicit costs. Gürlük and Ward multiplied by a runoff to river coefficient to compute river flows at (2009) define the explicit cost as operation cost, equals to the cost various headwater nodes.4 of additional resources required to support the protection of greater environmental benefits at a given site (Appendix). The added costs 4.3.2. Basin geometry of managing larger volumes of water at given reservoir sites are Fig. 3 presents the essential elements of our basin model. The measured as the additional financial cost required to support addi- elements include river flows between any two gauges, headwater tional visitors attracted by larger quantities of water when those lar- inflows, off-stream diversion, surface return flows, net aquifer–riv- ger volumes can be stored. This kind of cost for flowing river are the er water interactions, and reservoirs net releases, equal to reservoir added cost of managing larger flows, and are measured as the addi- outflow minus inflow adjusted for evaporation. tional (estimated) financial cost required to purchase water from upstream suppliers. Furthermore, wetlands’ explicit costs are the 4.3.3. Water application operation costs needed to preserve wetland ecological resources. Water applied to either agriculture or urban uses can come from stream diversion and/or water pumped from aquifers. Total 4.3. Hydrology

3 The mass balance of annual rainfall is completed if we add the share of rainfall The basin hydrology uses the mass balance principle to account evaporation and seepage as well. for both annual flows and basin’s stocks (Ward et al., 2006). The 4 This coefficient is associated to the hydrologic district’s geomorphology and annual flow at any point in the basin is influenced by supply usually reported if there is any available related study. Author's personal copy

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Table 1 Crops by irrigation technology, Zayandeh-Rud River Basin, Iran.

Cropa Description Available irrigation technology Flood Drip Sprinkler Vegetables Onion, tomato, carrots, watermelon, melon, cantaloupe, cucumber, and leafy or stem vegetables Yes Yes Yes Cereals Wheat, barley, rice, seed maize, and millet Yes Yes No Dried leguminous vegetables Chickpea, bean, lentil, and vetch Yes Yes No Edible roots Potato Yes Yes Yes Forage products Alfalfa, trifuliom, silage maize, and other forages Yes Yes Yes Oilseeds and oleaginous fruits Sunﬂower, safﬂower, rapeseed, and olive Yes Yes Yes Fiber crops Cotton Yes No No Sugar crops Sugar beet Yes Yes No Fruits and nuts Cherry, peach, apricot, apple, pear, pomegranate, grape, walnut, almond, and pistachio Yes Yes No

a Classiﬁcation is based on: CPC Ver.2 subclasses (FAO, 2011).

water from both those sources can go to usage (depletion), seep to tions adjust to permit the additional extra water to be used by the subsurface, or return directly to river as shown in Fig. 3. Seep- agriculture. ages and return flows are calculated as a proportion of total water applied (Ward et al., 2006). The elements of total water-applied for 4.5. Institutions irrigated crop fields are separately defined based on technical coefficients by irrigated districts, crop, and irrigation technologies per Institutional constraints are defined as water rights or other unit of land respectively for plant depletion (evapotranspiration, rules that influence the use or delivery of water. Water rights in ET), seepage (infiltration), and return flow (Appendix for details). this basin are based on historical patterns of water distribution to the various users and are defined in the model by a delivery schedule. This right to use water is influenced heavily by periodic 4.3.4. Water stocks or long term drought. To incorporate institutional rules into the Both reservoirs and aquifers are treated as stocks. Each year’s model, we set upper and lower bound on water applications or reservoir water stock is based on its storage in the previous year, on connections between river diversions ground water with- the year’s evaporation (from reservoirs), and the net release (reser- drawal. Those bounds are exogenously set based on water rights voir) or net pumping (aquifer). These all have the potential to con- or maximum technical capacity of water conveyance infrastruc- tribute to flows at the downstream node in that year. Total water ture. In some cases, this term is substituted by an algorithm func- evaporated from each reservoir is a function of average surface tions based on domestic arguments in the studied area (e.g. see area exposed at the reservoir applied to a pan evaporation coeffi- Gohar and Ward, 2010; Gürlük and Ward, 2009; Ward et al., cient, which takes on higher values at lower elevation (hotter) 2006). Similar constraints are applied to water stocks defined by locations in the watershed. what we label a ‘‘sustainability function’’ in which terminal reser- Parameters affecting aquifer stocks are more complex than res- voir stocks are required to return to starting values. ervoirs. We apply the hydrologic algorithm presented by Pulido- Velazquez et al. (2006) and Ward et al. (2006). According to the 4.6. Solving the model mass balance for ground water stocks shown in Fig. 3, the lagged aquifer storage equals the summed over the beginning ground The model is solved using GAMS’s CONOPT solver (Brooke et al., water storage5 and the net year’s water added to ground water ta- 1988) as a nonlinear programming tool to optimize the reservoir ble. Aquifer storage includes all the subsurface drainage (drainage), contents, pumping, water use patterns, crop mix in production, discharging aquifers by river, and seeping water from river to aqui- on-farm crop variants, and irrigation technologies over locations fers (Cai, 2008; Pulido-Velazquez et al., 2006). It is defined as the for our model’s 10 year time horizon. proportion of total flow exchanging between ground water and river with respect to upstream estimated streamflow.6 5. Empirical study

4.4. Land use 5.1. Irrigated lands

Many arid countries’ irrigated lands, such as the lands in our The ZRB includes 21 irrigation districts (Fig. 1). Farmers for the study area in central Iran, suffer more from water scarcity than most part practice conjunctive use of ground and surface water in from land restrictions. Water is the limiting resource, not land. these districts (Safavi et al., 2010). Both modern and traditional We use the maximum current irrigated land capacity for each irri- irrigation networks provide surface irrigation water. In addition, gation node as the upper limit on available land. Total irrigated the ZRB’s water is conveyed to several districts in the basin by ca- land in production by node, crop, technology, and time, summed nals and distributed to their irrigated land through special second- over crops and technologies cannot exceed available land. Despite ary irrigation networks (e.g., NMD and EBD shown in Fig. 1). The this constraint, in this basin, more land will likely become available total irrigated land in the basin consisting of our study area is if greater long term water supplies can be secured and if institu- about 167,000 ha.

5 As Ward et al. (2006) argue changes in each period’s stock of groundwater are 5.2. Irrigation technology based on current seepage and current pumping activities. 6 This parameter could be positive but less than one where the net exchange Table 1 shows the most important 39 crops cultivated in the contributes into ground water table, zero where there is no net exchange, and study area, grouped into 9 crop classes. The table also shows the negative but less than negative one where as a result of net exchange the ground water overﬂow to river. They are measured endogenously by observed hydro- available irrigation technologies in use in this region by crop cate- agronomic data and a preliminary computation. gory. Irrigation efﬁciency in the cropped areas of the ZRB is gener- Author's personal copy

222 A. Nikouei et al. / Journal of Hydrology 464–465 (2012) 216–232 ally low and has the potential for considerable improvement. Tra- 1997), taking on an important role to limit severe summer heat ditional surface irrigation is by far the most common technology and associated dust storms in the area (Vakil, 2006). There is an ex- used by farmers in the basin. More efficient water saving irrigation tended range of sand hills which offer a unique visual panorama technologies, in which a larger percentage of applied water reaches including a large mountain range that surrounds the land located the plant root zones have the potential to improve the water-re- on the west and southwest parts (Asghari, 2007). lated economic benefits for the basin. Farmers have the opportu- After freezing and drying of the flooded areas on the degraded nity to convert to alterative irrigation technologies with lower steppe in winter, there is little natural marsh vegetation in late water requirements and higher yields. Two of the most common spring or early summer. Thus, the vegetation is sparse in and and economically viable choices of alternative irrigation technolo- around the lake, and confined to halophytic8 species. There are also gies are drip and sprinkler irrigation systems. Still, there are several extensive areas of reedbeds, rush, and sedge. reasons that adoption of these systems is not more widespread: The Gavkhouni Wetland is also an important wintering area for high capital cost of converting to these systems, low water prices, a variety of waterfowl, surface feeding ducks and some shorebirds and traditional cultivation.7 In the current economic and hydrologic and hosts a large number of migratory birds during winter (Manso- environment, few farmers make the conversion. Existing studies in ori, 1997). Birdlife International identified this wetland as an the ZRB imply that converting to these systems can raise crop yields important bird area (Evans, 1994). Although different species of and water use efficiency of basin’s farms (Salemi et al., 2004a,b). The birds and marine animals live in the wetland, it was the settlement Iranian government can provide incentives to make these conver- of a large number of zebras that later became extinct due to the sions through public subsides (Salemi et al., 2004b). Nevertheless, environmental changes and uncontrolled hunting in the region in less than 6% of total ZRB’s irrigated lands (our study area) has been the recent past (Vakil, 2006). The fish fauna is limited, including irrigated with either sprinkler or drip irrigation as of 2009 (Esfahan only a handful of native species (Coad, 2010). Parts of the flood- Jihad-e-Agriculture Organization, unpublished results) plain are used for irrigated agriculture, livestock grazing, and waterfowl hunting. While there is some grazing, hunting and fuel- 5.3. Water law wood cutting in the marshes at the mouth of the river, the salt lake is mostly inaccessible and largely undisturbed (Mansoori, 1997). Water rights in Iran are based on a priority permit system. Un- The swamp has the potentially to be developed and used as an der this system, regional water resource managers allocate the international tourism destination (Vakil, 2006). ZRB’s river flow first to urban residential and commercial uses such as those in Esfahan, Yazd, Kashan, and Shahr-e-Kord Cities, then to 5.5. Policy debates in the basin industrial users, and third to irrigated agriculture. After that, the environment typically has the lowest priority. Each irrigator is Some of the most important debates over water resource man- granted a nominal allocation that applies to wet years. However, agement in Iran center on (a) the level of resources that should be in dry years irrigation deliveries can fall to a zero. Despite the low- assigned to bioenvironmental needs and ecosystem conservation, est priority typically assigned to the environment, recent legisla- (b) the best implementation of irrigation systems using modern tion has assigned water deliveries to Gavkhouni’s wetlands methods of irrigation, (c) the level and application of subsidies to requirements an amount equal to 70 million cubic meters per year support water resources management goals, and (d) the type and (Soltani, 2009) described in more detail below. Still, water in the intensity of investments in infrastructure and technology that re- basin has seen such high consumptive use since the year 2000 that duces water consumption (Almasvandi, 2010). there has been little or no in-stream flows to support wetlands Effective long-term development strategies for Iran’s water re- since then (Fig. 2b). sources will need to be based on supply and demand management, integrated treatment of the water cycle, and principles of sustain- 5.4. Gavkhouni Wetland able development and land use planning that meet emerging water demands while sustaining needs of the natural environment (Ira- The Gavkhouni Wetland is a large, shallow, saline lake. It is an nian Ministry of Energy, 2003). While this general principle is international wetland, registered in the Ramsar Convention in widely embraced there remains much debate over methods to 1975. The wetland is the ZR’s terminal outflow point, and is located implement water consumption patterns in Iran so that the agricul- on the western edge of Iran’s deserts of the Central Plateau (Fig. 1), tural water consumption is reduced by enough to make more avail- about 40–100 km southeast of Esfahan, in an enclosed drainage ba- able for more economically valuable crops and for the environment sin (Mansoori, 1997). The river’s mouth is located in the northwest (Almasvandi, 2010; Iranian Ministry of Energy, 2003). parts of the wetland. There is a vast coverage of salt on the south There are debates on the most economical way to secure mini- that is currently extracted and used commercially (Asghari, mum water flows needed to preserve the Gavkhouni Wetland. The 2007). The lake and several delta marshes at the mouth of the river high share of agricultural water consumption in the ZRB’s total cover an area of about 43,000 ha, fed by the flooding river itself and water balance points to reductions of agricultural water diversion by several irrigation channels (Mansoori, 1997). Both the Gavkho- as a possible least cost way to sustain the wetland.9 Ongoing water uni and its associated marshes experience wide seasonal flood fluc- scarcity in the basin along with future anticipated drought condi- tuations (Coad, 2010). The flooded areas freeze in winter and dry in tions, raise the likelihood of putting at risk the economic welfare late spring or early summer (Mansoori, 1997). of ZRB’s poor farmers who use the river to irrigate their lands. This wetland plays important hydrological, biological and eco- Numerous recent policy debates held between environmental stake- logical role in the natural functioning of the ZRB. The wetland is holders and the regional water authority (Esfahan Regional Water an important resource for recharging aquifers and for preventing Company) have intensified the search for least cost measures to re- the area from turning into a desert (Vakil, 2006). The lake also is an important contributor to the regional microclimate (Mansoori, 8 A halophyte is a plant that grows where it is affected by salinity in the root area or by salt spray, such as in saline semi-deserts, mangrove swamps, marshes and sloughs, 7 E.g., in onion cultivation although the sprinkler and drip systems have been and seashores. introduced to famers, they mostly use flood irrigation. Therefore, there is no observed 9 Similar debates are ongoing in many other parts of the world, with much recent data on grown land by onion and drip or sprinkler systems in some agricultural attention being given to sustainable irrigation diversion reductions to support districts. There is a similar problem observed for other crops as well. wetland functions in Australia (Tisdell, 2010). Author's personal copy

A. Nikouei et al. / Journal of Hydrology 464–465 (2012) 216–232 223

Fig. 4. Node network and baseline’s ﬂow data in the Zayandeh-Rud River Basin.

duce irrigation water demands. The main challenge is to identify and – Normal scenario: Based on a stochastic weighted moving aver- implement economically efﬁcient water conservation policies age equal to 100% of the long term average water supply trend among different users, including urban water supply, agriculture in the basin. and water-dependent ecosystems. – Drought scenario: Based on a water supply reduction scenario equal to a stochastic weighted moving average equal to 50% of the same long term average water supply trend. 5.6. Water supply scenarios

Alternative scenarios for the supply of headwaters were imple- 5.7. Conservation policy options mented for our study based on actual and modified historical inflows from the period of record. Two water supply scenarios A Gavkhouni Wetlands Conservation program is specified to were constructed for 10-year planning periods, described as establish an institutional reform by which a government policy follows: would secure water for wetland conservation at minimum cost Author's personal copy

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Table 2 Crop economic and water production data, Zayandeh-Rud River Basin, Iran.

Crop Technology Watera (TCMb/ha) Economic value ($/ha) Applied Depleted (ET) Total revenue Non-water costc Water costc Gross margin Vegetables Flood 24.347 7.442 11,445 3846 456 7142 Drip 7.661 6.895 8755 1904 147 6704 Sprinkler 10.434 7.304 11,330 3806 196 7327 Cereals Flood 19.861 6.253 2820 1165 374 1281 Drip 7.442 6.698 3089 1516 131 1442 Sprinkler 6.104 4.273 1557 875 115 567 Dried leguminous vegetables Flood 21.812 6.503 2375 1652 416 307 Drip 7.195 6.475 3068 1577 137 1355 Sprinkler 0.000 0.000 0 0 0 0 Edible roots Flood 25.332 7.374 8851 3525 472 4855 Drip 8.269 7.442 11,505 3034 154 8316 Sprinkler 10.468 7.328 10,503 3385 199 6920 Forage products Flood 30.878 10.065 2922 664 573 1685 Drip 6.305 5.675 2971 1221 115 1636 Sprinkler 16.378 11.465 3920 593 319 3008 Oilseeds and oleaginous fruits Flood 18.168 5.959 1659 792 359 508 Drip 8.472 7.625 2043 914 167 962 Sprinkler 7.114 4.980 3522 949 134 2438 Fiber crops Flood 28.376 9.665 1932 1083 508 341 Drip 0.000 0.000 0 0 0 0 Sprinkler 0.000 0.000 0 0 0 0 Sugar crops Flood 30.478 10.473 5102 1516 620 2966 Drip 10.944 9.850 5673 1394 208 4072 Sprinkler 0.000 0.000 0 0 0 0 Fruits and nuts Flood 25.220 7.555 6841 1775 487 4579 Drip 8.428 7.586 9659 1760 161 7738 Sprinkler 0.000 0.000 0 0 0 0

a FAO (1992) and calculations of authors. b Thousand Cubic Meter. c Data source: Iranian Ministry of Jihad-e-Agriculture (2009) and calculation of authors.

from reductions of water from existing uses. Our empirical model provides a tool for analyzing the effects of water policies under 5.8. Basin map and dataset base or reduced water supply on both use-related and environmental water economic values. We formulate a base and two alter- Nodes are established for key points on the stream system. A native policy options given by: distinction is made between gauged river flow nodes, inflow nodes, diversion nodes, surface water return flow nodes and reservoir re- – Base policy (BASE): This policy extends the status quo in which lease nodes. Fig. 4 shows the ZRB’s schematic as well as baseline there is no new program for preserving the Gavkhouni Wet- flow data, including all major water sources and uses. Based on this land’s ecological functions. However it does include the existing schematic, the model analyzes two hydrologic supply scenarios 50% subsidy of capital cost for farmers who convert to water- and three policy options in the study area over a period of 10- saving technologies. years. – Wetland conservation measures under reduced agricultural diver- The most important data sources include the Esfahan Regional sions without any additional conservation subsidy (RD_WO_S): A Water Company (2009), the Iranian Ministry of Jihad-e-Agriculture water rationing program is enacted for existing users for which (2009), and the Statistical Center of Iran (2009), and FAO (1992). In the intent is to restore minimum acceptable water deliveries to addition, numerous sources of unpublished survey data, incidental the wetlands. The water requirement for this wetland is esti- studies and reports, and selected expert knowledge were used to mated at 140 million cubic meters per year, from which 70% assign parameters to all needed data for the model. We used actual is needed for its conservation (Soltani, 2009). The other 30% is observed cropping pattern for a normal year (2005) to calibrate the needed to improve the natural functioning of wetland in the model. A weighted average of water use, agronomic, economic data basin. We assume different wetlands flow requirements for base on crop classification of FAO (2011) are shown in Table 2. The the normal and drought scenarios to reflect more closely complete program code written in GAMS, and data and detailed natural conditions that would have occurred without crop outputs are available from the authors on request. irrigation. – Wetland conservation measures with reduced agricultural 6. Results and discussion diversions with full (100%) conservation subsidy (RD_WI_S): Irrigation water use restrictions are implemented for wetland 6.1. Overview conversation in combination with a 100% subsidy for adopting water saving technologies in irrigation. The conversion from Results are presented for three policy options under each of two flood to drip or sprinkler technology is subsidized with no upper water supply scenarios, for a total of six water supply-policy limit on the amount of public expenditure to implement combinations. Each policy and each water supply scenario result subsidy. in unique hydrologic, agronomic, and economic outcomes, of Author's personal copy

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Table 3 Hydrologic balance by water supply and policy scenario, Zayandeh-Rud River Basin, Iran (millions cubic meter per year).

Water supply scenario Total Changes Compared to BASE Normal Drought Normal Drought Policy option BASEa BASEa RD_WO_Sb RD_WI_Sc RD_WO_S RD_WI_S Source Headwater flows 1685 843 0 0 0 0 Surface runoff 222 111 0 0 0 0 Return flows 195 110 13 44 7 27 Net reservoir release (outflow–inflow) 56 54 1 0 0 0 Total 2046 1009 12 43 7 27 Use Agriculture 1203 353 160 188 117 135 Municipal 325 308 2000 Industrial 100 100 0 0 0 0 Environment 58 54 136 136 98 98 Institutions 156 156 0 0 0 0 Ground water Recharge 203 38 14 9 12 10 Total 2046 1009 12 43 7 27

a Base policy (no reduced agricultural diversions and 50% subsidy of capital cost for water-saving technologies). b Wetland conservation through reduced agricultural diversion without increase in base subsidy. c Wetland conservation through reduced agricultural diversion with 100% capital subsidy for converting to water-saving technologies.

Table 4 Agricultural water accounts by crop, water supply, and policy scenario, Zayandeh-Rud River Basin, Iran (million cubic meters per year).

Total Changes compared to BASE Water supply scenario Normal Drought Normal Drought Policy option BASE BASE RD_WO_S RD_WI_S RD_WO_S RD_WI_S Crop Water use

Vegetables Applied 221 191 0 24 8 34 Depleteda 70 61 0 3 3 1 Cereals Applied 1881 768 36 138 169 276 Depleted 596 238 9 14 56 84 Dried leguminous vegetables Applied 38 2 10 17 0 1 Depleted 12 1 3001 Edible roots Applied 78 65 0 40 3 34 Depleted 27 24 0 4 13 Forage products Applied 749 121 4 112 35 28 Depleted 252 43 11112 7 Oilseeds and oleaginous fruits Applied 108 16 29 10 5 8 Depleted 37 6 962 2 Fiber crops Applied 66 0 22 10 0 0 Depleted 23 0 7 30 0 Sugar crops Applied 82 52 1 3 8 16 Depleted 28 18 1 1 3 5 Fruits and nuts Applied 364 233 16 159 18 114 Depleted 127 86 52169 Total use Applied 3587 1448 116 507 246 509 Depleted 1174 477 34 29 82 70 Total source Divert 1203 353 160 188 117 135 Pumped 2383 1094 44 319 129 374

a ET. which each shows a different adoption by farmers of irrigation meters in normal and drought scenarios respectively, compared water conservation measures. Results are shown for hydrology to wetlands flows under the base policy. Interestingly, reduced (Tables 3 and 4), farm adoption of irrigated land use (Tables 5 agricultural diversion to support water conservation results in re- and 6), and economic and policy dimensions (Tables 7 and 8). duced return flows to the river. Greater aquifers recharge is an- other environmental benefit as a result of deliveries to the 10 6.2. Hydrology wetlands at the river outflow point. Under full water supply conditions with no additional subsidy Securing water for sustaining wetland functions is required to for agricultural water conservation (RD_WO_S), Table 4 shows avoid decreasing urban or industrial water deliveries under both the importance of incentives for farmers to pump more water from alternative policy options, since both are assigned top priority aquifers stocks to sustain their historical water application. How- water uses. For this reason, agriculture bears the largest burden to meet wetland water delivery needs. Table 3 shows a growth in 10 In the ZRB there is no water metering to control pumped water, aquifers sustain environmental flows to wetlands of 136 and 98 million cubic extra withdrawal and reduced ground water levels. Author's personal copy

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Table 5 Total land in production by crop, irrigation technology, water supply, and policy scenario, Zayandeh-Rud River Basin, Iran (hectares per year).

Total Changes compared to BASE Water supply scenario Normal Drought Normal Drought Policy option BASE BASE RD_WO_S RD_WI_S RD_WO_S RD_WI_S Crop Technology

Vegetables Flood 8864 7619 4 2121 350 2475 Drip 496 498 2 2143 0 1932 Sprinkler 100 100 0 444 0 470 Cereals Flood 94,216 27,641 1064 13,500 8965 14,899 Drip 579 453 27 3499 68 967 Sprinkler 700 396 39 5553 117 894 Dried leguminous vegetables Flood 1663 29 458 1201 0 24 Drip 187 128 9 1189 20 257 Sprinkler 0 0 0 0 0 0 Edible roots Flood 2739 2254 18 2622 131 2245 Drip 876 865 3 2893 3 2475 Sprinkler 89 87 0 267 0 205 Forage products Flood 23,663 3900 66 9185 1148 2034 Drip 1233 1185 10 7177 85 3218 Sprinkler 638 514 8 3557 122 671 Oilseeds and oleaginous fruits Flood 5780 806 1525 1278 240 579 Drip 477 181 21 2042 58 216 Sprinkler 12 11 0 64 0 64 Fiber Crops Flood 2336 0 765 351 0 0 Drip 0 0 0 0 0 0 Sprinkler 0 0 0 0 0 0 Sugar Crops Flood 2694 1717 49 70 277 526 Drip 12 11 0 60 0 48 Sprinkler 0 0 0 0 0 0 Fruits and nuts Flood 13,249 8069 688 10,489 704 7206 Drip 3571 3221 30 13,175 124 8299 Sprinkler 0 0 0 0 0 0 Total Flood 155,203 52,036 4533 40,677 11,815 29,987 Drip 7431 6543 101 32,179 359 17,412 Sprinkler 1539 1109 47 9885 239 2305 Total 164,172 59,688 4385 1387 12,413 10,271

Table 6 Gross value of production by crop, water supply, and policy scenario, Zayandeh-Rud River Basin, Iran.

Total Changes compared to BASE Unit ($US million/year) (%) Water supply scenario Normal Drought Normal Drought Policy option BASE BASE RD_WO_S RD_WI_S RD_WO_S RD_WI_S Crop Vegetables 804 722 0.04 9.10 3.14 4.28 Cereals 2021 975 0.75 0.61 19.04 29.28 Dried leguminous vegetables 34 4 18.74 18.10 11.69 166.55 Edible roots 265 233 0.29 36.59 3.72 35.16 Forage products 568 210 0.08 14.36 14.46 26.09 Oilseeds and Oleaginous fruits 82 20 19.97 21.15 25.67 16.75 Fiber crops 34 0 28.95 15.53 0.00 0.00 Sugar crops 104 68 1.66 5.30 14.82 25.22 Fruits and nuts 941 787 0.69 31.76 4.00 27.93 Total 4852 3017 1.09 12.09 9.76 2.89

ever securing historical water applications is not possible under incentives in the right place. Table 4 shows that this policy reduces the drought scenario because the aquifer’s water table falls in the water application especially for cereals, forage products, and fruits face of increased pumping and rising pump costs. Consequently, and nuts. Nevertheless, increased irrigation subsidies raise crop agriculture’s water-applied is reduced to less than half of base lev- water depletion per unit of land irrigated since water conserving els in the face of reduced water diversions. Both water applications irrigation technologies, by increasing crop yield, also increase crop and depletions (ET) fall in this condition. water ET. Forage crops, and fruits and nuts are two examples of A policy of increased water-saving irrigation technology subsi- economically attractive activities enhanced by this policy, as dies raises the profitability of cultivating crops with water conserv- shown in Table 4. Comparing the scenarios and policies shows that ing technologies that would otherwise be flood-irrigated without full subsidization moves toward a more sustainable use of water in the subsidy. Therefore, greater capital subsidies provide incentives agriculture as it is able to reduce more than 35% of water-applied for farmers to deal with water scarcity in a way that puts the profit in the drought scenario. Author's personal copy

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Table 7 Marginal economic value by resource, water supply, and policy scenario, Zayandeh-Rud River Basin, Iran.

Water supply scenario Nominal price Shadow price (economic scarcity value) Total Changes compared to BASE Normal Drought Normal Drought Policy option BASE BASE RD_WO_S RD_WI_S RD_WO_S RD_WI_S Resource Watera 19 19 144 3 23262 Landb 1348 81 0 50 95 0 0

a Unit: $/Thousand Cubic Meter. b Unit: $/hectare.

Table 8 Net present value by uses, water supply, and policy scenario, Zayandeh-Rud River Basin, Iran ($US million per 10-years).

Total Changes Compared to BASE Water supply scenario Normal Drought Normal Drought Policy option BASE BASE RD_WO_S RD_WI_S RD_WO_S RD_WI_S Discounted net present value Agriculture 2696 2219 16 400 144 104 Urban 1000 996 0 0 0 0 Industry 9612 9612 0 0 0 0 Environment 205 117 3 4 8 7 Discounted total net present value 13,308 12,827 13 404 136 111 Discounted program ﬁnancial cost 9 80 109 1 51 Net welfarea 13,299 12,819 13 295 135 60

a Equal to gain–loss.

6.3. Land in production show a loss of 105,000 ha. Delivering water to the river’s outflow point to preserve wetlands requirements makes the conditions Farmers adapt to changes in policy, climate, prices, and costs of harder for farmers, as they have to reduce their land in production production by altering land in production and crop mix, and irriga- from about 12,400 and 10,270 ha, respectively for RD_WO_S and tion technology. Table 5 shows that when farmers face the con- RD_WI_S, a greater reduction compared to no wetland conserva- straint of reduced water diversions (as shown under RD_WI_S tion policy. As seen, a more modest reduction of land in production and RD_WO_S), they take out of production flood-irrigated land. about 2100 ha occurs if there is a full subsidization for converting Then where given the opportunity, farmers bring available land to drip and sprinkler irrigation systems. It provides farmers more into production by shifting into greater amounts of drip and sprin- opportunity to adjust to water scarcity while reducing the loss of kler-irrigated land. This opportunity is available for the ZRB’s farm- farm income considerably. ers in the full water supply scenario and they are predicted to make Overall Table 5 shows that in the face of drought and water con- the adjustments shown in the table. As a result they remove just servation incentives a greater part of on-farm adjustment comes by over 4500 ha from flood irrigation in the normal water supply with shifting their land in production or altering irrigation technology water diversions are constrained to fall with no extra subsidy. Un- rather than altering crop mixes. For instance, in the normal water der this condition, farmers will bring in just below 150 ha of drip supply and RD_WI_S, irrigators take about 4811 ha of land out of and sprinkler-irrigated land into production. production of cereals, drained leguminous vegetables, and fiber A full water-saving subsidy provides incentives to take more crops while bringing about 6200 ha of land into production for land out of flood irrigation and bring land into productions by other crops. Under same policy and water supply scenario farmers applying drip and sprinkler irrigation systems; finally the total take 40,677 ha of flood-irrigated land out of production and bring land in production will increase by just below 1400 ha compared about 42,000 ha of water-conserving irrigation technologies into to the land in production under the base policy. As a result, this production. The same results occur when water supplies fall by policy keeps about 31% of total irrigated land in production in 50% with an incentive for farmers to shift into drip and sprinkler the face of water-conserving technologies brought about by a systems. Comparing the crop mixes under this water supply sce- 100% public water conservation subsidy. nario with same water supply and no wetland conservation (base The reduced diversion with subsidy (RD_WI_S) policy also policy) results show that farmers take about 13,890 ha of vegeta- changes the crop mix to a greater extent than the reduced diver- bles, cereals, oilseeds and oleaginous fruits, and sugar crops out sion without a subsidy (RD_WO_S), as shown in Table 5. Results of production while they are able to bring only about 3620 ha of show that farmers take greater amounts of their cereal and fiber land into other productions. However, the changes among irriga- crop lands out of production in the RD_WI_S policy under a normal tion technologies is considerable such that they take about water supply, about 4800 ha. Then they shift the crop mix into lar- 30,000 ha of land out of flood irrigation and bring about ger amounts of land in production than base policy, especially for 19,700 ha of drip and sprinkler-irrigated land into production. fruits and nuts (16.0% increase), edible roots (14.5% increase), Water conservation incentives reward farmers who are more flex- and oilseeds and oleaginous fruits (13.2% increase). ible in converting flood irrigated-land to production by water-con- Water shortages imposed by drought bring about considerable serving irrigation systems of same crops; so a greater economic reductions in land in production under the base policy. Our results cost of adjustment occurs when water is more scarce. Author's personal copy

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6.4. Food security veals that shifting from 50% to 100% water conservation subsidy increases the farmers’ willingness to participate in a cost share pro- Table 6 presents changes in the gross value of crop production gram, resulted by a greater level of potential profitability. Table 8 induced by alternative water supply conditions and by drought shows the marginal taxpayer cost of the RD_WO_S policy exceeds coping policy. A small reduction of about 1% occurs in total value its marginal benefits under both water supply scenarios. Conse- of production under normal water supply and RD_WO_S policy. quently, the deadweight loss of about $13 million and a consider- So a reduced diversion policy without conservation subsidy actu- ably greater level of about $135 million occur for normal and ally reduces the value of overall crop production. The gross value drought scenarios, respectively. This story is changed and shows of crop production falls by nearly 10% under a water shortage sce- a gain of economic efficiency for both scenarios when full subsidies nario for the same policy. This is an important finding because it provide incentives for farmers to conserve water after their surface says that policies designed to meet the water demands to secure water allocations are reduced. As a result, wetland conservation wetlands services could place food security at greater risk in coun- through reduced agricultural diversion with the 100% capital sub- tries like Iran where major challenges confront water and food sidy for water-saving technologies is the net welfare maximizing planners who aim to sustain food self-sufficiency. Full subsidies policy for both normal water and drought conditions. It can im- for the water-conserving technologies increases crop yields as well prove net welfare up to $295 and $60 million greater than base as raising gross revenues from crop production. policy, respectively for normal and drought hydrologic scenarios, as shown in Table 8. 6.5. Economic value of water and land 7. Conclusions We analyze the economic value of water and land based on their shadow prices. The shadow price is interpreted as the addi- This paper presents alternative policy approaches to promote tional economic value of the discounted net benefits over all water farmers’ adoption of irrigation water conservation measures to uses and environments that can be secured by relaxing either the preserve wetlands under conditions of potential climate change water or land resource constraint by one unit. It is the marginal va- in the arid countries. Our results calculate impacts from four policy 11 lue of the total discounted net present value that would be secured measures that provide economic incentives to agriculture to re- by finding one more unit of water that could be applied or one more duce its use by enough to supply the needed amount of water for 12 unit of land that could be brought into production. wetlands in Central Iran. Table 7 shows that irrigators overall are willing to pay greater Two policies to support wetland demands for water are exam- water prices under both hydrologic scenarios as the water supply ined (a) reduced agricultural diversions without a water conserva- is more restricted. As the subsidy for water-saving irrigation tech- tion subsidy, and (b) reduced agricultural diversions with a water nology raises the profitability of cultivating crops, it provides conservation subsidy. An empirical model was implemented incentives for farmers to shift out of flood irrigation and into sprin- through the development of an integrated basin scale analysis, in kler or drip systems. This substitution increases crop yields, raises which those alternatives were evaluated against a base policy in profitability of farming, and reduces the effective of water scarcity, the face of two hydrologic supply scenarios over a period of 10-years. freeing up water for alternative uses. Table 7 shows this circum- Results reveal that the conservation subsidy provides economic stance will raise irrigated land’s shadow price while decrease the incentives for farmers to reduce water applied on irrigated lands. shadow price of water under the full water supply scenario. This This policy raises the profitability of cultivating crops by providing result occurs because land becomes more limiting than water in incentives for farmers to shift out of flood irrigation into alterna- the full water supply scenario. Land also takes on a zero shadow tive water application technologies. This policy increases crop price when water supply falls by 50%, since land is not a limiting yields and profitability and also alters the shadow price of water. resource in these conditions. Although full subsidization of water-conserving irrigation technologies increases the taxpayer cost, it can be politically and econom- 6.6. Decision making criteria ically attractive to important groups, including water-uses and environmental stakeholders. Urban and industrial water users Table 8 shows that the reduced agricultural diversion without see no changes in their benefits. extra subsidy decreases agricultural net present value by 0.6% An important limitation of our study is that our results are and about 6.5% respectively under normal and drought scenarios, based on the assumption that irrigation water use has no negative respectively. That policy raises environmental values such that externalities and that agricultural production that is valued in overall the total discounted net present value increases up to gross margins reflects the social net value of water used or of water 1.44% under normal water supply and decreases by 0.15% when saved in irrigated agriculture. Because of those two limits, the water supply fall by 50%. externality implications of water use as well as water’s social eco- The program financial cost is important because it measures nomic value need to be considered in a more complete analysis. how much taxpayers pay for a water conservation subsidy pro- Despite these limits, the approach used as well as the results dis- gram. For the base policy, the discounted financial cost over 10- covered could inform policy measures for water and wetland con- years is just about $16 million with a normal water supply and a servation if water supply reductions from climate change or slightly lower $14 million when a 50% shortage occurs. Under drought become more pronounced. the 100% water-conserving subsidies the taxpayers cost increase significantly, growing to more than 10 times under normal hydro- Acknowledgements logic scenario and 6 times under the reduced water supply. It re- The authors are grateful for financial and official support for this 11 It can also be interpreted as the marginal cost (reduction in discounted net work by Agricultural and Natural Resource Research Center of Esfa- present value) resulting from tightening either of the resource constraints. han (Iran), Department of Agricultural Economics in Shiraz Univer- 12 Land often takes on a zero shadow price since it is rarely a limiting resource in sity (Iran), and the New Mexico Agricultural Experiment Station most of the world’s irrigated regions (e.g., Gohar and Ward (2010) in Egypt). However this does not occur for our study. Traditional farming with small size of farms but (USA). The authors extend thanks to an anonymous reviewer for large farmers’ family size places heavy constraints on size of family farms. insights that would have otherwise been missed Author's personal copy

A. Nikouei et al. / Journal of Hydrology 464–465 (2012) 216–232 229 X X s;p p p s;p p Appendix A. Mathematical documentation TCuu;t ¼ ðduepump;u þ dutpump;uÞXpump;u;t þ ðduedivert;u pump divert The model presented in this Appendix explains and predicts ac- p s;p þ dutdivert;uÞXdivert;u;t 8 u tions of water stakeholders who wish to store, divert, apply, purify, 3 agr; urb; ind ðA8Þ and pump water to raise discounted net present economic value to the highest possible level while being consistent with hydrologic, agronomic, economic, and institutional constraints governing A.1.2. Economic environment water use in the Zayandeh-Rud River Basin in central Iran. The environmental economic beneﬁt is deﬁned as:

s;p s;p s;p s;p A.1. Economics block NBee;t ¼ NBeres;t þ NBeenv;t þ NBewet;t ðA9Þ

where the indices res, gaugeenv, and gaugewet are the various envi- A.1.1. Economic use ronmental nodes including reservoir (recreation) sites, in-stream Agriculture, urban, and industry uses are denoted by indices flows, and wetlands, respectively. The general form for net eco- agr, urb, and ind are the three use-related nodes we use. Those nomic benefits from these three uses is: three classes of water use are described as: NBes;p TBus;p TCus;p u res; en ; wet A10 s;p s;p s;p e;t ¼ e;t e;t 8 3 v ð Þ NBuu;t ¼ TBuu;t TCuu;t 8 u 3 agr; urb; ind ðA1Þ A quadratic functional form is defined to reflect the total gross rec- s;p s;p s;p s;p reation benefit for any given reservoirs (TBeres), as the following: NBuu;t ¼ NBuagr;t þ NBuurb;t þ NBuind;t ðA2Þ TBes;p ¼ bintercept þ blinearZs;p þ bquadraticðZs;p Þ2 ðA11Þ where TBuu and TCuu are the total benefit and delivery cost for res;t res res res;t res res;t water use-related nodes. Agriculture’s total benefit is the following where the stocks (res) include reservoirs and aquifers. Zres is the equations: XX storage volume of water in the reservoirs, and the superscripts of TBus;p ¼ GMs;p Ls;p ðA3Þ b are parameters for the constant, linear and quadratic terms, agr;t applyagr ;j;k;t applyagr ;j;k;t j k respectively for recreation benefits. Total benefits for given in- stream recreational and environmental facilities along the river, is s;p p similarly measured as a quadratic functional form to reflect the to- GM ¼ PricejYieldapply ;j;k;t þ Subsidy ACapply ;j;k;t ðA4Þ applyagr ;j;k;t agr k agr tal gross benefit (TBeenv) as the following: s;p where GM is gross margin of alternative crops (j) and their 2 applyagr ;j;k TBes;p ¼ bintercept þ blinearXs;p þ bquadraticðXs;p Þ ðA12Þ variants (k) at any given agricultural water application node (ap- env;t env env gaugeenv ;t env gaugeenv ;t plyagr), Price is unit crop price and Yield is crop yield per unit land, Finally, Xgaugeenv is the flow at any gauged stream node. Wetland and AC is average cost of production per hectare, and L is the num- environmental economic benefits are computed with a similar ber of hectares of land in production. The variable Subsidy is the to- algebraic structure as: tal annual equivalent water conservation subsidy per hectare, s;p intercept linear s;p quadratic s;p 2 described below as: TBewet;t ¼ bwet þ bwet Xgauge ;t þ bwet ðXgauge ;tÞ ðA13Þ wet wet p rðcckÞ p where Xgaugewet is inflow to any given wetland at the river terminal. Subsidyk ¼ n SRk ðA5Þ 1 ð1 þ rÞ Total environmental costs (TCee) is defined as the explicit cost (operation cost), equal to the cost of additional resources required where the first term in the bracket denotes the annual equivalent to support the protection of greater environmental benefits at a gi- amortization payment with CC as unsubsidized irrigation systems ven site. Those costs are defined as: capital cost (here $/hectare), r as interest rate (%), and n is the drip s;p s;p or sprinkler system life in years. The SR indicates the importance of TCeres ¼ deresZres;t ðA14Þ the public subsidy in reducing the farmer’s capital costs of convert- s;p s;p ing from surface to alternative irrigation technology. As Booker TCe ¼ deen Z ðA15Þ env v gaugeenv ;t et al. (2005) described, a quadratic function form is used to characterize urban economic benefits of water use: s;p s;p TCe ¼ dewetZ ðA16Þ wet gaugewet ;t TBus;p ¼ bintercept þ blinearXs;p þ bquadraticðXs;p Þ2 ðA6Þ urb;t urb urb applyurb;t urb applyurb;t where deres, deenv, and dewet denote the added cost of managing larger volumes of water (larger stocks or larger flows) at any given where bs are parameters and their superscripts denote the inter- location in the basin where environmental values are important. cept, linear and quadratic terms, respectively, for the beneficial use of water at each of the urban-water applied nodes (applyurb) in any given period (t). Similarly, the annual benefit function for A.2. Hydrologic block industrial water use nodes is the following: We use several kinds of hydrologic quantities of water. These s;p intercept linear s;p quadratic s;p 2 include water supply sources, water stocks, various kinds of river TBuind;t ¼ bind þ bind Xapply ;t þ bind ðXapply ;tÞ ðA7Þ ind ind flows, water applications, and water stocks. This states that for a given existing industrial structure, increased water use by industry increases total benefits at a decreas- A.2.1. Supply sources ing marginal rate. Denoting indices srf as surface runoffs and scf, spf, and stf for

As described above, water application costs (TCuu) includes the three kinds of inter-basin transfers, Eq. (A17) measures the total delivery costs of the quantity of water applied, equal to the amount inflows (inflow as water supply node) at each related nodes. pumped (as pump) and/or diverted (as divert) water over applica- s tion nodes (as apply). Denoting due as the energy, operation, and Xinflow;t ¼ Sourceinflow 8 inflow 3 srf ; spf ; stf ðA17Þ maintenance cost and dut as treatment cost for purification water, both per unit of pumping or diversion, total delivery costs for where Source is the number of cubic meter of water produced by water use-related nodes is: hydrologic sources. Author's personal copy

230 A. Nikouei et al. / Journal of Hydrology 464–465 (2012) 216–232 XXX s;p s;p A.2.2. Basin’s geographical configuration X ¼ xseepage Dseepage ;apply L ðA25Þ seepageagr ;t agr;j;k agr agr applyagr ;j;k;t According to river basin’s hydrological map, two following apply j k equations show the geographical relations among the watershed’s XXX s;p s;p major entities based on fundamental mass balance: X ¼ xreturn Dreturn ;apply L ðA26Þ X returnagr ;t agr;j;k agr agr applyagr ;j;k;t s;p s;p apply j k Xgauge;t ¼ Dgauge;iXi;t ðA18Þ i where xuse, xseepage, and xreturn are given technical coefficients by X irrigated districts, crop, and irrigation technologies per unit of land s;p 6 s;p Xdivert;t Ddivert;iXi;t 8 i respectively for plant depletion (evapotranspiration, ET), seepage i (infiltration), and return flow. 3 inflow; gauge; divert; return; gwriver; rivergw; rel ðA19Þ A.2.4. Water stocks where Dgauge and Ddivert are the elements of two matrices defining Any given tth year’s reservoir water stock is defined by the spatial configuration of the watershed that link i (watershed’s X X s;p s;p s;p s;p flows) to river node gauge and divert, respectively. These two matri- Zres;t ¼ Zres;t1 Dres;relXrel;t Dres;evpXevp;t ðA27Þ ces are used to characterize the spatial relations in a river basin. So rel evp if the model needs to be re-configured to a new river basin, then where reservoir contents in the initial period (0), Zres,0, are defined these two matrices would likely see the greatest structural changes by beginning watershed conditions. The subscript evp defines reser- than any other part of the model. The elements of D can be either +1 voir evaporation. The upper and lower bounds on each reservoir’s (the inflow node is immediately above river node gauge or divert), water contents (storage) are defined as: 1 (the off-stream diversion node is immediately above river node s;p 6 bUpper gauge or divert), or most commonly, 0 (the above/below node has no Zres;t Z res ðA28Þ direct effect at river node gauge or divert). In addition to introduced flow types inflow, gauge and divert, other flows include return (sur- s;p bLower Zres;t P Z res ðA29Þ face return flow by any application nodes), gwriver (discharging the aquifer by river), rivergw (recharging the aquifer by river), rel (res- This equation guarantees that the labeled reservoir’s actual water ervoirs releases as a result of subtracting reservoir’s inflow and out- storage contents in each period never exceed or lessen its capacity, bUpper bLower flow). Eq. (A18) shows that flow at river gauge equals the sum of defined above as Z res or below as Z res . If capacity is expanded, flows whose activities directly influence that flow and Eq. (A19) re- reservoir storage contents are set to a higher level. These upper quires that no diversion exceed available river flow at the point of and lower bounds could also reflect cultural, institutional, or legal diversion. For details, see Ward et al. (2006). prohibitions, requirements, or conventions unique to the river basin

in question. The mass balance for ground water stock Zgws is given A.2.3. Water application by Water applied can come from stream diversion and/or water X Zs;p ¼ Zs;p þ D Xs;p ðA30Þ pumped. Total water applied is: gws;t gws;t1 addaq;gws addaq;t X X addaq s;p s;p s;p X ¼ Ddi ert ;apply X þ Dpump ;apply X applyu;t v u u divertu;t u u pumpu;t where first term is lagged aquifer storage. In the initial period (0), divert pump Zgws,0, is defined by beginning ground water storage conditions, 8 u 3 agr; urb; ind ðA20Þ which are defined by aquifer activities taking place over all previous where apply denotes apply node, and the parameters denoted here years. The term Xaddaq,t defines the net year’s water added to ground and forthcoming equation by D are identity matrices linking their water table and this volume equals net deep percolating (as sub- subscripted nodes. All other variables, sub, and super scripts have script netdp), direct withdrawal of ground water by pumping (as already been introduced by previous sections. Water is applied to subscript pump), and net groundwater-river water exchanges (as usage (as subscript use), infiltration (as subscript seepage), and re- subscript ngwriver). As these terms, the net water added to ground turn flow (as subscript return) and below equation: water table is defined as the following: X X X X s;p s;p s;p s;p s;p s;p X ¼ D X þ D X Xaddaq;t ¼ Daddaq;netdpXnetdp;t Daddaq;pumpXpump;t apply ;t useu;applyu useu;t seepageu;applyu seepageu;t u netdp pump useX seepage X s;p s;p D X u agr; urb; ind A21 þ Daddaq;neswrX ðA31Þ þ returnu;applyu returnu;t 8 3 ð Þ ngwriver;t return ngwriver ! X X where s;p s;p s;p X Xreturn ;t ¼ qreturn Ddivertu;returnu Xdi ert ;t þ Dpumpu;returnu Xpump ;t s;p s;p u u v u u X ¼ð1 u Þ Dseepage;netdpX ðA32Þ divert pump netdp;t netdp seepage seepage u agr; urb; ind A22 8 3 ð Þ X !Xs;p ¼ h D Xs;p ðA33Þ X X ngwriver;t ngwriver gauge;ngwriver gauge s;p s;p s;p gauge X ¼ rseepage D ; X þ Dpump ;seepage X seepageu;t u divertu seepageu divertu;t u u pumpu;t divert pump In above equations, u is the disposal deep percolation coefficient 6 6 8 u 3 agr;urb;ind ðA23Þ ð0 / 1Þ and Xngwriver includes all the subsurface drainage (drainage), discharging aquifers by river, and seeping water from river to where qreturn and rseepage are the proportion of total water applied aquifers. The parameter h is the proportion of total flow exchanging returning to river and infiltrating into ground water rather than between ground water and river with respect to upstream gauge contributing directly to return flow. The elements of Eq. (A21) for flow, which is 0 < h 6 1 where the net exchange contributes into irrigated crop fields are separately defined as the following: ground water table, h = 0 where net exchange is zero, and XXX 0 > h P 1 where net exchange result the ground water overflow- s;p s;p X ¼ xuse Duse ;apply L ðA24Þ useagr ;t agr;j;k agr agr applyagr ;j;k;t ing to river. These parameters are measured endogenously by apply j k observed hydro-agronomic data and a preliminary computation. Author's personal copy

A. Nikouei et al. / Journal of Hydrology 464–465 (2012) 216–232 231

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