Determining an Optimal Water Mix for Hong Kong: An Economic and Political Analysis

Abstract

Throughout its history, Hong Kong has been forced to be both proactive and innovative to ensure it would have drinking water supply that would be sufficient to meet the ever-growing needs of both its population and economy. However, improvements to the security and sustainability of the water supply essentially ceased in 1970 due to the accessibility of purchased water from Guangdong. As Hong Kong’s position in the region changes in conjunction with developments in upstream cities along with additional stressors caused by climate change, reliance on purchased water and natural flows presents long term threats to the stability of this arrangement.

While the Water Supplies department (WSD) has begun to take steps to address these issues, there has been no analysis conducted on how much water should be provided by each of Hong Kong’s current and potential water resources. To determine this optimal mix, we adapt a model proposed by Leroux and Martin (2015) to make it suitable for Hong Kong’s current and proposed water supply mixes. More precisely, we broaden the model to account for purchased water which is currently the primary source of water for Hong Kong and integrate purchased water uncertainty, which differs from uncertainties on reservoir inflows, precipitation and quality. Harvested storm water and manufactured water, although not currently used in Hong Kong may be sources for the future and are therefore considered also considered by this model.

The objective of the model is to derive the optimal shares for each water supply resource based on data collected from the Hong Kong observatory and WSD. We obtain the optimal water mix and consumption levels for two base scenarios, the current scenario and the proposed 4-prong scenario. The 4-prong scenario advocates for a large-scale development of desalination plants in Hong Kong due to the price uncertainty of purchased water and the limited stock and uncertainty associated with reservoirs. It is important to note that in this model desalinated water can be a stand in for any manufactured water, such as reclaimed water, that shares a riskless supply. Because the proposed 4-prong model relies heavily on manufactured water treated to drinking water standards, it is also significantly more expensive and therefore results in a lower optimal water consumption. This presents several policy challenges to WSD and Hong Kong in terms of its supply and demand management strategies.

To propose policy solutions that would allow Hong Kong to move towards this optimal mix, we first analyze the history of Hong Kong’s water supply through the use of two vulnerability analysis frameworks, from 1840 to today, to answer the following questions: how the history of the water supply has affected its current and future development and how did these developments lead to complacency in the development of compressive water management policies. We find that the while the government was particularly innovative and forward thinking for much of its history, this began to change when the state of the political border with China became more open and the handover became imminent.

This change to the political state of the water supply led to the adoption of “temporary measures” that have ended up becoming permanent as concerns over political pressures caved to economic realities. However, these measures are no longer adequate as Hong Kong’s evolving role in the Pearl River Delta is again changing the landscape policy makers must consider when planning the development of comprehensive water management policies. Failure to note these changes to the political and environmental state of available water resources and their accompanying pressures will in turn lead to inadequate policies that will prove costly in the long run.

While Hong Kong has begun to take steps towards updating its long-standing ‘Total Water Management’ policy to secure a longer-term water supply, these efforts do not truly achieve a sustainable or resilient supply. While the new “prongs” of the water supply, which include rainwater harvesting and desalination, will increase the amount of water available to Hong Kong they do little to lessen its dependence on purchased water and protect from the uncertainty inherent in natural flows. To address this is problem in the final chapter, we propose an alternative solution; full replacement of the salt water flushing system with a reclaimed water system. This switch presents several potential opportunities and benefits to Hong Kong from both economic and policy perspectives, including: reduced operation and maintenance costs, increased system longevity, lower-per unit costs, potential for decentralized collection and distribution, and expand potential water resources. This system would allow WSD to exploit the fact that majority of water demanded is non-potable, which would free up precious potable water resources, increase system resiliency, and lower overall costs. We then complete a cost benefit analysis of several scenarios to determine which provides the greatest overall net benefits to Hong Kong. Through this analysis we demonstrate that a more resilient and sustainable water supply can be less costly to operate while providing additional environmental benefits, if it is used as more than just a replacement for saltwater flushing. We then utilize a modified version of the dynamic programming model from the first chapter to determine the demand for potable and non-potable water and the share of supply that should come from each of the water resource stocks: harvested, reservoir, purchased, manufactured, and reclaimed. We then complete a cost benefit analysis of several scenarios to determine which provides the greatest overall net benefits to Hong Kong. Through this analysis we demonstrate that a more resilient and sustainable water supply can be less costly to operate while providing additional environmental benefits.

Date of Award	6 Sept 2018
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Kyoung Jin Alicia AN (Supervisor) & Aude POMMERET (External Co-Supervisor)