Shifting from volume to economic value in virtual water allocation problems: A proposed new framework and methodology

Area of Science:

• Environmental Economics
• Water Resource Management
• Supply Chain Analysis

Background:

• The virtual water concept quantifies water use in supply chains.
• Efficient global water allocation is crucial, especially for trading water-intensive goods.
• Existing water valuation methods often overlook international supply chain dynamics and economic signals.

Purpose of the Study:

• To operationalize the virtual water concept using economic valuation.
• To assess the economic value of water (blue, green, and grey) across supply chains.
• To inform efficient water allocation by integrating environmental valuation into international supply chains.

Main Methods:

• Conceptualizing economic values of water consumption and degradation within agri-food supply chains.
• Utilizing benefit transfer of existing secondary data on the shadow value of water.
• Collecting, standardizing, and reviewing 706 unit estimates of water's economic value for various applications.

Main Results:

• The virtual water for one tonne of durum wheat pasta is valued at $212.
• Significant variations in water's economic value across cultivation locations (e.g., Saskatchewan, Arizona, Baja California) indicate relative scarcity.
• These economic value disparities highlight potential for more efficient virtual water allocation.

Conclusions:

• Geographical disparities in the economic value of water use challenge volume-based sustainability assessments.
• Optimal water allocation requires accounting for economic value, not just physical volume.
• Further data collection on water's economic value is needed for robust virtual water valuation.