The Land-Water-Energy Nexus - Biophysical and Economic Consequences

The study, part of the OECD’s CIRCLE project (Cost of Inaction and Resource scarcity: Consequences for Long-term Economic growth), focuses on a dynamic, integrated and disaggregated analysis of how land, water and energy (LWE) interact in the biophysical and economic systems. The modelling analysis, which combines PBL’s IMAGE model and the OECD’s ENV-Linkages model, contains a set of scenarios on the bottlenecks in the supply of water, land and energy. The project received additional funding from the Dutch Ministries of Infrastructure and the Environment, Foreign Affairs, and Economic Affairs.

Repercussions at the macroeconomic and global level

The domains are all inextricably linked. Therefore, a focus on a single bottleneck would run the risk of delivering sub-optimal results, in respect of effectiveness, efficiency or sustainability. A key question concerns the extent to which the interdependencies have repercussions on macroeconomic, global and regional levels and, thus, support the urgency of promoting integrated policies for the nexus.

The water supply bottleneck scenario examines the consequences of the depletion of non-renewable, deep groundwater reservoirs before 2060. The land bottleneck scenario considers the impact of increased urban sprawl and expanded protected natural areas on land access for agriculture, and the energy bottleneck scenario focuses on reducing the reliance on increasingly scarce fossil fuels through a partial shift in energy supply towards biofuels.

Nexus hotspots gain from integrated policy approaches

• At the global level, the biophysical and economic impacts of bottlenecks in the LWE nexus are moderate. International trade can help spread the risks and limit the worst regional impacts.
• Negative economic consequences of the nexus bottlenecks tend to be concentrated in hotspots: countries with strong bottlenecks in economic activities that cannot be substituted or imported, as well as regions with strong decreases in crop yields and higher production costs. North Africa, the Middle East and parts of Asia, not least India, are projected to suffer the most from bottlenecks in the LWE nexus.
• The LWE bottlenecks put food security at risk  in all regions, and water security especially in already water-stressed regions.