Flexible Instruments to Address Water Security in the Context of Climate Uncertainty: A Case Study of Option Contracts in a Chilean River Basin
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Date
2025
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Publisher
ASCE-AMER SOC CIVIL ENGINEERS
Abstract
Climate change is causing widespread extreme weather events around the world, affecting food and water security. One example is Chile, which is facing the longest drought in its history. To cope with this situation, adaptation measures such as option contracts have been explored. This type of contract allows the temporary transfer of water from one user to another, depending on weather conditions, with monetary compensation for the users who give up the water. Using the Aconcagua River basin as a case study, it was possible to evaluate the effectiveness of these contracts to mitigate the impact of drought on human consumption in a context of climatic uncertainty. The results indicate that the contract is activated between 0 and 49 times depending on the scenario and that the water supply of the water utility is increased. In conclusion, it is found that option contracts allow mitigating future water scarcity, reducing unsatisfied demand, and improving the water security of the affected populations.
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Keywords
Water resource management, Option contracts, Water security