Economic measures for adaptation to hydrological anomalies: analyses using computable general equilibrium models for Brazilian hydrographic regions

• Grant number: 24/18839-1
• Support Opportunities: Scholarships in Brazil - Post-Doctoral
• Start date: November 01, 2024
• End date: June 30, 2025
• Field of knowledge: Applied Social Sciences - Economics - Agrarian and Natural Resource Economics
• Principal Investigator: Jose Antonio Marengo Orsini
• Grantee: Jaqueline Coelho Visentin
• Host Institution: Faculdade de Economia, Administração, Contabilidade e Atuária (FEA). Universidade de São Paulo (USP). São Paulo , SP, Brazil
• Associated research grant: 14/50848-9 - INCT 2014: INCT for Climate Change, AP.PFPMCG.TEM

Abstract

Water plays a central role. In the water-society nexus, water is used for consumption activities, and hygiene is perceived as an element of human dignity. Access to clean water and sanitation leads to health benefits. In the water-economy nexus, water is an input for economic activities, and its availability determines the cultivation of irrigated crops, forestry production, livestock farming, fishing, energy generation, industrial production, transportation services, tourism, and water distribution and sewage treatment. In the water-environment nexus, water supports ecological components, such as the preservation of aquatic and terrestrial biodiversity and the regulation of natural physical cycles. Global warming is associated with changes in components of the hydrological cycle. It is very likely that by the end of XXI century, we will see a greater frequency of extreme hydrological events characterized by intense and episodic rainfall with large amounts of runoff interspersed with long periods of drought and evaporation. Recognizing that water anomalies, especially occurrences of scarcity, can pose a significant obstacle to socioeconomic progress, there is an urgent need to propose and evaluate economic instruments for water resources management, characterized as adaptation strategies to climate change. This project proposes the evaluation of two specific economic measures for adapting to scenarios of water anomalies. The first consists of charging for the use of water resources by water-intensive economic activities. In this case, we expect to measure the direct and indirect economic and environmental impacts resulting from the charges. The second measure involves the economic and financial evaluation of insurance to reduce risks in the face of possible losses related to water anomalies. In both cases, we will use a methodological approach based on computable general equilibrium modeling. Brazilian hydrographic regions have been chosen as the study area. Water charging emerges as an adaptation strategy in scenarios of water anomalies, especially in the face of challenges posed by climate change. The implementation of charging systems for water resource use not only reflects the need to value and preserve this resource but also can promote a more efficient allocation of this resource by encouraging users to adopt sustainable practices and reduce waste. Furthermore, water charging can generate revenues that can be directed towards investments in water infrastructure, such as treatment and distribution systems, water conservation measures, and programs for adaptation and mitigation of climate change. These financial resources can significantly contribute to strengthening the resilience of communities and systems against extreme hydrological events. The use of insurance in situations of water anomalies emerges as an adaptation strategy in scenarios of uncertainty and increasing risks related to climate change. By providing a financial safety net, insurance plays a role in reducing risk and increasing the resilience of vulnerable systems and communities to extreme hydrological events. This financial protection not only helps to reduce the direct economic impact of these events but also allows for a quicker and more effective recovery, thus strengthening the capacity for adaptation and resilience of a system. By transferring part of the financial risk associated with extreme hydrological events to third parties, insurance stimulates decision-makers to implement preventive measures, such as the development of infrastructures. It is worth noting that insurance in situations of water anomalies not only offers individual financial protection but also contributes to strengthening the resilience of the entire community and system in which they are embedded.