The study assesses the effect of land use and land cover changes (LUCC) on evapotranspiration and runoff in the Shalamulun River watershed of 2,453 km2 located in Inner Mongolia Autonomic Region of China. First, Landsat Thematic Mapper (TM) and Enhanced Thematic Mapper Plus (ETM+) images from 1987, 2001 and 2007 are used to quantify LUCC in the watershed. A knowledge-based decision tree (K-DT) classification technique is used to detect LUCC. By comparison of post-classification change among 1987, 2001 and 2007, the results showed significant modification and conversion of land use and cover of the watershed over the 20-year period 1987–2007. The results show that the forest area underwent the greatest change, decreasing by 159.2 km2 in the study period. At the same time, the area of farmland, barren land and residential land increased by 89.5, 46.4 and 25.3 km2, respectively. Subsequently, a two-source potential evapotranspiration (PET) model is used to estimate the potential evapotranspiration response to LUCC. Finally, the influence of LUCC on annual runoff is evaluated using a statistical method. LUCC potentially caused a decrease in annual PET and runoff. Meanwhile, the land use changes resulted in spatio-temporal variations of monthly PET in the growing season (April–September).

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