Trade-offs of Water Non-Market and Market-based Management Instruments: A Brazilian Case Study of a Sugar and Ethanol Sucroenergetic Production Area

Márcia Maria Guedes Alcoforado De Moraes^1*Gerald Norbert Souza da Silva²Marcelo Pereira Da Cunha³Nilena B. M. Dias³

• ¹Federal University of Pernambuco, Recife, Brazil
• ²Federal University of Paraíba, João Pessoa, Paraíba, Brazil
• ³State University of Campinas, Campinas, São Paulo, Brazil

This highlights the constraints of market-based instruments in reshaping an established crop mix unsuited to regional environmental conditions. Achieving sustainable economic growth while maintaining environmental balance requires efficient water allocation, particularly in developing countries experiencing agricultural expansion and urbanization. Brazil's sugar-energy-sector exemplifies these challenges, especially in the Northeast, where bioenergy expansion may exacerbate water scarcity. Pernambuco, one of Brazil's driest states, has expanded sugarcane irrigation for sugar and ethanol production, effectively exporting "blue" water. The absence of water pricing intensifies competition for scarce resources. Public investments, such as the São-Francisco-River-Transfer-Project (SFTP), aim to mitigate shortages. However, without policies incorporating economic valuation, bioenergy expansion could further strain water resources. New results from an Integrated Economic platform link three optimization models to an interregional Input-Output-Matrix based on Brazil's 2011 IOM. These models represent four interconnected basins in Pernambuco, at an area with critical water balances and increasing transfer demands, which will be supplied by the SFTP. Two models simulate hydrological-based water allocation, representing non-market-based instruments, while the third applies economic criteria to simulate market-based management during a scarcity crisis. A three-dimensional Pareto surface was derived using three optimization criteria: demand fulfillment percentage, reservoir storage levels, and economic returns. The trade-offs between market and non-market-based allocation instruments were then assessed. Findings indicate that market-based-instruments favor public water supply in semi-arid regions by reallocating water from the sugar-energy-sector, particularly irrigated sugarcane in humid areas. This shift improves