Dual water-electricity cooperation improves economic benefits and water equality in the Lancang-Mekong River Basin

Transboundary river basin management often faces geopolitical tensions and competing national priorities over water, energy, and food security. Countries act to maximize their own benefits, leading to collective inefficiency akin to a prisoner's dilemma, and cooperation is hindered by limited incentives and compensation mechanisms. The Lancang-Mekong River Basin (LMB), spanning six countries and supporting 65 million people, exhibits upstream hydropower development (e.g., China, Laos) and downstream irrigation-dominant economies (e.g., Thailand, Vietnam). Increasing water scarcity due to population growth and extreme droughts has intensified calls for broader cooperation. Historically, cooperation has been ad hoc, such as the 2016 emergent water supplement from China to alleviate downstream drought, which provided short-term relief but suffered from lack of compensation for upstream losses and potential free-riding. Meanwhile, regional appetite for electricity trading is strong, yet imbalances between supply and demand and high transmission costs limit basin-wide optimal plans. This study introduces a dual water-electricity cooperation (DWEC) framework that couples water cooperation with electricity trading to create balanced incentives and compensation, aiming to enhance economic benefits and social equity across riparian countries. Two cooperation types are assessed: emergent water supplementation (EWS) and basin-wide cooperation (BWC), each coupled with electricity trading objectives of cost minimization and willingness maximization.

Prior work highlights the complex interdependencies among water, energy, and food systems and the need to integrate these nexuses into transboundary governance. Traditional water-only cooperation in the LMB has largely been reactive and case-based, lacking durable incentive structures and leading to upstream perceptions of uncompensated losses and free-riding by some beneficiaries. Studies emphasize that electricity interconnection in Southeast Asia could offer mutual benefits due to abundant, relatively low-cost hydropower in upstream regions and electricity deficits and higher prices downstream. However, transboundary cooperation has typically been developed separately in the water and electricity sectors, not jointly optimized. Research on distributional impacts also underscores trade-offs between cost-efficiency and regional equity in energy transitions, suggesting that integrated planning should consider both economic efficiency and fairness. This study builds on these insights by operationalizing a coupled water-electricity framework to provide compensation and incentives and by quantifying both economic and equality outcomes.

The study develops an integrated water-electricity system model linking a water module and an electricity module to evaluate dual cooperation strategies in the LMB. Two water cooperation types are considered: (1) Emergent Water Supplementation (EWS), replicating the 2016 three-phase release at Jinghong (minimum discharges of 2000, 1200, and 1500 m³/s over specified periods), and (2) Basin-Wide Cooperation (BWC), which optimizes temporal-spatial reallocation of river water among riparian countries to maximize total water-use value (hydropower plus agriculture). Each water cooperation type is paired with two electricity trade objectives: cost minimization (CMin) under a no-loss principle and willingness maximization (WMax) to expand incentives. A baseline without cooperation (BAS) is also simulated. Scenario set: I BAS (no cooperation, no electricity trade), II EWS, III EWS_CMin, IV EWS_WMax, V BWC, VI BWC_CMin, VII BWC_WMax. Water module: Sub-models include SWAT-based streamflow simulation; a hydropower generation model for key reservoirs (Xiaowan, Nuozhadu, Jinghong) with water balance, storage, turbine discharge, head, and capacity constraints; an agriculture model using FAO water production functions and crop water requirements; a water allocation model linking users and optimizing cooperative releases/transfers; and cost-benefit analysis aggregating hydropower and agricultural benefits. Six major crops per country cover ~90% of harvested area, using current-level (2017) areas, yields, prices, and crop calendars. Environmental flow constraints include a negotiated minimum flow at Jinghong (504 m³/s) and lower bounds at mainstream stations reflecting pre-dam minima. In non-cooperation, withdrawals follow upstream priority; under cooperation, strategies maximize basin-wide hydropower and agricultural benefits. Electricity module: Stakeholder electricity surplus or deficit is the difference between generation capacity and demand (demand estimated from population and per-capita consumption). Cross-border trade decisions consider existing interconnection routes (assumed fixed; trade capacity can expand) and exclude new power plant construction. The cost objective minimizes annualized transmission and operational expenditures subject to transmission losses and supply-demand constraints. The willingness objective uses a triangular utility function: willingness peaks when demand is fully met and declines to zero when trade benefits only just compensate water losses, with four stakeholder types depending on water loss/gain and exporter/importer role. Two electricity trade strategies are solved for each water cooperation type: CMin adheres to a no-loss principle for all parties; WMax expands trade volumes/routes to maximize stakeholders’ willingness and net benefits. Coupling: The model iteratively links water and electricity modules. Water cooperation strategies determine gains/losses in hydropower and agricultural benefits by country. The electricity module computes feasible trade flows that compensate water losers (no-loss constraint) and then, under WMax, expands trades where it increases net benefits and willingness. Equality assessment: Agricultural water use per unit planting area by country is evaluated, and Gini indices are computed annually and monthly to gauge spatial equality, with special attention to dry (deficit) periods. Robustness is tested under hydrological frequencies from high-flow (5%) to low-flow (95%) conditions.

- In water-only EWS (2016-like releases), downstream countries gain economic benefits, especially Thailand and Vietnam, while China incurs a net loss. - Adding electricity trade under EWS_CMin compensates China’s loss via China exporting 9.5 TWh to Vietnam; others have no compelling cost-minimizing trade needs. Total economic benefits are about 3.0 billion USD. - Under EWS_WMax, expanded electricity trades yield higher benefits for every country: Vietnam imports up to close its 40.6 TWh electricity gap; China fully recovers losses and earns net gains; Myanmar exports 0.5 TWh to Thailand; Laos exports 16.9 TWh to Thailand and 2.7 TWh to Cambodia. Total economic benefits reach 8.7 billion USD, 2.8 times EWS_CMin. - In water-only BWC, basin-wide reallocation targeting maximum water-use value raises total benefits by 3.9 billion USD relative to baseline, with Vietnam gaining most and China, Thailand, Laos, and Cambodia losing water use benefits. - Adding electricity trade under BWC_CMin fully compensates water losers: China exports 4.5 TWh to Vietnam; Thailand and Cambodia import 4.0 TWh and 1.4 TWh from Laos, respectively; Laos gains from exports to Thailand, Cambodia, and Vietnam. No party incurs loss; total net benefit about 4.3 billion USD. - Under BWC_WMax, larger trade volumes and new routes (e.g., Myanmar–Thailand, Vietnam–Cambodia) increase total net benefits to 10.6 billion USD (≈2.5 times BWC_CMin). China exports about 50.0 TWh, aligning surplus generation with downstream deficits. - Equality outcomes: Annual Gini index of agricultural water use per unit area is 0.177 (BAS), 0.113 (EWS), 0.242 (BWC), and 0.182 (DWEC with BWC_CMin/WMax). Water-only BWC worsens equality due to large transfers to high-value-use Vietnam (agricultural water use per unit area ~657 mm vs 283 mm in EWS), mainly at Cambodia’s expense (474 to 265 mm). In DWEC, transfers are constrained by electricity trade capacity and no-loss, improving equality: Cambodia’s use rises to 423 mm; Laos can afford larger water loss, decreasing to 179 mm. - Monthly equality: During driest months, the Gini index reaches ~0.5 under water-only BWC (above the 0.4 warning line) but improves to ~0.35 with DWEC; differences are negligible in wet months when demands are broadly met. - Hydrological robustness: Cooperative water benefits increase in severe droughts, requiring higher compensation trades for upstream China. Compensation trades are a small share of total electricity trade, which is driven mainly by structural demand-supply patterns; thus, total electricity trade volumes are relatively insensitive to hydrological variability.

Coupling electricity trading with water cooperation directly addresses the primary barriers to transboundary collaboration—lack of compensation for upstream losses and insufficient incentives for all parties. The DWEC ensures a no-loss condition for water exporters via electricity trade revenues and creates additional gains by aligning surplus generation with deficits, thereby increasing willingness to cooperate. It substantially expands total basin benefits over water-only approaches in both emergency and basin-wide contexts and mitigates the equity deterioration that arises when water is reallocated solely for economic efficiency. Equality improvements are particularly important in dry periods when conflicts intensify. The framework demonstrates robustness to hydrologic variability: while droughts increase water-cooperation benefits and required compensation, overall electricity trade patterns remain governed by demand-supply fundamentals. These findings indicate that integrated water-energy cooperation can operationalize stable, win–win transboundary agreements in the LMB and similar basins.

This study proposes and quantitatively evaluates a dual water-electricity cooperation framework that couples water sharing with electricity trading to provide balanced compensation and incentives across riparian countries. Applied to the Lancang-Mekong River Basin, DWEC delivers higher basin-wide economic benefits than water-only strategies, ensures no party incurs loss, and improves regional water use equality, notably during water-scarce periods. The framework is robust under a wide range of hydrological conditions and leverages existing regional electricity interconnections and complementarities. Potential application to other transboundary basins (e.g., the Nile) is promising where both water sharing and power trade are priorities. Future research should integrate environmental impacts of altered reservoir operations (e.g., sediment transport and ecological flows), refine market and regulatory assumptions, address data-sharing and privacy issues, and design legal and institutional mechanisms to support long-term, fair, and enforceable DWEC agreements. Focused strategies targeting inequality during shortage periods may enhance the social acceptability and durability of cooperation.

Implementation challenges include uncertainties in energy markets and prices, transaction costs, data sharing and privacy constraints, and underdeveloped legal and regulatory frameworks for cross-border electricity trade. Potential environmental impacts from modified hydropower operations (e.g., sediment transport and aquatic ecosystem integrity) are not fully quantified and warrant further study. Modeling assumptions—fixed existing transmission routes, no new power plant construction, demand inferred from population and per-capita consumption, and simplified willingness functions—may limit generalizability. Water equality assessments using annual metrics can underestimate issues concentrated in dry months; more granular management is needed.