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This report contributes to the discussion of interconnections between scarce resources by highlighting the nexus between land, water and energy (the LWE nexus). It focuses on a dynamic, integrated, and disaggregated analysis of how land, water and energy interact in the biophysical and economic systems. The report provides projections for the biophysical and economic consequences of nexus bottlenecks until 2060, highlighting that while the LWE nexus is essentially local, there can be significant large-scale repercussions in vulnerable regions, notably on forest cover and in terms of food and water security.
 
The analysis is based on coupling a gridded biophysical systems model with a multi-regional, multi-sectoral dynamic general equilibrium modelling assessment. Numerical insights are provided by investigating a carefully selected set of scenarios that are designed to illustrate the key bottlenecks: one scenario for each resource bottleneck, plus two scenarios that combine all bottlenecks, with and without an overlay of climate change.

This chapter outlines the main biophysical and socioeconomic trends that are projected to emerge in absence of feedbacks from the nexus bottlenecks. It describes trends for sectoral and macroeconomic activity, and the corresponding trends in agricultural production and land use. Together, these baseline projections form the reference for investigating the consequences of the nexus bottlenecks in the next chapter.

As part of the “Costs of Inaction and Resource scarcity: Consequences for Long-term Economic growth” (CIRCLE) project, this report was prepared jointly by Olivier Durand- Lasserve, Jean Chateau and Rob Dellink of the OECD Environment Directorate and Fritz Hellmann and Tom Kram of the Netherlands Environmental Assessment Agency PBL. Hester Biemans (Alterra) contributed to the modelling of groundwater depletion; Tarik El-Laboudy contributed to the integration between the modelling tools at OECD and PBL; Ton Manders led the PBL input during the inception phase of the project.

As any analysis, the quantitative assessment used in this report has limitations. In particular, it is not fit to study some of the important linkages between water and energy outlined in Chapter 1. First, the modelling tools can only capture systemic effects that are noticeable in the top-down frameworks, and ignore important local bottlenecks with severe local consequences that may occur over short time spans. Secondly, there are significant data gaps (see e.g. OECD, 2010) that prevent a full representation of all the bottlenecks in the baseline and counterfactual projections of the modelling tools. Therefore, this Annex attempts to provide further insights on the consequences of this particular linkage. Given the large data gaps, some of the key consequences of the nexus bottlenecks can only be discussed in an anecdotal way. Nonetheless, the inclusion of these consequences in the evaluation of the bottlenecks is fundamental in providing an overview of the full costs of inaction on the nexus, and therefore in the assessment of the benefits of policy action.

This chapter presents the methodology used in this report to calculate the biophysical and economic consequences of the nexus bottlenecks. This methodology is based on soft-linking the IMAGE model with its detailed, grid-level projections of the global biophysical system with the ENV-Linkages model, which describes the sectoral and regional economic system. The chapter describes how both models are linked. The chapter ends with a description of the scenarios used in the modelling analysis in subsequent chapters.

Almost all economic activities are supported by the use of scarce land, water or energy, either directly or indirectly. Nexus is a useful label to describe how these resources are closely interlinked. To avoid negative side effects and to create synergies through policy, efficient management of the nexus resources needs to account for the direct and indirect effects of changes in various resources within the full biophysical and economic systems.

This chapter presents the main results from the modelling analysis. It details the biophysical consequences of the individual and combined nexus bottlenecks as calculated with the IMAGE model as well as the economic consequences, as simulated with ENV-Linkages. Finally, it investigates the sensitivity of the modelling results for the underlying assumptions on climate change.

This first chapter outlines the context for the global analysis of the nexus between land, water and energy. The chapter first introduces the main concepts of the landwater- energy bottlenecks. It then lays out the main research questions as well as the structure of the report, and how it fits with other recent OECD analysis that looks at nexus bottlenecks. This chapter next presents an overview of the main linkages between water, land and energy, and describes how these together provide a nexus. It then describes the main bottlenecks that can be envisaged as they relate to water use, land use and energy use, as well as the materials dimension of the nexus. Finally, it motivates why an integrated dynamic modelling approach is most suitable for investigating the interlinkages of the nexus bottlenecks.

The socioeconomic trends that form the basis for the baseline and counterfactual simulation projections in this report are described in OECD (2015). Here, the most relevant information is reproduced.

This report presents the first comprehensive assessment of the global consequences of the land-water-energy nexus in the coming decades. It provides a global outlook to 2060 for the major impacts of nexus bottlenecks on regional biophysical and economic systems. It uses a detailed modelling framework that links The Netherlands Environmental Assessment Agency PBL’s IMAGE model to the OECD’s ENV-Linkages model to calculate regional and global consequences related to the nexus bottlenecks. Together, these provide a unique insight into the global and regional costs of emerging bottlenecks in the land, water and energy systems.

This chapter first identifies general patterns that emerge in the way the bottlenecks affect the different policy objectives laid out in Chapter 1. It then discusses the major trade-offs and synergies between the bottlenecks at the regional level. The chapter ends with putting the analysis in this report into context, including a discussion of the robustness of the results.