Economic impacts of drought risks for water utilities through Severity-Duration-Frequency framework under climate change scenarios

Abstract. Climate variability and increasing water demands prioritize the need to implement planning strategies for urban water security in the long and medium term. However, actions to manage the drought risk impacts entail great complexity, such as the calculation of economic losses derived from the combination of severity, duration and frequency under uncertainties in the climate projections. Thus, new approaches of risk aversion are needed, as an integrated framework for resilience gap assessment, for water utilities to cope with droughts, thereby linking drivers of climate, hydrology and human demands. This paper aims to present the economic impacts of risk aversion for water utilities through a framework linking severity, duration and frequency (SDF) of droughts under climate change scenarios. This new model framework addresses the opportunity cost that represent the preparedness for risk aversion to cope with potential future impacts of droughts, involving a set of options for planning of water resources, under different demands and climate projections. The methodology integrates the hydrological simulation procedures, under radiative climate forcing scenarios RCP 4.5 and 8.5, from a regional climate model Eta-INPE, with time horizons of 2007–2040, 2041–2070, and 2071–2099, linked to Water Evaluation and Planning system (WEAP) hydrologic model and under stationary and non-stationary water supply demand assumptions. The model framework is applied to the Cantareira Water Supply System for Sao Paulo Metropolitan Region, Brazil, with severe vulnerability to droughts. By using hydrological simulations with WEAP, driven by Eta-INPE Regional Climatic Model base line scenarios (1962–2005), were characterized the SDF curves. On the one hand, water tariff price associated to calibrated and modelled scenarios constitute supply/demand proxies of the water warranty time delimited by drought duration. Then, profit loss analysis scenarios are assessed for the regional water utility. On the other hand, for drought resilience gap, results show water utility profit losses per period between 1.3 % and 10.3 % of the regional GDP in 2016. Although future economic impacts vary in a same order, non-stationary demand trends impose larger differences in the drought resilience gap, when the future securitization are linked to regional climate outputs.