A never-ending debate: demand versus supply water policies. A CGE analysis for Catalonia

Water scarcity is a long-standing problem in Catalonia, as there are significant differences in the spatial and temporal distribution of water throughout the territory. There has consequently been a debate for many years about whether the solution to water scarcity must be considered in terms of efficiency or equity, the role that the public sector must play and the role that market-based instruments should play in water management. The aim of this paper is to analyse the advantages and disadvantages associated with different policy instruments, from both a supply and a demand viewpoint, which can be applied to water management in Catalonia. For this purpose, we use a computable general equilibrium (CGE) model, in which we introduce an ecological sector that allows us to analyse the environmental and economic impact of the alternative policies simulated. The calibration of the exogenous variables of the CGE model is performed by using a social accounting matrix (SAM) for the Catalan economy with 2001 data. The results suggest that taking into account the principle of sustainability of the resource, the policy debate between supply and demand in water policies is obsolete and a new combination of policies is required to respect the different values associated with water.