Economic–Engineering Method for Assessing Trade-Offs between Instream and Offstream Uses

Abstract

Rivers provide multiple water uses and services, including offstream uses that are valued economically and instream uses, such as recreation and ecosystem preservation, that are rarely valued economically. In many countries, water rights allocate water to offstream uses, and dedicated minimum instream flows are the main instrument for instream water allocation. However, minimum instream flows do not ensure continuous reaches for recreation or aquatic habitats. An efficient allocation of water for instream uses requires quantifying the benefits obtained from those uses, so that trade-offs between instream and offstream water uses can be weighed against each other and properly considered. This study develops a generalizable, hybrid economic–engineering method to assess trade-offs between competing instream and offstream uses. Benefit curves measure recreation quality as a function of instream flow, and opportunity costs given by lost benefits of offstream uses generate supply curves for instream water. The method is applied to Chile’s Maipo River. Instream water uses for recreation include kayaking and rafting. The principal offstream water use in the study reach is hydropower generation from the Alto Maipo Hydroelectric Project. Continuous length of boatable reaches and trade-offs between instream and offstream water uses are evaluated for normal and dry months and years. Results show that the opportunity cost of additional boatable reaches is sensitive to both drought and energy price. The cost of maintaining 34 km rather than 26.6 km of continuous boatable river is US$10 million in dry years when energy prices are high, and US$240,000 in normal years when energy prices are low. Results indicate that dry months and years, when water is scarce, have a greater number of optimal solutions between instream and offstream water uses. This is explained by the physical relationship between instream flow and continuous boatable distance for low flow values. The proposed approach could guide negotiation processes between instream and offstream water users, and can be applied elsewhere, provided a physically based assessment of instream water use benefit and an economic representation of offstream opportunity costs is available.