Hydro-economic modelling and climate change in the Murray-Darling Basin, Australia: Applications and implications

Climate change is expected to reduce water availability, thereby increasing the complexity of water allocation and reallocation in the Murray-Darling Basin (MDB) of Australia. Key challenges include balancing water use between sustaining irrigated agriculture and maintaining environmental outcomes while managing the associated trade-offs optimally. Hydro-economic models provide a structured framework to examine these trade-offs, but their application in the MDB varies widely in how climate inputs, adaptation options, and outcome domains are represented in the modelling framework. This review synthesises MDB hydro-economic (HEM) studies with explicit focus on climate change and explores how climate risks, adaptation responses and water allocation trade-offs are represented within MDB HEM studies. Of 152 shortlisted MDB focused HEM studies, 57 are identified as climate focused HEM studies, which include 28 direct climate focused and 29 indirect focused studies. Direct climate focused studies indicate that drying reduces water availability and allocation reliability, with uneven effects across regions, sectors, and entitlement types. Horticulture and downstream ecosystems, including wetlands, are particularly sensitive to water reductions, while annual crops can adapt in the short-run. Adaptation options such as targeted water recovery, water trading, and efficiency or infrastructure upgrades can reduce losses under moderate climate change scenarios. The review suggests that future MDB hydro-economic modelling will require greater use of ensemble climate scenarios, explicit treatment of uncertainty, more realistic representation of ecological outcomes, institutional rules, market behaviour, and adaptive decision-making.