Regional Economic Studies on Natural Resources and Their Economic Impact

Abstract

Various adaptation and mitigation strategies have been explored to cope with changes in the climate. Estimating these strategies impacts on the local economy is one of the growing and pressing issues for the management of natural resources. This thesis consists of three parts and aims to contribute to regional economic studies by analyzing: (1) the economic impact of solar energy facilities, (2) the level of virtual water flow and the effectiveness of scenarios to mitigate water resource shortage, and (3) the impact of climate change on agriculture through a Ricardian approach weighted by stream flow connectivity. As an increasingly adopted renewable energy resource, solar power has a high potential for carbon emission reduction and economic development. In the first essay the impacts on jobs, income, and economic output of a new solar power plant are calculated in an input-output framework. The contribution is twofold. First, we compare the multipliers generated by the construction and operation/maintenance of a plant located in California with those that would pertain had it been built in Arizona. Second, we point out the differences in the results obtained with the popular IMPLAN software from those obtained with the solar photovoltaic model of JEDI. The second essay focuses on water use in Arizona. As much as 73% of the state's scarce water is used by a single sector: crop production. Because 79% of Arizona's crop production is consumed outside the state, this means that, 67% of the water available in the state is being exported to the rest of the country and abroad. This should be of major concern for a state expected to see its population grow and its climate get drier. Using input-output techniques we explore three scenarios aimed at saving 19% of the water available. This figure is based on the results of the first of the scenarios that explores how much can be saved through improving the efficiency of the current irrigation system. The second scenario shows that equivalent water savings could be reached by a twenty-seven-fold increase in the price of water. The third scenario shows that a 19.5% reduction in crop exports could conserve an equal amount of water. The model results suggest that the least costly solution is a more efficient irrigation system, while export reduction is the second best choice. The third and final essay offers an extension of the well-known Ricardian model of agrarian economic rent. In spite of its popularity among studies of the impact of climate change on agriculture, there has been few attempts to examine the role of interregional spillovers in this framework. We remedy this gap by focusing on the spatial externalities of surface water flow used for irrigation purposes and demonstrate that farmland value—the usual dependent variable used in the Ricardian framework—is a function of the climate variables experienced locally and in upstream locations. This novel approach is tested empirically on a spatial panel model estimated across the counties of the Southwest USA for every five-year period from 1997 to 2012. This region is one of the driest in the country, hence its agriculture relies heavily on irrigation with the preponderance of the sources being surface water transported over long distances. The results highlight the significant role of irrigation spillovers and indicate that the actual impact of climate change on agriculture and subsequent adaptation policies can no longer overlook the streamflow network.