Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 Bio-based and Applied Economics BAE Copyright: © 2024 Rocchi, B., Viccaro, M., & Sturla, G. Open access, article published by Firenze University Press under CC-BY-4.0 License. Firenze University Press | www.fupress.com/bae Citation: Rocchi, B., Viccaro, M., & Sturla, G. (2024). An input-output hydro- economic model to assess the eco- nomic pressure on water resources. Bio-based and Applied Economics 13(2): 203-217. doi: 10.36253/bae-14957 Received: July 21, 2023 Accepted: January 16, 2024 Published: July 25, 2024 Data Availability Statement: All rel- evant data are within the paper and its Supporting Information files. Competing Interests: The Author(s) declare(s) no conflict of interest. Editor: Matteo Zavalloni ORCID BR: 0000-0002-7545-3093 MV: 0000-0001-9315-4110 GS: 0000-0001-8578-1384 An input-output hydro-economic model to assess the economic pressure on water resources Benedetto Rocchi1,*, Mauro Viccaro2,3, Gino Sturla1 1 Department of Economics and Management, University of Florence, Italy 2 School of Agricultural, Forestry, Food and Environmental Sciences, University of Basili- cata, Italy 3 Institute of Methodologies for Environmental Analysis-National Research Council of Ita- ly (CNR-IMAA), Italy * Corresponding author. E-mail: benedetto.rocchi@unifi.it Abstract. This study develops a hydroeconomic input-output (IO) model to evaluate the pressures that economic activities exert on water resources. For a better under- standing of the sectoral and total impacts, three innovations are incorporated with respect to previous literature: i) the development of a methodology for disaggregat- ing the extended water demand (blue water plus grey water) by economic sector, ii) the use of the IO side of the model to reclassify water demand by “extracting” and “demanding” sectors, and iii) the proposition of an improved indicator of pressure on water resources based on a “feasible” measure of water supply. Empirically tested in the Tuscany region (Italy), our findings reveal significant changes in the structure of eco- nomic pressures when adopting the proposed approach. When assessing direct total water withdrawals, agriculture accounts for 61% and manufacture for 20% of regional pressures. However, when considering only the demand for water resources exposed to scarcity reclassified by demanding sectors, agriculture falls to 5% and manufacture rises to 54%. By incorporating grey water in water demand and a “feasible” measure of supply, the regional water exploitation indicator increases from 0.05 to 0.19, and can even reach 0.30 with dry hydrological conditions, beyond the threshold for moderate scarcity (0.20). The unbalance between water supply and demand worsen even more when considering the balance of surface waters only (1.16). The proposed model can support an in-depth analysis of an economy’s water footprint, allowing impacts to be mapped from specific industries to particular water bodies. This information can sup- port decisions about sustainable water management at the national and regional levels. Keywords: input-output, extended water demand, feasible water supply, extended water exploitation index, Tuscany. JEL Codes: C67, Q25, Q50. 1. INTRODUCTION Input-output (IO) models have been widely used to quantify the direct and indirect water consumed by industries in order to satisfy the final demand (Velazquez, 2006; Guan and Hubacek 2008; Lenzen et al., 2013; Ridoutt et al., 2018). A typical use of input-output models extended to water https://doi.org/10.36253/bae-14957 http://www.fupress.com/bae https://doi.org/10.36253/bae-14957 https://orcid.org/0000-0002-7545-3093 https://orcid.org/0000-0001-9315-4110 https://orcid.org/0000-0001-8578-1384 mailto:benedetto.rocchi@unifi.it 204 Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 Benedetto Rocchi, Mauro Viccaro, Gino Sturla resources is for structural analysis. A wide literature has been developed in the last years on the concept of water- energy-food (WEF) nexus, aiming at studying the struc- tural interdependencies among human needs, production activities and natural resources and the related social, technological and environmental constraints (White et al., 2018; Xiao et al., 2019; Deng et al., 2020; Lee et al 2021; Meng et al., 2017). A further field of application of environmentally extended IO models is the analysis of virtual water flows among countries and the quantifica- tion of the water footprint at the regional, national and global scale (Feng et al., 2011; Duarte et al, 2016; Arto et al, 2016; Sturla et al 2023 and 2024; Wang et al., 2021). IO models are also used to assess the water balance of the economy, comparing an estimate of water demand based on economic modelling with a measure of water supply based on hydrological data (Cámara and Llop, 2020; Garcia-Hernandez and Brouwer, 2021). Studies, however, differ on how the demand for water generated by human activities is defined. Cámara and Llop (2020), for instance, consider the net demand (withdrawals minus discharges) while Garcia-Hernandez and Brouwer (2021) consider only water withdrawals. Furthermore, these studies do not consider grey water, i.e. the water required for dilution of pollutants present in water discharges. In a paper on North China, Guan and Hubacek (2008) use an IO model to determine an “extended” demand of water, defined as the net demand (including blue and green water) plus the water required for pollut- ants dilution (grey water). Grey water is estimated based on a mixing model developed by Xie (1996), using the chemical oxygen demand (COD) as an indicator of pol- lution. Grey water requirements (and, as a consequence, the extended demand), however, is quantified only for the whole economy. Furthermore, in modeling the inter- actions between the economy and the natural hydrologi- cal system, these authors do not quantify any indicator of economic pressure over water resources. In literature, several indicators of pressure on water resources have been proposed. The water exploitation index (WEI) corresponds to the ratio between blue water withdrawals and natural availability net of the ecological flow (European Environment Agency, 2005). An improved version of the WEI (WEI+) subtracts returns to water bodies, therefore considering the net water demand (Faergemann, 2012; European Environ- ment Agency, 2020; Casadei et al., 2020). In other stud- ies, the water availability index (WAI) or withdrawals to availability (WTA) ratio is defined as the ratio of water withdrawals to renewable water availability (OECD, 2015; Garcia-Hernandez and Brouwer, 2021; Pfister et al., 2009). A conventional threshold value of 20% for all the mentioned indicators is used as a water scarcity cri- terion. This threshold has been recommended to iden- tify the presence of some degree of water stress, while a value of 40% has been proposed to differentiate moder- ate from severe shortages, without any specific consid- erations of regulation capacity and extraction feasibility (Raskin et al., 1997; Alcamo et. al, 2000, Pfister et al., 2009, CIRCABC, 2012). Based on this background, the objective of this paper is to develop an input-output hydroeconom- ic model to evaluate the economic pressure on water resources in a more comprehensive way than previous studies. The main innovations of our approach are: i) the development of a methodology for disaggregating the extended water demand (including grey water require- ments) by economic sector, ii) the use of the IO side of the model to reclassify water demand by “extracting” and “demanding” sectors, and iii) the proposition of an improved indicator of pressure on water resources based on a “feasible” measure of water supply. To calculate the grey water demand for each eco- nomic sector, a mixing model is solved that consid- ers the capacity of surface and groundwater to degrade organic matter, not only the standard model based on the mass continuity equation of the dough (Hoekstra 2011). We use a modified version of the model proposed by Xie et al. (1996) to estimate the requirements of water for dilution by economic sector, considering that water for dilution is supplied by the hydrological system with a given level of pollution. In our model some industries withdraw and return water directly from/to the hydrological system while oth- ers do so only through the water supply and the sewer- age services. When considering only the direct withdraw- als from water bodies, we refer to “extracting industries”. The input-output matrix, through the intermediate flows of goods and services, allows us to reclassify the water demand by “demanding sector”, that is, a new distribu- tion of water uses that considers the direct and indirect pressure of economic sectors on water resources. The indicator of pressure on water resources proposed in this study corresponds to the WEI+ indicator but including grey water also in the numerator and consid- ering a feasible measure of supply as a denominator. The groundwater supply considers long-term recharge within a technical range of abstraction. The supply of surface water includes also technical (extraction capacity) and institutional (water concessions) constraints. According to our Extended Water Exploitation Index (EWEI) the fea- sible supply depends on hydrology conditions. The more the hydrology is distant from the average year, the more technical and institutional constraints are important. 205An input-output hydro-economic model to assess the economic pressure on water resources Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 We implement the model for the Tuscany region of Italy. Using hydrometeorological information, the water availability is determined, from which the feasible supply is estimated. The mixing model depends on water quality parameters, the effect of water availability on the COD concentration in water bodies and the water discharges from the IO hydro-economic model (two-way arrow in Figure 1). Based on the results of the mixing model (dilu- tion water coefficients), water withdrawal and discharge coefficients and the IO regional table, the hydro econom- ic model allows to calculate the extended water demand by extracting industry and reclassify it by demanding industry. Finally, based on the extended water demand and the feasible supply, the EWEI indicator is obtained. The paper is organized as follows. Section 2 presents the structure of the input-output model extended to water resources, including the methodology for estimating water requirements for dilution and the reclassification of the extended demand by demanding industry. Section 3 presents the proposed pressure indicator, based on the model’s output and on information about surface and groundwater availability in the region. Section 4 describes data and methods used to implement the empirical mod- el for Tuscany. Section 5 presents the results for the ref- erence year in terms of net and extended water demand classified by industry and water body and an assessment of the overall level of pressure on water resources in Tus- cany based on the EWEI. Section 6 presents a discussion of the main results and of methodological limitations of the study. Finally, section 7 provides concluding remarks and suggestions for future research. 2. THE HYDRO-ECONOMIC MODEL 2.1. Hydro-economic water flows Following Guan and Hubacek (2008) we consider the extended demand approach, which include the water withdrawals for productive1 uses minus the discharges of water to the hydrological system plus the unavail- able water for qualitative balance of water bodies (water requirements to dilute the pollution). The economic system withdraws water from under- ground and surface sources (blue water) and from rain and soil moisture (green water). After productive uses, 1 In this study, we are interested in water used for production. That is, we assume that water for domestic uses is provided by the water sup- ply industry. Actually, there are also direct withdrawals by households from groundwater and surface water bodies whose relevance, however, depends on the case study. In Tuscany, this component of the household demand for water does not exceed 3% of total and has not been consid- ered in the analysis. water can be divided into: i) water discharged to surface and groundwater, ii) water incorporated in products and consumed in services, iii) water consumptions by evapo- ration and transpiration into the atmosphere, and iv) water removed from the immediate water environment (Kenny et al., 2019; Macknick et al., 2012). Figure 1 presents a schematic illustration of the water flows in the hydro-economic system. The produc- tive system extracts water from the hydrological system supply (withdrawals), that is, surface water, groundwater, precipitation and soil moisture (the latter two compo- nents associated with agriculture). A part of this water is consumed (goods and services, evaporation and tran- spiration); the remaining part is discharged with pollu- tion to groundwater and surface water (discharges). By means of physical-chemical processes and fresh water from the hydrological system reserved for quality resto- ration (dilution requirements), the restored water is avail- able again for use in the production system (in volume and quality). Water that returns to the atmosphere is not considered as a recharge within the reference period of the model (one year). It is important to note that the concept of net water demand (withdrawals minus discharges), widely used in the literature to estimate the water exploitation index (WEI+) (Faergemann, 2012; European Environment Agency, 2020) considers only the volume of water. The concept of extended water demand used in the present study to calculate the extended water exploitation index (EWEI), conversely, considers both water volume and water quality. 2.2. Input-output hydro-economic model We consider an economic system with n produc- tive sectors (industries) and a water system with m water Figure 1. Scheme of the hydro-economic input-output model. Source: Own elaborations. 206 Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 Benedetto Rocchi, Mauro Viccaro, Gino Sturla sources (or water bodies) to build an environmentally extended IO model (Miller and Blair, 2009). Let Ad 2 be the matrix of coefficients that represents the structure of intermediate consumptions per unit of output of production activities, calculated from the domestic flows input-output table. The total production of the n industries can be calculated from the following equation: x = (I - Ad)-1y (1) where x is the vector of gross output of the industries, y is the vector of the final demand and I is the unit matrix. In the hydro-economic approach, the model is expanded to link the level of activation of each industry with exchange flows between production activities and the water bodies composing the hydrological system. Let: fk be the (n × 1) vector of the unit water withdrawal coefficients (m3/€) of industries from the water body k. rk be the (n × 1) vector of the unit water discharge coef- ficients (m3/€) of industries to the water body k. wk be the (n × 1) vector of the unit water for dilution requirement coefficients (m3/€) of industries for the water body k. The extended water demand (n × 1) vector ek for the water body k, disaggregated by industry, is given by: ek = ( - + ) (I - Ad)-1y, k = 1,…,m (2) The hat symbol indicates the diagonalization of the vector. By repeating the operation for the m bodies of water considered in the model it is possible to constitute the (n × m) matrix ED representing the extended water demand of the n productive sectors from the m bodies of water: ED = (F - R + W) (3) where the (n × m) matrices F, R and W represent respec- tively the withdrawal, discharge and dilution require- ments coefficients by industry and water body. The total extended demand of water associated with the entire economy, by water source, can be represented by the (m × 1) vector TED: TED = (F - R + W)’x (4) 2 For the purposes of this paper, the matrix of direct coefficients for domestic production is calculated following the methodology of Weber et al. (2008). This method assumes that each economic sector and final demand category uses imports in the same proportions. where the symbol ’ represents the transposed matrix. The net water demand (ND) can be calculated in an analogous way simply excluding from equations (2) to (4) the terms referring to water requirement for dilution (vectors wk and matrix W). 2.3. Water requirements for dilution In this section we show how the (n × 1) vector wk, which was defined in the previous section, is calculated to determine the water requirements for pollutants dilu- tion by economic sector and by water body k. We use a mixing model considering the chemical oxygen demand (COD) parameter based on the model developed by Xie (1996) (Xie-Model, hereafter) and used by Guan and Hubacek (2008) to estimate the extended demand for the whole economy. This model considers that pollutants are diluted as a result of three effects: mixing with fresh water with a lower concentration, chemical reactions before entering the water bodies and chemical reactions after entering the water bodies. The first component refers to the surface waters and ground- water existing in the discharge areas and the additional water required when this is not enough. This additional water corresponds to grey water. (For more details see Appendix A). In this work, we improve the Guan and Hubacek’s approach as follows: – the water requirement for dilution associated with each production sector is estimated (only for the whole economy in the Xie-Model); – the dilution water is considered to have a COD con- centration similar to the water available for produc- tive use (COD equal to zero in the Xie-Model); – the worst case is assumed, i.e., when there is no availability of water in the receiving bodies (total natural supply in the Xie-Model). Let assume that vector wk comes from a (m × n) matrix W whose elements wkj represent the coefficients of water for dilution (m3/€) referred to the body of water k and the industry j: wkj = where, ukj (m3/year) is the element of the (m × n) matrix U representing the water required for dilution (includ- ing losses) in the water body k by the economic sector j, while xj (€) corresponds to the total output of sector j.3 3 For the case of this study m = 3 (groundwater, surface water and soil moisture), however, the third column of the matrix W (and the matrix U) corresponds to zeros, since the water for dilution is only required to purify water discharged in surface and groundwater bodies. 207An input-output hydro-economic model to assess the economic pressure on water resources Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 The following expression (mixing model) is used to estimate ukj: ukj = ∙ qpkj (6) where: k1k : total reaction rate of pollutants after entering the water body k; k2k : pollution purification rate before entering the water body k; qpkj : discharges into the water body k associated with industry j; cpkj : COD concentration in the discharges to the water body k associated with economic sector j; csk : standard COD concentration in water body k; c0k : COD concentration in water body k. The standard COD concentration csk refers to a low level of pollution associated with good water quality in water bodies. The water used for dilution has a concen- tration equal to that of the receiving water bodies (c0k ). Note that in equation (6) the discharge corresponds to qpkj = rkj ∙ xj, obtained through the hydro-economic input-output model. The COD concentration in water bodies is a parameter that depends on the hydrological system (c0k ), decreasing when water availability is higher and increasing when it is lower. In the case of this study, the concentration associated to an average availability is considered in the base analysis and modified to calcu- late the water exploitation index in case of dry and wet hydrology. Appendix A (Supplementary Materials) presents the development of the mixing model by explaining in detail the differences between our study and the Xie-Model. 2.4. Reclassification by demanding sectors The input-output matrix, through the intermedi- ate f lows of goods and services, allows to reclassify the net demand and the extended demand of water by “demanding sectors”, that is, according to a new distri- bution that considers the direct and indirect pressure of each economic sector on the different water bodies of the hydrological system. It is possible to rewrite equation (2) based on (1), ek = ( - + ) ∙ x, k = 1,…,m (7) The coefficients in vectors fk, rk and wk are differ- ent from zero only for production activities that actu- ally withdraw and return water from/to water bodies. Despite all production activities require and discharge water (although to a different extent), the withdraw- als and the discharges of water from/to different bodies of the hydrological system are actually carried out only by a limited number of industries (extracting sectors). For example, the largest part of service activities pur- chase water from the water supply sector and discharges water throughout the sewerage service sector. Referring to equation (7) would provide only a partial view of the interdependencies existing between the economy and the hydrological system. It is of interest to know the use of water reclassified by demanding sectors. This was done adding to the total direct use of water of each sector the “virtual” demand of water from other sectors associated with the purchase of intermediate inputs; and subtracting the “virtual” sales of water to other sectors via the supply of interme- diate inputs as well. The vector of “virtual” water sales associated with water source k is, sk = ( - + ) Adx (8) The vector of “virtual” water purchases associated with water source k is, pk = A’d(fk - rk + wk) (9) Thus, the reclassified water extended demand vec- tor ( ) for the water source k can be written combining equations (7), (8) and (9). = ek - sk + ck = ( - + )(x - Adx)+ A’d(fk - rk + wk) (10) Repeating this procedure for each of the m water sources, the (n × m) matrix RED is obtained, represent- ing the extended demand from the m bodies of water reclassified by demanding sector. The reclassified extend- ed water demand (n x m) matrix RED can be written as: RED = ( - + A’d)(F - R + W) (11) Following a similar procedure, it is possible to find the expressions for the reclassified net demand vector ( ) for the water source k and the (n × m) matrix RND representing the extended demand from the m water bodies reclassified by demanding sectors. 208 Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 Benedetto Rocchi, Mauro Viccaro, Gino Sturla 3. AN INDICATOR OF ECONOMIC PRESSURE ON WATER RESOURCES 3.1. Water supply In the previous section, the economic demand for water has been defined. An analysis of economic pres- sures on water resources must also consider water avail- ability. Most of the literature has used the natural water supply net of a minimum ecological flow (Faergemann, 2012; European Environment Agency, 2020; OECD, 2015; García-Hernández and Brouwer, 2021; Pfister et al., 2009). However, it is not realistic to assume that it is always possible to extract all available surface and groundwater. In practice, in addition to environmental restrictions there are technical and institutional con- straints. In the following sections, the natural water supply is characterized based on the hydrological com- ponents and a way to correct the natural supply is pro- posed based on technical and institutional factors. 3.2. Natural supply Our water supply indicator considers blue water sup- ply and does not include green water (precipitation and soil moisture). To determine the water supply it is neces- sary to know the components of the hydrological simpli- fied regional balance (Braca et al., 2021, 2022) for a year t, which are precipitation (Pt), evapotranspiration (Et), groundwater recharge (It), runoff (Rt) and the variation in soil moisture (ΔV). The balance equation is: Pt = Et + It + Rt + ΔVt (12) The annual natural supply of groundwater and sur- face water ( ) is equal to the sum of the recharge of the aquifers and the runoff: = It + Rt (13) This natural supply is variable from year to year, so a long-term natural supply is defined, based on long- term groundwater recharge and average runoff. = I + R (14) For the construction of the WEI (European Envi- ronment Agency, 2005), WEI+ (Faergemann, 2012; Euro- pean Environment Agency, 2020), WTA (OECD, 2015; Pfister et al., 2009) and WAI (Garcia-Hernandez and Brouwer, 2021) indicators, a version of the long-term natural supply net of the environmental requirements, i.e. the ecological flow (EF), is used. In our notation we define the natural supply with ecological flow as: S = I + R - EF (15) 3.3. Feasible supply We define a “feasible” water supply taking into account environmental, technical, and institutional limitations to natural water supply. The management of renewable but limited resources must consider these aspects that constrain the use of water by the economic system. In the following, the feasible supply is character- ized in a detailed and formal way. The technical, institutional, and environmental limi- tations that characterizes the feasible supply for surface water are the following. First of all, although rivers are renewed year after year, not all the runoff of water can be used for economic purposes. On one hand, in the years of high flow, the possibility to capture and accu- mulate water (hydraulic works) is limited; moreover, it could not be possible to extract all the natural supply of water because the active concessions do not allow it. Second, it is not environmentally sustainable to extract all available water as a minimum “ecological” flow is required for the aquatic ecosystem to continue to thrive and provide their services. A “feasible” measure of water supply must take into account that it is possible to with- draw water only up to a certain maximum quantity. The proposed definition of a feasible supply of sur- face water is based on the following assumptions: – the maximum amount of surface water extraction is defined by the sum of the maximum withdraw- als allowed by current concessions; the assump- tion we make here is that the concessions have been efficiently awarded, considering all technical and hydrological aspects; · the surface water supply is considered to be limited by a minimum “ecological” flow, as a constraint to environmental sustainability; – the maximum concessions levy is defined as M , where M is a factor not necessarily less than 1 and is the average annual runoff; – the minimum ecological flow is defined as E , where E∈(0,1); – the “feasible” annual average runoff is strictly lower than the value. Summing up the value of is: (16) 209An input-output hydro-economic model to assess the economic pressure on water resources Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 The technical, institutional, and environmental limi- tations that affect the feasible supply of groundwater are different. Groundwater corresponds to a stock that var- ies according to the annual recharge; consequently, the extraction annually available depends more on the aver- age annual top-up than on the top-up of the year. Unlike surface water, if the recharge in a given year is low, it is still possible to extract a larger quantity (reservoir effect); conversely, when the recharge is high, there are techni- cal and institutional limitations to extraction. The fea- sible supply can be equal to the average recharge (which ensures sustainability, i.e., a non-decreasing groundwater stock); however, there are some variations that depend on the stock of the resource and the amount of water that infiltrates during the year. In a scenario in which there is no over-exploitation of the aquifers, that is, there are no large variations in the stock, it makes sense to assume that sustainable extraction will be around the average recharge, that is, it will be a little lower in a rainy year and a little higher in a dry year. In general, groundwater concessions are awarded for a slightly higher value than the annual sustainable recharge, since there are years in which it would not be possible to extract the actual recharge (due technical limitations, especially for small users) and other years when it is possible to extract more than the average recharge. The proposed definition of a feasible supply of groundwater is based on the following assumptions: – the sum of the groundwater concessions (D) is the feasible upper supply limit; – the difference between the sum of the concessions and the average annual recharge (D - ), defines a share B by which the average recharge can be increased to calculate the feasible supply (B = ) where B∈(0,1) and is the average annual recharge; – the feasible groundwater supply (that can be drawn in one year) will be in the range [ (1 - B), (1 + B)]; Summing up the value of is: (17) Consequently, if the distribution of I is symmetrical around the average, the feasible annual average supply will be equal to the value . The feasible supply for a year t (FSt) can be defined as: FSt = The long-run feasible supply (FS) corresponds to the average over time (N years): FS = = This correction made to the natural supply of water allows for a more precise approach to the availability of water in the study region. The formulation considers that a series of N years of the hydrological components is available. The longer the series, the more representative of the long- term this defined feasible supply will be. In the next section, an indicator of pressure on water resources is defined con- sidering the proposed measure of water availability. 3.4. An extended water exploitation index We propose a new indicator of economic pressure on water resources, the Extended Water Exploitation Index (EWEI), comparing the extended demand for groundwater and surface water, and the feasible supply. It basically corresponds to the WEI+ indicator (ratio of net demand to natural supply) but including grey water and considering environmental, technical and institu- tional constraints in the use of water. Using equations (3) and (19) the EWEI can be writ- ten as: EWEI = (20) where i is a (1 × n) vector of ones, which allows sum- ming the extended water demand associated with each economic sector. The sum considers groundwater and surface water, k={1,2}. Considering equation (1) the EWEI can be expressed in terms of the final demand: EWEI = (21) The other indicators proposed in the literature assume a perfect substitutability between groundwater and surface water, which is not necessarily true. For this reason, in our analysis we also consider the EWEI sepa- rately for groundwater and surface water4. 4 The EWEI can vary from 0 to values not necessarily lower than 1, that would correspond to an extended demand equal to the feasible supply. As the index is calculated for a whole region and with reference to a one-year period, its value is likely to be largely lower than 1. The intra-annual variability of natural supply as well as the uneven spatial distribution of water resources, however, suggest that situations of water scarcity could exist also in presence of low values of the annual, regional index. This justify the value of the conventional scarcity thresholds adopted in environmental studies (largely lower than 1) and described in section 1. 210 Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 Benedetto Rocchi, Mauro Viccaro, Gino Sturla 4. CASE STUDY The proposed model was empirically implement- ed for the Tuscany region (Central Italy). The regional Government as well as other agencies involved in vari- ous ways in the monitoring and management of regional water resources made available a wide set of data sources to reconstruct the following components of the model: i) an input-output table of the Tuscan economy (reference year 2017) properly disaggregated; ii) the water with- drawals (classified by water body) by production activity existing in Tuscany (NACE classification); iii) the indus- tries’ water discharges to the hydrological system by water body and by level of water quality; iv) the regional hydrological balance and the feasible supply of water. In what follows we provide a summary of the main data used and the assumption made in building the model. A detailed documentation of the empirical implementation can be found in Appendix B (Supple- mentary Materials). 4.1. The input-output table of Tuscany. The model is based on the input-output table (year 2017) of the Tuscan economy developed by the Regional Institute for Economic Planning of Tuscany. The classi- fication of production activities (56 industries) already represented, as separate industries, some of the key sec- tors in the exchange water flows between the economy and the environment (water supply services, sewerage services, electricity power production and other activi- ties with an intensive use of water). Agriculture, an industry that makes an intensive use of water resources for both crop irrigation and livestock rearing, was dis- aggregated into 8 subsectors corresponding to General Farm Types defined by the EU Regulation 1242/2008 (farms specialized respectively in fieldcrops, horticul- ture, permanent crops, grazing livestock, granivores, farms with mixed cropping, mixed livestock, mixed crops-livestock). 4.2. Water withdrawals and discharge coefficients For each industry, water requirements and discharge coefficients were estimated using different bibliographic and research data. For agriculture, the estimation of irrigation needs was first developed at the municipal level, considering the spe- cific irrigation requirements of each group of crops based on the climate conditions of each municipality. The total withdrawals at the municipal level were divided between underground (wells and springs) and surface sources of supply (reservoirs, lakes, rivers and streams) using the information available in the 2010 General Agricultural Census at the municipal level. The two sources of supply are substantially balanced at the regional level, represent- ing respectively 49.6% and 50.4% of total withdrawals. The estimates of water withdrawals by crop typology were then reclassified into the eight sub-sectors of agriculture using the data of the census of Tuscan agriculture5. The discharge coefficients were quantified as a share of water withdrawals. This amount depends on losses due to inef- ficiency of irrigation systems (30% of total withdrawals) and natural losses of soil moisture by evaporation (dis- charges to the atmosphere). Natural losses were quanti- fied as a percentage of green water withdrawals, based on technical coefficients from literature. We assumed that the whole amount of discharges due to inefficiency of irriga- tion systems returns to ground water bodies. The estimation of water use coefficients for livestock production activities was based on technical literature about the needs of water per head of livestock per day. Specific coefficients by species and typology of livestock unit (age, production type) were applied to the composi- tion of the regional herd. The estimated total consump- tion was then distributed among the different FTs based on their share in the rearing of Livestock Units accord- ing to standard results from the FADN public database. Discharges were quantified as a fixed proportion of withdrawals (13%) and assumed to be returned only to groundwater bodies. For the estimation of the water withdrawal and discharge coefficients in the water supply industry, the information on water billed in the region for the year 2016 was used. Secondary data published by ISTAT (2019b) were used to disaggregate water withdrawals between ground and surface sources. The discharges correspond to water losses in the distribution network; we assumed that all of these losses are discharged to groundwater, constitute groundwater recharge and are not contaminated. For the production of the electricity sector, all the existing generators in Tuscany and their annual energy production, for the year 2018, were considered at the municipality level (GSE, 2022). Water consumption cor- responds mainly to evaporation in hydroelectric, ther- moelectric and geothermal power plants, and was con- sidered as a discharge to the atmosphere. Total with- drawals and discharges were considered to be from and towards surface sources. Water requirements for manufacture activities have 5 Details are provided in Supplementary materials, Appendix B. 211An input-output hydro-economic model to assess the economic pressure on water resources Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 been quantified using non-published national data pro- vided by ISTAT. Starting from the water withdrawals coefficients of the Italian economic activities provided by ISTAT, average coefficients were obtained according to the regional composition of the 29 aggregated manufac- turing sectors represented in the IO table, using the per- manent census of manufacturing activities. The implicit assumption is that, different from agriculture, the aver- age water requirements of manufacture are not affected by location. Water discharge coefficients were calculated using information from the Exiobase database. Ratios and shares for Italian manufacturing activities resulting from Exiobase were applied to the estimated water with- drawals by industry. The distribution of water extraction coefficients between groundwater and surface water was based on secondary data and reasonable ad hoc assump- tions. 4.3. Quality of discharged water and mixing model Water quality is measured based on the chemical oxygen demand (COD, in mg/L). This parameter was assigned to water returned by macro-sectors discharging water directly to water bodies: agriculture, manufacture and sewerage. The Water Supply Industry is not con- sidered because its returns are of water with low COD concentration (losses in aqueducts). A methodology was defined for each macro-sector to properly characterize the quality of its discharges. For the reaction rate of pollutants after entering the water body parameter (k1k ) in equation (6), we consider a value (dimensionless) of 2.80 and 3.64 for groundwater and surface water, respectively. For the pollution puri- fication rate before entering the water body parameter (k2k ) we consider a value (dimensionless) of 0.82 and 1.00 for groundwater and surface water, respectively (Guan and Hubacek, 2008). The standard COD concentration in water bodies (csk ) is considered equal to 20 mg/l the value for which waters are classified as unpolluted and can be used with- out prior treatment (Rossi and Benedini, 2020). The COD concentration in water bodies (c0k ) is assumed to be equal to the standard COD concentration for an aver- age hydrological year. In the sensitivity analysis for wet and dry hydrological years, it is assumed a value of 17.5 mg/l and 22.5 mg/l, respectively. 4.4. Hydrological Balance and natural supply Starting from the information on the hydrologi- cal balance for Tuscany provided by ISTAT, the aver- age natural supply of surface and groundwater has been calculated as the sum of surface water, groundwater and rainfall directly captured by the agriculture sector. Regarding the feasible supply, the total volume of surface water concessions registered by the Regional Hydrologi- cal Service (SIR, 2021) corresponds to 2,473 mm3. This amount, however, is about 70% of the total, as many of the concession’s records do not include information on the volume. A maximum value of 3,636 mm3 has been estimated by Venturi (2014). The average annual runoff is 3,802 mm3, thus the value of parameter M for the cal- culation of the feasible surface water supply corresponds to 95.6% (3,802 mm3). For the ecological flow, a value of E=20% is consid- ered. This means that surface water bodies will always show a minimum flow rate equivalent to 20% of the average annual flow. This is a rather conservative value (Rossi and Caporali, 2021). The maximum value of the groundwater concessions is 4,704 mm3, consistent with the interannual regula- tion of water supply, while the average annual recharge is 4,155 mm3 (SIR, 2021). Hence, to quantify the ground- water feasible supply, a value of B = = 13% is considered. 5. RESULTS 5.1. Withdrawals and Discharges The volume of water withdrawals and discharges by water-extracting macro-sectors (direct or “not reclassi- fied” water use) is shown in figure 2. The total volume of water withdrawn by the Tuscan economic system con- sidering all sources (groundwater, surface water and soil moisture) corresponds to 2,043 mm3. The total volume of discharges is equal to 685 mm3 (33% of withdrawals), with Sewerage services representing about 37% of total. The total net demand (withdrawals minus discharges) is equal to 1,359 mm3, corresponding to the volume of water incorporated into products. Agriculture, the only sector using green water, represents about 86% of total net demand. The exclusive use of green water by agriculture is ref lected also in the distribution of the net water demand by water source (figure 3). The soil moisture (987 mm3) represents the 73% of total, with groundwater (221 mm3, 16%), surface water (151 mm3, 11%) playing only a minor role. Figure 4 shows the net demand reclassified by demanding macro-sectors and divided by water source. Services, for example, which neither directly extract nor discharge water from/to water bodies, account for a 212 Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 Benedetto Rocchi, Mauro Viccaro, Gino Sturla reclassified net demand of 158 mm3, since they purchase both water (from the water supply sector) and other inputs from extracting sectors. The component of the net demand supplied by the soil moisture is now distributed among different production activities, with manufactur- ing “indirectly” using a relevant share of green water. 5.2. Water for dilution and extended demand Different from Guan and Hubacek (2008) the demand of water for dilution has been calculated for each industry separately. Of the total demand of grey water (974 mm3), 17 mm3 accrue to Agriculture (2%), 379 mm3 to Manufacturing and Constructions (39%) and 578 mm3 to the Sewerage sector (59%). The Water Supply industry discharges water with standard quality while Services discharges water through the Sewerage network. The breakdown of grey water by industry allows for its reclassification by demanding sector. Figure 5 com- pares direct and reclassified water requirements for dilu- tion by macro-sector. Services increase from zero to 129 mm3 in the reclassified case, accounting for a share of grey water requirements of Sewerage services and of oth- er industries from which it purchases inputs. Also Man- Figure 2. Water withdrawals and discharges by macro sector. Tuscany, 2017 - mm3. Source: Own elaborations. Figure 3. Net water demand by water source. Tuscany, 2017 - mm3. Source: Own elaborations. Figure 4. Net water demand by demanding macro sector and by water source. Tuscany 2017 - mm3. Source: Own elaborations. Figure 5. Water for dilution by extracting and demanding macro sector. Tuscany 2017 - mm3. Source: Own elaborations. 213An input-output hydro-economic model to assess the economic pressure on water resources Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 ufacturing increases its demand for grey water (from 379 to 449 mm3). Grey water is a major component of water demand of Tuscany. The total extended water demand (total net demand plus total water for dilution), is equal to 2,333 mm3 (+72% compared to the net demand). A prominent role is now played by surface bodies (1,094 mm3) that supply 47% of water. Groundwater (252 mm3) and soil moisture (988 mm3) supply the extended demand for 11% and 42% respectively. Figure 6 shows the extended water demand classified by demanding sectors and water body. Manufacturing is the main user of water resources, accounting for 1,144 over 2,333 mm3 (49%) of the extended demand, mostly relying (54%) on surface bodies. A complete breakdown of the components of net and extended demand reclassified by demanding sector for the 56 industries represented in the IO is available in Appendix C (Supplementary Materials). 5.3. Economic pressure on water resources The extended demand for water for the reference year includes also water requirements supplied by soil mois- ture to agriculture (green water). To assess the pressures of the economy on regional renewable resources, only the components of demand supplied by surface and ground water bodies (blue and grey water) are considered. In this section the extended demand of groundwater and surface water is compared with the corresponding feasible supply. Table 1 provides some summary results for Tuscany. The regional extended demand is equal to 1,346 mm3. The natural supply corresponds to 7,958 mm3. The eco- logical flow corresponds to 761 mm3. The feasible supply amounts to 7,030 mm3, about 88% of the natural supply; the reduction is due to the constraints on supply associ- ated with surface waters. The pressure indicator EWEI proposed in this study is compared with the standard indicator WEI+, consid- ering only net demand and the natural supply net of the ecological flow. In the reference year of the analysis (2017) the groundwater recharge component was included in the interval assuring the maintenance of the groundwater stock in the long-run. Therefore, the feasible supply of groundwater is equal to the natural supply. In the case of surface water, constraints in water exploitation reduce to 2,875 mm3 the “feasible” supply (compared to 3,042 of natural supply). The results show that at the regional lev- el the overall use of water generated by the economy is still compatible with the available resources, also when natural, technical, and institutional constraints to water use are taken into account. When the thresholds pro- posed in the literature for these indicators are consid- ered (Raskin et al., 1997; Alcamo et. al, 2000; Pfister et al., 2009; CIRCABC, 2012), the WEI+ is well below the 20% limit. However, when considering the EWEI indi- cator, the situation in Tuscany appears to be close to a moderate scarcity. As explained in section 3, the denominator of the EWEI ratio depends on the values assumed by the hydrology in the average year. However, the components of the hydrological balance are random variables that can largely differ from the mean values both upward and downward. It could be interesting to assess what would be the pressure on water resources when natural components of the balance show extreme values. Figure 7 shows the results of such a sensitivity analysis, com- paring the values assumed by the EWEI with a feasible supply calculated with reference to a mean hydrological situation and to two extreme cases corresponding to the years with the best (2010) and the worst (2007) hydro- logical supply in the reference period (1970 – 2010). When considering the standard thresholds, it is interesting to note that in a dry year, the EWEI value Figure 6. Extended water demand by demanding macro sector and by water source. Tuscany 2017 - mm3. Source: Own elaborations. Table 1. Economic pressure of the economy on water resources. Tuscany, 2017 – mm3 and pressure indicators. Total Ground- water Surface water Net water demand (mm3) 372 221 151 Extended water demand (mm3) 1 346 252 1 094 Natural supply minus ecological flow (mm3) 7 197 4 155 3 042 Feasible supply (mm3) 7 030 4 155 2 875 WEI+ 0.052 0.053 0.05 EWEI 0.191 0.061 0.381 Source: Own elaborations. 214 Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 Benedetto Rocchi, Mauro Viccaro, Gino Sturla (0.3) would indicate that Tuscany is in moderate scar- city (0.4 being the limit for severe scarcity). Despite this value of the EWEI still implies a safety margin between the extended demand and the feasible supply, it should be considered that the regional mean annual value of the EWEI hides a wide variability of the hydrological bal- ance at the sub-regional level, with possible critical local situations. Moreover, the breakdown by water sources shows relevant differences between ground and surface water. The former faces a quite stable pressure, due to the reservoir effect of the stock. Conversely, in the case of surface water, a worsening of the hydrological sce- nario could lead to a relevant increase of pressures, with a surface water EWEI almost three times greater (1.16 vs. 0.38 for the average hydrology scenario). In a critical year the extended demand of surface water in Tuscany would exceed by 16% the feasible supply. 6. DISCUSSION The model proposed in this study allows a more comprehensive understanding of sectoral economic pres- sures on water resources. Unlike previous studies, which only consider the sectoral disaggregation in blue water uses, this study also allows the identification of grey water associated with each economic activity. Along the same lines, this study makes it possible to evaluate the direct and indirect pressures on the different bodies of water, through a reclassification by demanding sectors based on the IO model. Furthermore, the flexibility of the proposed methodology allows evaluating changes in the pressure structure when considering different approaches. The case study is eloquent regarding the significant changes that the pressure structure can present. When considering withdrawals, a classification of demand by extracting sector and all water sources in the quantifi- cation of supply, agriculture represents 61% of regional pressures, manufacturing 20%, and the water sup- ply industry 19%. On the other hand, when consider- ing the extended demand, a classification of demand by demanding sector, and only water sources actually exposed to scarcity (groundwater and surface water), agriculture represents 5%, manufacturing 54%, the water supply industry 10%, sewerage 16%, and services 5%. These differences can be explained by three reasons: i) the high green water component in water demand for agriculture, ii) the high grey water requirements in man- ufacturing and sewerage (86% of the total), and iii) the relationship between the purchase and sale of intermedi- ate inputs with embodied water, that is positive for man- ufacturing, sewerage and services. These results show that mapping the sectoral struc- ture is sensitive to the goals pursued in water manage- ment. If incentives are to be generated to reduce the direct and indirect pressures of economic activities on the quantity and quality of groundwater and sur- face water, an approach by demanding sector should be adopted. The developed model also takes care of the role of resources availability in the analysis of the economic impact on water system. Specifically, a new indicator (EWEI) is proposed, which considers the requirements for blue and grey water (extended demand), and adjusts the natural supply to consider environmental, techni- cal, and institutional restrictions (feasible supply). Previ- ous studies, also when including the grey component of water demand, only correct the natural supply for envi- ronmental restrictions. Once again, the case study exemplifies the differ- ences in the water resource exploitation indicator when aspects not addressed in previous studies are consid- ered. The indicator predominantly used in the litera- ture (WEI+) present a value of 0.05; however, the EWEI (0.19) indicates that the Tuscany region is very close to the threshold of moderate scarcity (0.2) for an average hydrological year. The numerator of the WEI+ pressure indicator on water resources compares two quantities of water (withdrawals and discharges) of different quality. As quality is a factor affecting the potential use of water, our results confirm that a correction is necessary, as pro- posed by Guan and Hubacek (2008) and replicated in this study. A significant difference is observed when disaggre- gating pressure indicators for groundwater and surface waters. For surface waters, the proposed indicator has a value of 0.381, significantly higher than the correspond- ing value of the WEI+ indicator. This means that when Figure 7. Sensitivity analysis of EWEI indicator. Mean hydrological balance vs. extreme years. Source: Own elaborations. 215An input-output hydro-economic model to assess the economic pressure on water resources Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 technical and institutional constraints are considered in determining the feasible supply, surface water resources in Tuscany show a situation of almost severe scarcity (threshold 0.4). The denominator of the standard WEI+ indicator contributes to an underestimation of pressures. To account for variations in climate, this study esti- mates the EWEI for the driest and wettest hydrology within a 40-year period (1971-2010). The results show that Tuscany, in case dry hydrology, experiences moder- ate scarcity (0.30) on average but with huge differences between groundwater (0.07) and surface water (1.16) resources. This suggests that the region’s most significant water management problems, when incorporating water quality requirements and technical and institutional constraints, concern the surface water component of the resource. Regarding the limitations and assumptions of the proposed model, the following key elements should be highlighted. First, natural variability also applies within the same year. The annual average values of the hydro- logical balance components completely conceal different situations within each year in terms of natural and feasi- ble water supply. An annual sustainable average pressure could imply critical situations during periods of the year when the natural water supply is lower. Second, it has been assumed that agriculture extracts a certain amount of water for each euro of production directly from soil moisture. However, this assumption is only valid in years with average or above- average hydrology. In the case of dry years, agriculture extracts more from groundwater and surface waters (mainly for irrigation), increasing pressure on these resources. Third, both the economy and the hydrological sys- tem also exhibit a geographical variability. The distri- bution of water intakes for irrigation clearly shows that pressures on water resources depend on the location of productive activities and the distribution of water resources in the regional territory. Critical local situa- tions could be compatible with a sustainable global bal- ance between extended demand and feasible water sup- ply at the regional level. Finally, water resource exploitation indicators, both in the standard version (WEI+) and in the extended ver- sion proposed in this study (EWEI), assume a perfect substitutability between groundwater and surface waters in the economic use. This is not necessarily the case, especially at the regional level, where there are strong geographical constraints on the movement of water resources. For this reason, even considering an average hydrology, Tuscany could be exposed to critical situa- tions also at the regional level. 7. CONCLUSIONS The article proposes a multisectoral and environ- mentally extended input-output model that represents in detail the links between the economy and the hydrologi- cal system. Water flows are mapped between economic activities and different components of the hydrological system, considering withdrawals, discharges, and the water requirements necessary to maintain the qualitative balance of the hydrological system (Extended Demand). A classification by extracting and demanding sectors is used to allocate pressures on water resources considering the both direct and indirect impacts through the pur- chase and the sale of intermediate inputs. To assess the water balance, an extended water exploitation indicator (EWEI) is proposed that considers a correction of the natural supply based on environmental, technical and institutional restrictions. By empirically testing the model in the Italian region of Tuscany, our results show significant changes in the structure of sectoral pressures when considering the more comprehensive approach proposed. On aver- age, the hydrological system of Tuscany is capable of supplying the water needed by the regional economy for medium hydrological conditions. However, the region could present moderate scarcity problems for dry years and serious scarcity problems in the case of surface waters. The developed model can support an in-depth analysis of the water footprint of a regional economy, for example, to map pressures on water resources from specific industries to specific water bodies, and support decisions in water management both at the national and regional level. The identified limitations suggest the direction for further refinement of the model. The interannual and intra-anual variability of the hydrological balance must be modelled. This extension of the model could allow not only to associate a measure of its potential variability with the average results, but also to simulate the impact of climate change scenarios. Furthermore, it is necessary to endogenously model the change in the composition of water sources used by agriculture, an activity that in dry years uses a greater amount of groundwater and surface water to make up for the lack of soil moisture. Finally, the decomposition of the model at the sub- regional level could allow an evaluation of the geograph- ical distribution of impacts on water resources and the possible existence of unsustainable local situations also within a sustainable global regional scenario. 216 Bio-based and Applied Economics 13(2): 203-217, 2024 | e-ISSN 2280-6172 | DOI: 10.36253/bae-14957 Benedetto Rocchi, Mauro Viccaro, Gino Sturla ACKNOWLEDGEMENTS The paper presents part of the results of the research projects «IDROREGIO – A hydro-economic model for Tuscany » funded by the Italian Ministry of Environ- ment within the National Strategy for Sustainable Devel- opment and «RUEESNexus - A environmentally extend- ed Rural-Urban model to study the Ecosystems-Econo- my-Society nexus» funded by the Ministry of University and Research (PRIN2022). 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