Water competition through the ‘water-energy’ nexus: Assessing the economic impacts of climate change in a Mediterranean context

The impacts of climate change on water resources availability are expected to be adverse, especially in drier climate regions such as the Mediterranean. Increased water scarcity will exacerbate competition for water resources, not only between sectors but also between countries sharing transboundary river basins. Due to the mutual dependence of the energy sector on water resources and of the water services provision sector on energy inputs, the ‘water-energy’ nexus is acknowledged as a major challenge for the near future – with hydropower representing one of the most direct links in this nexus. The aim of this paper is to assess the economy-wide impacts of the concurrent effects of climate change-driven impacts on water availability and the sectoral and regional competition for scarcer water resources. In order to accomplish that goal, an integrated modelling approach is developed, where a computable general equilibrium model including raw water as a production factor is linked to TIMES_PT, a bottom-up model of the energy sector. A case study is provided for the Mediterranean country of Portugal. Results for 2050 show that macroeconomic impacts are significant, and encompass important inter-sectoral differences that, in turn, depend on the degree of competition between sectors. Impacts are stronger when water consumption by Spanish sectors is considered, as this intensifies water scarcity in Portugal. Thus the paper allows to gain insight in the broader ‘water-energy-economy’ nexus and the additional costs that the dependence on water resources availability in transboundary river basins represents to an economy – both aspects being of utmost importance for climate adaptation and energy policy making.