AbstractThis paper adopts the water-energy nexus approach to investigate the economic impacts of costly energy-intensive water supply projects. An integrated modeling framework is proposed for the regional-scale management of water and energy resources that incorporates the energy input-output analysis (EIOA) within a hybrid genetic algorithm-linear programming (GA-LP) optimization model, maximizing the gross domestic product (GDP). As a general framework, the proposed approach captures the trade-offs between water and energy in the technologies used for the production of other goods and services than water and energy. The framework is used to evaluate the economic gains of the nonlocal water supply projects, including water transfer and desalination in the Kerman province of Iran, where water shortages loom. The model determines the optimal allocation of newly supplied water to the economic sectors given the energy and water prices, the structure of production sectors, local resource constraints, and economic sectors’ production capacities. The production capacities of all sectors, except water and energy, are exogenously expanded by 50%, which is in line with the projected population growth over 25 years (project’s lifetime). Results reveal that in the absence of water supply projects, Kerman’s GDP grows at 35% over 25 years. Meanwhile, the implementation of water supply projects increases Kerman’s economic growth by 5% but requires around 2 TW · h of additional electricity and 735 mcm of additional water. Results also indicate under the optimal condition found that the GDP is influenced more by water allocation policies and less by the amount of water supplied from the nonlocal water source, which highlights the significance of nonstructural measures.