LAUSR

Abstract In this study, an economic analysis module was added to the System Dynamics (SD) Water-Food-Energy (WFE) nexus model developed by Ravar et al. (2020) for the Gavkhuni Basin located in central Iran. The case study area has been facing several water-related conflicts due to natural and anthropogenic water scarcity of the basin and severe long-term droughts possibly associated with climate change. To resolve conflicts between environmental, agricultural, industrial and domestic water users, various water consumption management policies were introduced by water user sectors. The consideration of the economic impacts of water consumption management policies can play a key role in efficient and sustainable water resources management. The main purpose of this study was to provide the decision makers with a clear picture of economic impacts and consequences of the water consumption management policies within the framework of WFE nexus assessment. Hidden subsidies provided for water resources and energy carriers were calculated to highlight the importance of the pricing policies. The obtained results for a 10-year simulation period indicated that by implementing the policy suggested by the agriculture sector, not only the average value added (VA) of this sector increased by about 19% but also the average inflow to Gavkhuni wetland rose by about 82%. By applying the policy suggested by the energy sector, the total cost of energy for water decreased by about 30% and total cost of water for energy diminished by about 61%, which contributed to decrease in subsidy for energy and water resources. Furthermore, allocating more water to chemical industries resulted in the improvement of the overall industrial VA. The results also indicated the suitable performance of the developed model in reflecting the cross-sectoral economic consequences of sectoral policies.