Manfred Wiebelt, Kiel Institute for the World Economy, Poverty Reduction and Development

1. 1 September 2017
Water-Energy-Food Nexus in Ethiopia:
Constraints and Opportunities
The Water-Energy-Food Nexus: Global, Basin, and
Local Case Studies of Resource Use Efficiency
under Growing Natural Resource Scarcity
Manfred Wiebelt
Kiel Institute for the World Economy,
Poverty Reduction and Development
Final Workshop - September 19, 2017
Center for Development Research
University of Bonn, Germany

2. 2 September 2017
Constraints: Food sector
Despite impressive growth performance in recent years,
• Ethiopia‘s economy remains heavily dependent on small-scale
rain-fed (less than 1% of cultivated land is irrigated) agriculture
(crops, livestock, fishery, and forestry contribute 47% to
GDPfc).
• leaving the country highly vulnerable to changing rainfall with
rising frequency of both floods and droughts.
• Limited water storage capacity further increases vulnerability
to climate risks.
• By one estimate, Ethiopia will forgo more than 6 percent of
each year’s agricultural output if the current decline in
average annual rainfall levels continues in the medium term.

3. 3 September 2017
Constraints: water sector
Ethiopia’s abundant water resources include 12 river basins, but
these are unevenly distributed.
• Increases in the frequency of droughts, increased evaporation
and evapotranspiration and potential changes in rainfall
patterns and runoff reduce availability in water-scarce regions
• Low water storage capacity increases the country’s
dependence on unreliable rainfall patterns.
• Hydropower could increase energy access but is subject to the
changing dynamics of rainfall, which can reduce river flow
volume.
Projections suggest a 30 percent decrease in flow volume on
several Nile tributaries by 2050.

4. 4 September 2017
Constraints: energy sector
Hydroelectricity is the main source of energy in Ethiopia.
Of the total electricity production in 2015, 83% is hydro.
However, biomass satisfies about 90% of the country’s
total energy needs.
Ethiopia’s over reliance on hydro-electricity makes the
energy sector vulnerable to climate change.
• Changes in climatic conditions may lead to reduced
firm energy and increased variability and uncertainty
in hydro power generation due to increasing
temperatures and changes in precipitation and run-
off.

5. 5 September 2017
Climate change directly affects local crop yields and
indirectly local livestock production, which contributes
43% to total GDP

6. 6 September 2017
Climate change affects global crop yields and world market
prices, affecting 35% of local crop production but only 6%
of local crop demand
35.25
7.42
1.17
25.36
4.86
9.19
12.23
Share of exports inmarketed
production, 2011 (%)
6.19 5.51
22.77
66.98
11.92
Share of imports in domestic demand
2011 (%)

7. 7 September 2017
The model
(In agriculture) Regionally disaggregated trade-focused DCGE model linked to IMPACT
model (yield and world market price changes) and based on 2010 SAM (EDRI)
• 4 AEZs: moisture sufficient cereals-based highlands, moisture reliable humid
lowlands, drought-prone highlands, pastoralist arid lowland plains
• 64 commodities (24 agriculture) and 113 activities, including 75 regionally
differentiated crops and livestock sectors, and water and energy sectors
• 16 primary factors: 7 types of labor, agricultural land and livestock capital in each of
the 4 AEZs, and non-agricultural capital employed in industry and the service
sector
• 12 households, differentiated by region and AEZs and income level (poor vs non-
poor)
Calibrated to hypothetical dynamic baseline path 2010-50 that reflects development
trends, policies and priorities in the absence of climate change but incorporates
observed historical pattern of climate shocks
Not a forecast but counterfactual (trajectory for growth and structural change in the
absence of climate change)

8. 8 September 2017
Selected GCMs with best and worst case scenarios
according to absorption losses
Scenario name Global climate model
Representative
Concentration Pathway
(RCP)
HadGEM2_RCP8p5 HadGEM2-ES RCP 8.5
NorESM1_RCP8p5 NorESM1-M RCP 8.5
NorESM1_RCP4p5 NorESM1-M RCP 4.5
GFDL_RCP4p5 GFDL-ESM2M RCP 4.5
MIROC_RCP8p5 MIROC-ESM-CHEM RCP 8.5
MIROC_RCP4p5 MIROC-ESM-CHEM RCP 4.5

9. 9 September 2017
Average annual yield changes by GCM
Average Annual percent change, 2010-2050
GCM1 GCM2 GCM3 GCM4 GCM5 GCM6
SAM Accounts NoCC
GFDL_
RCP4p5
HadGEM2_
RCP8p5
MIROC_
RCP4p5
MIROC_
RCP8p5
NorESM1_
RCP4p5
NorESM1_
RCP8p5
Maize 0.16 0.13 0.07 0.14 0.29 0.28 0.22
Sorghum and millet 1.00 0.23 0.33 0.22 0.29 0.24 0.25
Rice -0.17 0.62 0.63 0.48 0.74 0.53 0.44
Teff 1.70 0.27 0.52 0.26 0.40 0.40 0.31
Barley and other cereals nec 1.43 0.01 -0.04 -0.04 -0.14 0.04 -0.12
Wheat 1.35 -0.10 -0.30 -0.14 -0.23 -0.02 -0.19
Pulses 0.80 0.20 0.38 0.20 0.23 0.42 0.14
Groundnuts -0.05 0.07 0.07 0.10 0.15 0.18 0.15
Other oilseeds 0.90 -0.03 0.02 0.01 -0.08 0.12 0.00
Root crops 0.64 0.03 -0.15 -0.02 -0.03 0.06 -0.02
Vegetables 1.45 -0.06 0.21 -0.07 -0.21 0.45 -0.16
Sugar cane -0.11 0.12 0.17 0.22 0.15 0.24 0.34
Tobacco n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Cotton and fibers 0.58 -0.02 -0.31 -0.13 -0.25 -0.02 -0.16
Fruits and nuts 0.99 0.03 -0.09 -0.13 -0.27 0.19 -0.15
Enset 1.20 0.12 -0.03 -0.08 -0.18 0.23 -0.12
Coffee 1.60 -0.09 -0.18 -0.07 -0.22 0.02 -0.13
Leaf tea 1.64 -0.11 -0.20 -0.10 -0.25 -0.01 -0.14
Chat n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Cut flowers n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Other crops 1.54 -0.05 -0.13 -0.05 -0.12 -0.03 -0.15

10. 10 September 2017
Water, Energy, Food nexus interventions
Scenario Policy Intervention Water Security Energy Security Food Security
Food sector interventions Eg. Increasing or
decreasing cropped
area of land in order
to counter yield
changes
Direct: Water use for
agricultural
production will
change while also
increasing for industry
and private
consumption
Direct: More energy is
used by consumers
and farmers.
Direct: Net production of food is unknown. On the one hand,
any change in crop yields will change agricultural output.
However, adding or taking away from the cropped area will
impact agricultural output.
Indirect: Potentially employment in the agriculture sector will
change, thus impacting incomes and access to food.
Energy sector
interventions
Change in energy mix
by relying more on
renewables in
electricity generation,
keeping subsidies
intact
Direct: Greater use of
water in the process
of electricity
generation
Direct: More energy
available for use by
consumers through a
more efficient energy
mix and less reliance
on fossil fuels
Direct: More electricity is available for consumption, but not
clear if output price of electricity will fall because some of the
renewable sectors will depend on subsidies to operate
efficiently. Consequently, price of electricity for intermediate
demand is indeterminate at this point.
Indirect: Potentially higher employment in electricity
generating sectors contributing to higher incomes and greater
food access
Water sector
interventions
Relying on alternative
sources of water and
improving water use
efficiency
Direct: More efficient
use of water systems
Direct: More energy
will be needed to
operate these
irrigation systems
Direct: Productivity expected to increase in the agriculture
sector
Indirect: Increased employment as a result of employing these
more efficient irrigation networks

11. 11 September 2017
Transmission of climate shocks
• Productivity impacts in crops and livestock agriculture enter
the model in the form of crop-specific annual temporary
shocks to the TFP parameters of the agricultural production
functions.
• The impact of a changing frequency of extreme weather
events in the form of severe flodding on crop harvests and
livestock enters the CGE model via reductions in arable land
and livestock capital.

12. 12 September 2017
Economy-wide impacts of climate change
NoCC CC-wet CC-dry
Average annual real per-capita absorption growth rate, 2010-50 (%) 3.44 3.30 3.23
Deviation from NoCC scenario - -0.14 -0.21
Average annual undiscounted value of absorption, 2046-50 (US$
billions, 2010 prices) 325.31 310.48 301.99
Deviation from NoCC scenario - -14.83 -23.32
Accumulated discounted deviation in absorption from NoCC, 2010-
50 (US$ billions, 2010 prices) - -143.00 -237.90
Deviation from NoCC absorption (%) - -2.90 -4.83
Accrued during the 2010s - 0.23 -0.98
Accrued during the 2020s - -7.37 -15.67
Accrued during the 2030s - -35.25 -61.13
Accrued during the 2040s - -100.62 -160.12
Deviation in average annual real per-capita GDP growth rate from
NoCC, 2010-50 (%) - -0.13 -0.21
Agriculture - -0.42 -0.67
Industry - 0.03 0.04
Services - -0.03 -0.04
REG-hc - -0.49 -0.78
REG-ho - -0.50 -0.87
REG-dp - -0.47 -0.74
REG-pa - -0.56 -0.82
Source: Results from DCGE model

13. 13 September 2017
Discussion of results
• Climate change reduces absorption or national welfare in all
(6, here 2) scenarios; largest reduction in CC_dry scenario,
which registers a 0.21 percentage point decline in absorption
growth (i.e., from 3.44% in the NoCC scenario to 3.23%)
• These seemingly small reductions accumulate over the 40-
year period; thus the average annual level of absorption is
only 93% of NoCC level
• Total discounted cost throughout 2010-50 (5% discount rate)
amounts to 238 US$ billion (measured in 2010 prices); roughly
equivalent to 50% of Ethiopia‘s GDP in 2010
• More than 50% of damages accrue in the final decade of our
analysis; GCMs predict pronounced aggravation of climate
change impacts

14. 14 September 2017
Discussion of results (cont‘d.)
• In all scenarios, including the baseline, agriculture
grows more slowly than either industry or services;
industry actually slightly benefits from climate
change
• All agricultural regions are negatively affected by
climate change, the reductions of growth being most
pronounced in the moisture reliable humid lowlands
and the pastoralist arid lowlands in the CC_dry and
CC_wet scenarios, respectively

15. 15 September 2017
Economy-wide impacts of WEF selected
nexus interventions
• The maximum resource envelope for nexus
interventions is derived from the cumulative
discounted damages for the CC_dry scenario (i.e., the
worst case climate change scenario); no-regret policy
interventions
• The present value of the US$ 238 billion in damages
is equivalent to an annual resource transfer equal to
about US$ 13 billion.
• Given this resource envelope, we consider what
improvements in agricultural technology, irrigation,
and hydropower investments would be needed to
compensate for climate change damages

16. 16 September 2017
Economy-wide impacts of WEF selected
nexus interventions
NoCC
scenario
Climate
change
scenario
Agricultural
extension
Irrigation
investment
Hydropower
investment
(1) (2) (3) (4) (5)
CC_wet 3.44 3.30 3.48 3.32 3.32
CC-dry 3.44 3.23 3.44 3.24 3.24
Source: Results from DCGE model.
Average annual real per-capita absorption growth rate, 2010-50 (%)

17. 17 September 2017
Discussion of results
• For agricultural research and extension, one percent
acceleration in agriculture‘s productivity growth rate is
sufficient to retrun absorption to ist NoCC growth rate of
3.44% per year in the CC_dry scenario.
• This accelerated rate of technical advance is achievable
within the maximum budget envelope, due to the large
gap between Ethiopia‘s high agricultural potential and
low attainment.
• Moreover, agricultural intensification is consistent with
Ethiopia‘s existing development goals, suggesting that
investing in agriculture is a „no regret“ adaptation option.

18. 18 September 2017
Discussion of results (cont‘d.)
• For irrigation policy, we increased the amount of irrigated land to reach
10% of cultivated lands in 2050, with little effect on absorption
• This is because, as additional lands come under irrigation, the returns to
agricultural land and capital decline significantly (i.e., diminishing returns)
Without access to foreign markets, the decline inprices caused by rapidly
expanding irrigation and agricultural production limits the gains from these
investments.
• Overall, irrigation reduces the damages caused by climate change by
US$20 billion over 2010-50.
• The same holds true for hydropower policy (minus US$15 billion), if (i) dam
construction is largely financed by foreign investment and most of
hydropower net revenues is repatriated abroad and (ii) export expansion is
limited leading to declining domestic energy prices rather than additional
real absorption.

19. 19 September 2017
Summary
• With increasing demand for food, water, and energy and external drivers
such as climate change, the vulnerability of available resources is growing
in Ethiopia, and resource security is at risk.
• Without changes policy, climate change causes economic damages
between US$140 and US$240 billion during 2010-50.
• While advancing the development agenda is is a good strategy, there are
specific policies that emerge as direct responses to climate change.
• Investing in agricultural research and extension (as well as education in
general) is a no-regret option.
• Finally, our analysis confirms the importance of regional cooperation,
including cooperative Nile river basin management.
• More analysis on water-energy-food sector interventions, including their
distributional impacts on sectors, regions, and households, to follow.