Water pricing responses to climate-driven scarcity in an integrated hydro-economic nexus framework

Global water systems are increasingly exposed to intensified water scarcity, climate variability, and competing sectoral pressures. These challenges affect not only the availability and quality of freshwater resources but also the sustainability of ecosystems and the resilience of socio-economic systems. Ensuring sustainability requires innovative and integrated governance approaches that foster climate adaptation and move beyond traditional sectoral thinking. This study addresses the gap by developing an integrated hydro-economic model (HEM) that promotes equitable and inclusive cross-sectoral performance. The model links biophysical, hydrologic, economic, and ecological components within a WEFE Nexus framework. It incorporates CMIP6 climate projections, hydrological outputs from TETIS, crop water requirements from AQUACROP, agricultural and energy price projections from CAPRI and PRIMES, and habitat suitability modelling for key fish species. The HEM assesses how uniform and dynamic water pricing strategies influence water allocation, cross-sectoral outcomes, and species resilience in the Júcar River Basin under future climate and socio-economic conditions. A marginal resource opportunity cost approach (MROC) is applied to construct a stepwise pricing curve for the dynamic water pricing strategy. The results indicate that both water pricing strategies reduce unsustainable water use while preserving economic benefits, improving system efficiency, and alleviating water scarcity. Uniform water pricing considerably reduces water withdrawals by 30%, reaching 759 Mm³ under SSP5-8.5 for the simulation period 2015-2050, compared to the baseline (1078 Mm³), by creating a strong incentive for conservation. However, this approach often does so at the expense of economic efficiency. Its rigid structure disproportionately affects activities with lower economic returns and penalizes crops with lower water productivity, such as cereals, potatoes, or sunflowers. In contrast, dynamic water pricing results in a more moderate reduction in withdrawals, while preserving economic performance by adjusting prices to reflect scarcity conditions. Herbaceous production declines from 562 MT in the baseline to 406 MT under SSP5-8.5, while fruit tree and citrus yields remain mostly stable. Dynamic pricing, therefore, supports better cross-sectoral balance, achieving environmental and energy gains with less economic disruption. Findings also indicate that both pricing strategies enhance ecological resilience by reducing the frequency, duration, and severity of habitat stress below ecological thresholds. The analysis demonstrates that water tariffs could optimize cross-sectoral trade-offs, providing operational evidence to support sustainable, inclusive, and nexus-aligned water governance.

Acknowledgements: This study has received funding from the European Union’s Horizon 2020 research and innovation program under the RETOUCH NEXUS project (grant agreement No 101086522).