Given its potentialities and characteristics, energy generation, food production, and water availability have a strong interdependency and correlation. Water is needed to produce energy and food, while energy is required to produce water and food. This nexus brings several challenges when scarce water resources must be allocated among competing uses, often in the form of unexpected tradeoffs. Addressing those challenges requires knowledge about the water–food–energy nexus and the associated tradeoffs to support water allocation and management decisions. Those tradeoffs are still not properly understood in the uncertain and stochastic context of water availability. When not properly accounted for, the results are conflicts, loss of investments, environmental impacts, and limited effectiveness of sectoral policies, all of which undermine a country’s development model relying on water and energy security. This paper addresses the competitive uses of recent irrigated agriculture expansion and existing hydropower production in a Brazilian watershed with water conflicts, assessing the economic tradeoffs and water values between energy and irrigated agricultural production under uncertainty. An explicitly stochastic hydro-economic model is used to determine water’s economic value and its variation in space and time. Results indicate that the agricultural benefits outweigh the potential energy losses, and the best course of action should explore an economically compensated reallocation strategy, upon negotiation among users, rather than imposing water supply cutbacks to the agriculture sector.
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