Evaluating Impacts of Industrial Transformation on Water Consumption in the Heihe River Basin of Northwest China

Growing water scarcity is one of the central challenges for sustainability in China, given its burgeoning industry and huge population, especially in the arid and semi-arid inland river basin where precipitation is very limited. Industrial transformation is an important engine of economic growth, which is required to be implemented by governments at all levels in China. Economic models have generally been applied to evaluate the effects of economic policy change (e.g., industrial transformation or adjustment of price) on the allocation of production factors. The computable general equilibrium (CGE) model is an effective tool to reallocate the primary factors across sectors for different industrial transformation scenarios. In this research, we first briefly introduced the principles and structure of the CGE model, which embeds water resources as a primary factor of production. Then we chose Zhangye as an example to evaluate the impacts of industrial transformation on water consumption under three designed scenarios with the water-embedded CGE model. Simulation results showed that there will be considerable water saving benefit from industrial transformation when the output value of secondary industry and tertiary industry increases and the contribution of the planting sector to the total output value decreases. Finally, we put forward a scheme that can improve water utilization efficiency in policy options.