Abstract
This paper presents an assessment of the cost of water scarcity in Cyprus, today and in the next 20 years, taking into account the effect of projected climate change in the region. It focuses on the residential sector, accounting also for tourism and industry. Using a simple demand function, total scarcity costs in Cyprus are computed for the period 2010–2030, and three scenarios of future water demand are presented. The central estimate shows that the present value of total costs due to water shortages will amount to 72 million Euros (at 2009 prices), and, if future water demand increases a little faster, these costs may reach 200 million Euros. Using forecasts of regional climate models, costs are found to be about 20% higher in a “climate change” scenario. Compared to the loss of consumer surplus due to water shortages, desalination is found to be a costly solution, even if environmental damage costs from the operation of desalination plants are not accounted for. Finally, dynamic constrained optimization is employed and shows that efficient residential water prices should include a scarcity price of about 40 Eurocents per cubic meter at 2009 prices; this would constitute a 30–100% increase in current prices faced by residential consumers. Reductions in rainfall due to climate change would raise this price by another 2-3 Eurocents. Such a pricing policy would provide a clear long-term signal to consumers and firms and could substantially contribute to a sustainable use of water resources in the island.
Highlights
Cyprus is an island in the Eastern Mediterranean with an area of 9,250 square kilometers and a population of about 800,000, which became a member of the European Union (EU) in 2004;
This paper has presented an assessment of the costs of water scarcity in Cyprus, today and in the twenty years, accounting for the effect of projected climate change in the region
The focus was on the residential sector
Summary
Cyprus is an island in the Eastern Mediterranean with an area of 9,250 square kilometers and a population of about 800,000, which became a member of the European Union (EU) in 2004; 2% of GDP, employing 7% of the total workforce [3] Despite such decreases, agriculture still remains the dominant water user in the country, accounting for 69% of total water use, while the domestic sector accounts for 25%, of which one fifth goes to tourism [4]. Annual precipitation levels are forecasted to decline by 15%–25% in the same period (see the World Bank Climate Change Portal forecasts: http://sdwebx.worldbank.org/climateportal) Such projections illustrate that climate change will have serious consequences both for the (already scarce) water resources and for the energy needs of the country. Deployment of several desalination plants during the same period It reports on the results of the first attempt to assess the economic costs of climate change in Cyprus in the medium term (up to the year 2030) in non-agricultural water use. Despite the fact that in principle total scarcity costs, optimal allocation of water resources and efficient water prices must be determined on the basis of a broader approach that includes the agricultural sector as well, this assessment is a first step towards this direction
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