Economic impacts of federal policy responses to drought in the Rio Grande Basin

Significant growth in the Rio Grande Basin's demand for water has stressed the region's scarce water supply. This paper presents an analysis of the impacts of severe and sustained drought and of minimum in-stream flow requirements to support endangered species in the Rio Grande watershed. These impacts are investigated by modeling the physical and institutional constraints within the Rio Grande Basin and by identifying the hydrologic and economic responses of all major water users. Water supplies, which include all major tributaries, interbasin transfers, and hydrologically connected groundwater, are represented in a yearly time step. A nonlinear programming model is developed to maximize economic benefits subject to hydrologic and institutional constraints. Results indicate that drought produces considerable impacts on both agriculture and municipal and industrial (MI) uses in the Rio Grande watershed. In-stream flow requirements to support endangered species' habitat produce the largest impacts on agricultural water users in New Mexico and Texas. Hydrologic and economic impacts are more pronounced when in-stream flow requirements dictate larger quantities of water for endangered species' habitat. Higher in-stream flow requirements for endangered species in central New Mexico cause considerable losses to New Mexico agriculture above Elephant Butte Reservoir and to MI users in Albuquerque, New Mexico. Those same in-stream flow requirements reduce drought damages to New Mexico agriculture below Elephant Butte Reservoir and reduce the severity of drought damages to MI users in El Paso, Texas. Results provide a framework for formulating federal policy responses to drought in the Rio Grande Basin.