Unveiling the synergistic effect of water taxation and virtual water policies on sustainable development: A factorial input-output driven CGE method

Study region The Inner-Shaan-Ning is located in the upper reaches of the Yellow River Basin (China), a water-scarce region associated with intensive agriculture, food, tobacco, and chemical industries. Study focus Water scarcity and water pollution are increasingly restricting socioeconomic and environmental sustainability in water-scarce regions. However, the synergistic effects between water taxation and virtual water policies remain inadequately quantified. This study develops a factorial input-output driven computable general equilibrium (CGE) method (abbreviated as FIOC) to identify the key driving sectors, simulate multi-scenario environmental and economic responses, and quantify individual and interactive effects of multiple policies on sustainable development goal (SDG) performance. New hydrological insights for the region Export demand is the dominant driver of both virtual water consumption and virtual wastewater discharge, in which agriculture, food, tobacco and chemical industries are the main export sectors. There are obvious trade-offs with a single policy tool: taxation can save water, but it may increase wastewater discharge; while the virtual water policy is highly dependent on its specifically targeted industries. Results disclose that a combination policy of the moderate water tax and the lowest import price (i.e. TV28 scenario) is more conducive to achieving the SDG; compared with implementing the moderate water tax policy alone, the combined policy (i.e. TV28) can reduce 0.09% of GDP loss, save 5.8% of water usage, and reduce 8.09% of wastewater discharge.