A framework for drought economics

An economic assessment of drought impacts demands an analytical framework which reflects the unique characteristics of this natural hazard.

New research by the Oxford-led MaRIUS project has developed an innovative framework for drought economics. The framework, which is outlined in a recent paper published in Ecological Economics entitled “The Economic Impacts of Droughts: A Framework for Analysis”, is the result of a collaboration between Dr Jaume Freire González, formerly of Oxford University’s Environmental Change Institute (ECI) and now a researcher at Harvard, Dr Chris Decker, an economist at Oxford’s Centre of Socio-Legal Studies, and Professor Jim Hall, ECI Director and MaRIUS lead.

The research is a key output of the economics work of the MaRIUS (Managing the risks, impacts and uncertainties of droughts and water scarcity) project, which seeks to develop a risk-based approach to decision-making around drought and water scarcity.

The paper argues that, in economic terms, droughts are a specific type of natural hazard, and failure to appreciate the differentiating characteristics of drought can lead to biased estimates of impacts, and poor short-term and long-term management practices.

The authors argue that traditional conceptual frameworks used to assess natural hazards do not adequately capture all of the factors that contribute to the economic impacts of droughts, such as the importance of the level, and composition, of hydraulic capital; the dispersion of economic impacts across different economic activities and agents; the temporality of drought events; and the critical importance of policy-making in shaping the short and long-term economic impacts of droughts. Traditional frameworks also fail to take account of the complex interaction between factors within the domain of decision-making, as well as underlying climate conditions.

The authors propose a new conceptual framework which distinguishes between ‘green’ and ‘blue’ water – the two primary sources of drought-induced economic impact. Green water describes water stored in the top layer of soil and vegetation, while blue water comprises fresh surface water and groundwater. The economic impact of a green and blue water drought is manifest via different mechanisms. Green water availability is largely determined by environmental conditions, particularly climate. The economic impact of a green water drought is felt foremost by the agricultural sector, particularly those reliant on rainfed production. Economic impacts arising from the initial phase of a drought are usually limited to those sectors reliant on green water.

Blue water impacts of drought arise from long-term choices about the water storage, interconnection and production capacity (i.e. hydraulic capital) as well as short-term management decisions regarding the timing, severity and allocation of water restrictions applied to different users.

The new framework provides insights on the drought management policies in the short and long term, and the economic consequences of different actions. By highlighting the trade-offs and choices involved in decision-making, the MaRIUS project hopes this framework will be able to assist policy-makers, regulators, water companies, water users and other stakeholders in managing and responding to drought over the short and long-term.

Citation: Freire-González, J., Decker, C., & Hall, J. W. (2017). The Economic Impacts of Droughts: A Framework for Analysis. Ecological Economics, 132, 196-204.

MaRIUS 2016 Drought Symposium presentations now online

The MaRIUS project hosted its third, annual, international Drought Symposium in Oxford in September. The event was a great success with over 90 attendees from a range of backgrounds.

The Symposium focused on aspects of drought science and drought management, both in the UK and globally. There were presentations and posted from a wide range of drought and water scarcity practitioners, from academia, industry and regulation.

The Symposium focused both on issues in the UK and also across the world, from an impressive array of international speakers who examined the situation in Australia, Europe and America.

Most of the presentations are now available to download as pdf slides from the project website.

Podcasts will be made from some of the talks and these will also be made available (soon hopefully) at the same page.

The speakers and titles of the presentations are as follows:

• Doug Hunt, Atkins: Water Resource Management in the UK
• Ian Pemberton, Ofwat: “Moving to a national approach to water management”
• Mike Morecroft, Natural England: “Effects of drought on UK ecosystems and the implications for nature conservation in a changing climate”
• Gianba Bussi, University of Oxford: “The impact of droughts on the water quality of the River Thames”
• Sarah Whatmore and Catharina Landstrom, University of Oxford: “Co-producing knowledge for local drought resilience”
• Gemma Coxon, University of Bristol: “Drought hydrology on a national scale”
• Kevin Grecksch, University of Oxford: “Drought Management Practice in the UK – Opportunities to Overcome Innovative Scarcity”
• Dustin Garrick, University of Oxford: “Transboundary Rivers and Adaptation to Climate Extremes (TRACE): Learning from Severe Droughts”
• Henny van Lanen, Wageningen University, Netherlands: “Drought indicators – their usefulness for the assessment of drought types, impacts and management”
• Lee Godden, University of Melbourne, Australia: “Water law and drought in Australia”