Economic cost of environmental flows in an unregulated river system

Abstract

This paper applies a stochastic dynamic programming framework, incorporating links to hydrological and biophysical models, to assess the economic costs of environmental flows in an unregulated river system in the Namoi Valley of northern New South Wales, Australia. Structural adjustment decisions are included in the model to account for farmer responses to changes in environmental flows through the introduction of a water sharing plan. The results of the analysis indicate that the proposed level of environmental flows reduces water extractions by around 6 per cent, and imposes an opportunity cost of less than 1 per cent in terms of reduced net income over a 20-year period. © 2007 The Authors Journal compilation © 2007 Australian Agricultural and Resource Economics Society inc. and Blackwell Publishers Ltd.