The Water-for-Energy Swap between Jordan and Israel - An economy-wide analysis

This paper analyses the impacts of a water-for-energy swap agreement that has been negotiated between Israel and Jordan in recent years, on the Israeli economy. According to the agreement Israel will supply 200 million m³ of desalinated water to Jordan in exchange for electricity to be produced in a new 600-megawatt solar power plant to be built in Jordan (Mansour & Reiffenstuel, 2022).Given the nexus character of water and energy, which are strongly interlinked with other parts of the economy, we investigate the implications of this agreement using an economy-wide simulation model. Specifically, a water-focused computable general equilibrium (CGE) model is calibrated to a recent, detailed social accounting matrix for Israel, which includes 46 economic sectors, 43 production factors, and 10 household types differentiated according to income level and ethnic group. The model includes a detailed depiction of water supply and demand, considering alternative water sources, such as desalination and reclamation of wastewater, with differing cost structures. To capture price discrimination and other water-related policies applied by the entities investigated, the model includes different water-related taxation instruments and water satellite accounts which allows for keeping track of water quantities.It is expected that Israel will gain from the additional electricity provided, which reduces production costs of energy-intensive sectors, including desalination, a major contributor to municipal water supply. Additionally, there are also gains outside the pure economic modeling: electricity production in the region will become greener and the increased interdependency between the two states will contribute to stabilizing relations and thus peace in the region. Therefore, this agreement can earn a triple dividend covering all aspects of the sustainability triangle.SourceMansour, H., & Reiffenstuel, A. (2022). KAS Studies on Jordan Jordan Office The Jordan, Israel, and UAE Water-for-energy Deal: Potential and Pitfalls of Energy and Water Sharing-Agreements in the Middle East, https://www.kas.de/en/web/jordanien/single-title/-/content/the-jordan-israel-and-uae-water-for-energy-deal.