The economic impact of climate driven changes in water availability in Switzerland

The broad objective of this study is to estimate the economic impact of changes in water availability due to climate change in Switzerland with a 2050 time horizon. To do so, the sectoral structure of the computable general equilibrium model GEMINI-E3 is being extended. Raw water resources are introduced as a production factor into the model and a drinking water distribution sector is specified for Switzerland to allow for a precise analysis of the economic consequences of restricted water supply. Predictions of water availability in 2050 are taken from a hydrological model and alternative climate change scenarios are considered. Simulations show possible restrictions in water resource availability to increase raw water prices substantially compared to the baseline. However, the global economic impact for Switzerland is rather small due to the low price of raw water in Switzerland and its small value in the benchmark scenario. Finally, the simulation of scenarios featuring alternative levels of endogenous adaptive capacity of the economy highlights the importance of the ability to reduce water losses and to transform production processes to decrease their water intensity in determining the extent of welfare losses provoked by a decrease in water availability.