Climate change impacts on the water services in Costa Rica: a production function for the hydroenergy sector

The case study presented in this section aims to estimate the economic value of the water services used for hydropower in tropical forests in Costa Rica, and to assess the expected economic impact due to climate change. The model developed allows estimating the economic impacts of climate change on the hydroelectric sector, using the association between bio-physical data, technical data related to the plants and economic inputs. A production function is used for this purpose which relates the quantity of water available (runoff) with the energy generated by the selected plants, based on a sample of 40 plants. Results show a significant reduction in the hydropower production in all future scenarios, estimated between 41 and 43% for Costa Rica. This translates in a considerable reduction in the expected revenues of the hydroelectric sector in Costa Rica under all climate change scenarios considered, but with lower reductions in the B1 scenario, which incorporates sustainability criteria. Taking into account future technological changes, the model shows that it would be necessary to double the installed capacity of all plants to get an increase in annual revenue that ranges from 3-18%. With an increase in the installed capacity of about 50%, economic losses would be reduced by 12% in all the scenarios.