Dynamic and Integrated Models of the Energy-Water-Land Nexus: Economic and Environmental Evaluation of Policy Decisions

This dissertation contributes to the field of environmental and natural resource economics by employing data and hybrid simulation models to assess the economic and environmental outcomes of policy instruments applied to the complex systems of humans and the physical environment. Three integrated and dynamic models are developed to measure short- and long-term outcomes of price scenarios and resource capacity constraints. The first chapter examines the balancing problem faced by a state-level policymaker. The Permian Basin is a source of significant revenue to the state of New Mexico; however, unconventional oil and gas production in this highly productive field requires large amounts of freshwater and generates billions of barrels of wastewater. By integrating economic and reservoir engineering models, we measure the impacts of freshwater consumption constraints, the early shutdown of wells, and a combination of increased treatment capacity and freshwater constraint on the balance between revenue generation and resource exhaustion. We show that improving treatment capacity along with a freshwater capacity constraint (5,000 acre-feet per month) results in relatively better outcomes in both economic and environmental terms. The second chapter presents a vector error correction model to test the impact of price shocks on drilling activity in the New Mexico and Texas portions of the Permian Basin. We are interested in understanding how operators choose from two different regulatory systems that share the same basin. We show that an increase in prices has both short- and long-term positive impacts on drilling activity in the New Mexico and Texas portions. However, under the same price shock, Texas drilling shows a larger response. Furthermore, we show that Texas drilling drives a small part of the drilling activity in the New Mexico portion of the Permian Basin, but this relationship is not bi-directional. Although in the short run drilling activity in the Permian Basin does not influence U.S. oil prices, in the long run, as drilling activity increases in the Permian Basin (either side), oil prices experience a very small decline. In other words, U.S. oil prices are not fully driven by exogenous variables, at least not in the long run. The third chapter is focused on two objectives: (1) to provide a simulation tool to test the economic and environmental impacts of an urban policy instrument, and (2) to test the need for adopting a high temporal resolution in the evaluation of the outcomes of a long-range regional transportation plan. We investigate evidence of the congestion rebound effect in Albuquerque using an annually integrated land-use travel model. Although we do not find evidence of congestion reappearance over a 2012-2040 period, our proposed approach could capture short-term changes in travel behavior and long-term land-use changes resulting from a capacity expansion policy. Furthermore, we show that integrating the land-use and travel demand modules only in the beginning and at the end of a long-range plan results in biased evaluations of the plan, but more so in evaluating environmental outcomes