The Economics of Climate Change Adaptation and Water Resources: An Application to Dams

Dam construction has increased rapidly since the 1950’s, especially in developing countries. Climate change is likely to impact the demand for new dams as well as future water and sediment inflow in rivers, thereby influencing the utility, management, and lifetime of dams. Proper construction of dams and sediment management can also help reduce the cost and mitigate the risks dams might be facing as a result of changing climate patterns, which will allow communities to utilize water resources more efficiently and sustainably. This dissertation develops a series of dynamic optimization models to determine how the size of different type of dams and their management strategies can help achieve the above goals. First, a single purpose dam’s optimization problem is explored to arrive at desirable results for maximization of net economics benefits with respect to initial reservoir capacity, sediment removal amount, and decommissioning time. Application of this model to Sambor dam in the lower Mekong River basin shows that allowing for optimal reservoir capacity and sediment removal choice has a significant impact on dam life and total net present value, in the absence of climate change considerations. However, both the desirable reservoir capacity and total net present value vary considerably with climate change. Second, management of multi purpose dams under climate change is discussed with respect to determination of optimal reservoir capacity and sediment removal. These two factors generally increase in magnitude as the functions of a dam and its potential benefits increase. Third, optimal reservoir design and systematic management of cascading dams under climate change are studied for coordinated and non-coordinated cases to arrive at the best policy solution. In the application considered, a coordinated strategy between two dams (Luang Prabang Dam and Xayaburi Dam) is beneficial for the entire system, though the difference between the total net present values from the two types of strategies is relatively small. Generally, coordination resulted in the upstream dam requiring a larger reservoir capacity and accumulating more of incoming sediment in order to ease the negative externality to the downstream dam. Finally, the possibility of dam failure is also incorporated in the model of a single dam based on expected annual peak flood flow trends. An innovation in this regard is the determination of an optimally sized spillway to protect against flood overtopping. Three categories of peak flood flow trends are considered to reflect alternate climate change scenarios. With the risk of dam failure involved, the optimal choice of reservoir capacity and spillway capacity are significantly impacted by water availability and the amount of incoming sediment as influenced by climate factors