Economic implications of climate change for infrastructure planning in transboundary water systems: An example from the Blue Nile

Abstract

This research develops a hydroeconomic modeling framework for integrating climate change impacts into the problem of planning water resources infrastructure development. It then illustrates use of that framework in evaluation of two alternative sizes of a potential hydropower project along the Blue Nile in Ethiopia. Storing water in a Blue Nile reservoir provides an interesting case for testing this integrated approach because such a project would induce a number of physical and economic changes, both transboundary and climate-dependent. The proposed framework makes two contributions to the existing literature on water resources project appraisal. First, it demonstrates how routinely used hydrological modeling techniques can be supplemented with Monte Carlo simulation to include economic uncertainties inherent in the planning problem, in addition to its more commonly considered physical dimensions. Second, it demonstrates how analysts can include a number of linkages between climate change, hydrology, and economic production in conventional planning models to develop better understanding of the complexities and important uncertainties associated with future conditions. While the framework described here has not been used in a full analysis of alternative development projects in the Blue Nile, the general approach could be combined with a variety of decision-analytic tools to evaluate design and management alternatives in water resources systems.