| Summary/Abstract |
The energy sector depends on water in all phases of its life-cycle, including raw material extraction, power plant cooling, irrigation of biofuel crops and directly in hydropower generation. In the coming decades, several regions of the world are expected to experience a decrease in water resource availability, in part due to climate change. The dependence of the energy sector on water resources calls for an active effort to adapt to the possible scenarios. This paper presents a novel model that addresses the direct impacts of regional and temporal water shortages on energy operation and investment decisions. The paper investigates the costs and benefits of adapting the energy sector to climate-induced water scarcity. The results show that the increase in costs for an energy plan that considers future water stress is relatively small as compared to one which ignores it. A plan which ignores water constraints, however, may lead to significant economic damages when actually exposed to water shortages. The results also highlight the value of the availability of water for the energy sector, which is significantly higher than existing prices. The paper concludes that the potential benefits to be gained by integrating energy and water models can be considerable.
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