1. Theodoros Zachariadis
Economic Aspects of Climate Change Impacts and Adaptation Measures in the Mediterranean Some Case Studies from Cyprus
Theodoros Zachariadis
Dept. of Environmental Science & Technology Cyprus University of Technology
Brokerage Event of the "ENV-NCP-TOGETHER" Project, Malta, August 2012

2. Outline Climate change impacts in Europe & Cyprus
Research results on climate change costs in:
Energy consumption
Residential & agricultural water use
Overview of adaptation measures
Discussion of specific measures for water use
Pricing as an adaptation policy
The importance of long term planning

3. Overview of climate change impacts in Europe
Source: Future Impacts of Climate Change across Europe. Center for European Policy Studies (CEPS) Working Document No. 324/February

4. Climate Change and Its Impacts in Cyprus
Recent region-specific projections:
(Hadjinicolaou, P.C. et al., Regional Environmental Change (2011) 11: 441–457)
Temperature increase of 2C in summer, 1C in winter by mid-21st century
Slightly reduced rainfall levels (27%) + sea level rise
Effects:
Increased shortage of water resources
Vulnerability to desertification
Damages to coastline, ecosystems & biodiversity
Higher energy needs for cooling (lower for heating)
Risk of decreasing tourist flows
Adverse impacts on public health

5. Analysis of Climate Effects on Energy Use (Zachariadis T
Analysis of Climate Effects on Energy Use (Zachariadis T., Energy Policy 38 (2010) 744–750)
Econometric time series analysis of energy use in Cyprus by sector and fuel,
Energy consumption = f (income/economic activity, energy prices, time trends, climate)
Climate effects captured by the variables of heating & cooling degree days (they express intensity + duration of cool & hot days respectively)
Effect of climate statistically significant only for electricity consumption in households & tertiary sector

6. Forecast of electricity consumption up to 2030 – without climate change
Electricity use triples by 2030
Increased share of domestic & tertiary sector – 86% in total

7. Forecast of electricity consumption up to 2030 – with climate change
Assumption: uniform temperature increase by 1C in 2030, during the whole year
Electricity use in 2030 higher by 2.9% (compared to ‘no climate change’ scenario)
Present value of total cost in period : > 200 MEuros (at constant prices of year 2007)
Average cost per household: ~30 Euros/year in 2020, ~80 Euros/year in 2030 (at constant prices of year 2007)
Further econometric analysis + forecast of peak electricity load in summer with climate change: additional 65–75 MW in 2020, 85–95 MW in 2030
Update of forecasts up to 2050 in preparation

8. Effects of climate change in Cyprus on agricultural yields & production
Assess variability and changes in irrigation water demand in Cyprus over the past 30 years ( )
Assess variability and changes in agricultural yields, total production the past 30 years ( )
Assess potential irrigation water demand and crop production for the coming 10 years ( ).
(Bruggemann A. et al., Effect of climate variability and climate change on crop production and water resources in Cyprus. Final Report, July 2011,

9. Methodology
Evapotranspiration was computed using the FAO Penman-Monteith method.
Blue water demand and green water use was computed for all crops based on:
location (431 communities)
climatic conditions
crop coefficients (Kc)
soil water holding capacity
efficiency of irrigation method
irrigation fraction (area)

10. (existing conditions)
Data
Cystat
(existing conditions)
CAPO
(future conditions)
Period
2010
Spatial Resolution
Community level (Census 2003), annual country totals
Community level
No. of crops
75 (14 groups)
87 (14 groups)
Temporal Resolution
Yearly
Climate Data
32 climate station, 70 rain stations daily data
Soil
Hadjiparaskevas (2005); FAO et al. (2009); ESBN (2005)
Crop Parameters
FAO (1998); Dept. Agriculture (surveys)

11. Climate Data ( )

12. Results
Two climate scenarios up to 2020, using data of recent years with a) average and b) highest aridity ratios
Average annual national crop production lower by 4143%, relative to 1980/ /09 (including sustainable water management policies)
Assuming constant agricultural product prices, loss of agricultural production equal to €574€602 million for 20132020
High variability in water use for different crops, locations and years  various options for climate change adaptation

13. Welfare losses of consumers due to reduced availability of water
Methodology to assess costs of water shortages in non-agricultural sectors
Willingness to pay for water p (€/c.m.)
Price
Water demand curve q0 q'
Welfare losses of consumers due to reduced availability of water
Water quantity q

14. Estimating Residential Water Demand in Cyprus (Zachariadis T
Estimating Residential Water Demand in Cyprus (Zachariadis T., Water Vol. 2, pp. 788–814 (2010))
Data from the three Water Boards of Cyprus serving the main cities (Nicosia, Limassol, Larnaca):
Billed water consumption per consumer type
No. of consumers by type
Water tariffs (fixed prices & prices per consumption block)
Fraction of consumers in each consumption block
Revenues and expenditures (from Board financial accounts)
Period: (annual data), (data available per billing period – 2/3/4 months)
Other data:
Monthly temperature and rainfall (from Met. Service)
Quarterly GDP & population (from Statistical Service)
Household income by district of Cyprus (Family Expenditure Surveys conducted by Statistical Service)

15. Residential Water Demand Model
qit = f (incit , pit , pfixit , tempit , rainit , dummyi)
i: district (i = 1 to 3); t: 4-month period from 2000/1 to 2009/3 q: water consumption per household (c.m.) inc: household income (€) p: water price (€/c.m.) pfix: fixed part of water tariff (€) temp, rain: temperature & rainfall level (C, mm) dummy: for the period of interruptions in water supply in each city (April 2008 – December 2009)
Linear function, variables in logarithms, each variable’s coefficient expresses an elasticity
Two models: a) p = average price, b) p = marginal price

16. Econometric Estimation
Typical problem with block pricing: endogeneity of prices – each consumer faces a water price that depends on the quantity consumed. Usual estimation method (OLS) will be biased
Two-Stage Least Squares (2SLS) Estimation is appropriate
Requires identifying instruments that correlate with price but not with dependent variable (water consumption)
Three instruments were used:
a) Consumer Price Index of previous year
b) Water Board expenditures in previous year per c.m. of water sold
c) Same expenditures in current year

17. Estimation Results Average price model Marginal price model
Coefficients of:
Income
Avg. price
Fixed tariff
Temperature
Rainfall
Dummies:
Nicosia
Larnaca
Limassol
Marginal price model
Coefficients of:
Income
Marg. price
Fixed tariff
Temperature
Rainfall
Dummies:
Nicosia
Larnaca
Limassol
N = 73 Coefficients in bold are statistically significant at 1% level

18. Cyprus: Costs of Water Shortages up to 2030
New desalination plants cost 400 MEuros!
1520% higher costs due to climate changed induced water scarcity

19. Potential adaptation measures for Cyprus
Water: Proper pricing to a) encourage conservation and b) increase funds available for technical measures
Agriculture: Shift to production patterns with high value and high water efficiency
Tourism: Focus on non-summer visitors
Energy: Improve energy efficiency of buildings
Infrastructure: Invest in measures to protect roads & buildings along the coastline
Forests, biodiversity & public health: Monitor vulnerable sites/species and take precautionary measures

20. An adaptation measure: ‘Efficient’ household water prices to account for scarcity
Climate change increases water shortages modestly, requires €cents/c.m. higher water prices to induce conservation in order to address this additional scarcity

21. An adaptation measure: Effects of ‘efficient’ household water pricing

22. Benefits of long-term planning: What if we had ‘efficient’ prices already in 2000?

23. Conclusions and policy implications
South Europe to be adversely affected by climate change, more than any other European region
Monitoring of vulnerable sites / species necessary
Long-term planning has tangible benefits – both environmental and economic
Proper pricing of scarce natural resources is necessary to:
Encourage long-term resource conservation. People respond to incentives!
Provide funds that can be used for financing climate change mitigation & adaptation measures