Financial risk associated with lost ecosystem services

In addition to the direct financial risk associated with over- or under-designed hydropower systems in the face of climate change, continued dependence on hydropower systems in the future will compound the economic and social impacts of reduced ecosystem services already associated with river development. Ecosystem services are the benefits people obtain from ecosystems, and include provisioning services such as crops, livestock, fisheries, timber, medicinal plants and fresh water; regulating services such as climate regulation, flood control, erosion protection, water purification and disease control; cultural services such as spiritual, recreational and cultural benefits, and supporting services such as primary productivity, nutrient cycling and water cycling that maintain conditions for life on earth (Millennium Ecosystem Assessment 2005).

Numerous peer-review studies have attempted to quantify the value of ecosystem services, recognizing a range of economic values including direct and indirect use values (Constanza et al. 1998; Brander et al. 2006). Direct-use values are derived from the direct utilization of ecosystem services, and may include: commercial fishing; timber extraction; wood for charcoal-making, cooking and heating; drinking, washing and cooking water; and recreational uses such as boating, fishing and tourism. The replacement value2 of these services, if lost, is even higher – especially in remote areas like the Zambezi Valley.

Indirect-use values are usually harder to define, since they are often neither obvious nor directly marketable. They can include flood protection, storm surge protection, groundwater recharge, sediment retention, erosion prevention, carbon sequestration, and habitat for species of conservation concern. These services are often harder to value since their relationships with marketable goods are often non-existent, and are typically undervalued in important decision-making about wetland and water resources (Brander et al. 2006). Collectively, these direct and indirect services, along with option, bequest, and existence3 values related to current and future enjoyment, have a very significant economic value to society (Constanza et al. 1998).

There has been a neglect of climate change risks in hydropower planning – in an approach that might be called either "wait and see" or "head in the sand."

Zambezi Basin stakeholders have identified a range of river-dependent ecosystem services that are vital to food security and socio-economic development for millions of basin inhabitants (Turpie 1999; Beilfuss and Brown 2010; Scott Wilson Piesold 2003). These include:

  • Forest and woodland products: Construction wood, fuelwood, wild fruits, honey, medicinal plants, and other forest and woodland resources that can be sustainably harvested;
  • Carbon sequestration: Woodlands, grasslands, and peatlands linked to carbon-offset markets;
  • Wetland products: Papyrus and reeds used to make a variety of household items, palms used to make palm wine, thatching harvested from seasonal floodplain grasslands, and other resources that can be sustainably harvested from wetlands;
  • Grazing lands for livestock: Includes grasslands of the floodplains, pans, and drainage lines, most notably late dry-season grazing lands supported by persistent high water table conditions;
  • Nutrient-rich lands for flood-recession agriculture: Floodplain agricultural lands receiving irrigation waters and nutrients from the natural ebb and flow of the mainstem Zambezi River and distributary channels;
  • Riverine and floodplain freshwater fisheries;
  • Clean and abundant freshwater for drinking, cooking, cleaning, bathing, and other household uses provided by surface water and groundwater recharge;
  • Estuarine Penaeid shrimp fisheries produced in mangroves and harvested off the Mozambique coast;
  • Storm surge and coastal erosion protection from mangroves and coastal dune vegetation;
  • Flood storage and mitigation (the capacity of the floodplain to store or attenuate large runoff events and reduce flood damage to settled areas);
  • Diverse landscapes and wildlife for ecotourism;
  • Wildlife for sustainable trophy hunting and subsistence meat supply.

The Millennium Ecosystem Assessment (2005) concluded that efforts to reduce rural poverty and eradicate hunger are critically dependent on ecosystem services, particularly in Sub-Saharan Africa. The assessment emphasized that continued loss and degradation of forests, wetlands, and other ecosystems will ultimately undermine progress towards achieving the Millennium Development Goals of reducing poverty and hunger and ensuring environmental sustainability. Hanson et al. (2008) further noted that ecosystem services degradation can pose a number of risks to corporate performance.

Globally, the impact of hydropower development on rivers and their ecosystem services is well described. Hydrology is the most important determinant of wetland functions and values worldwide (e.g., Finlayson and Moser 1991, National Research Council 1995, Mitsch and Gosselink 1993). In large floodplains such as those found in the Zambezi River basin, the composition, structure, and function of ecosystems – from the basic biological processes of primary production, decomposition, and consumption to the complex reproductive adaptations of plants and animals – depend on the hydrological connection between river and floodplain (e.g., Welcomme 1979, Poff and Ward 1990, Sparks 1992, Bayley 1995, Heiler et al. 1995). The Flood Pulse Concept was postulated by Junk et al. (1989) to describe the importance of this connection for the lateral exchange of nutrient and sediment-rich floodwaters between a river and its floodplain. When the flooding regime is disrupted due to large dams or other water resources development, the hydrological connection between river and floodplain is altered or severed (e.g., Sparks et al. 1990, Johnson et al. 1995, Ward and Stanford 1995a, 1995b). Numerous studies have documented the adverse effects of regulated flood flows on ecosystem services worldwide, including reduced silt deposition and nutrient availability, channel degradation, loss of shallow wetland and open water areas, altered food-chain dynamics, habitat fragmentation, intrusion of saltwater, displacement of wetland vegetation by upland species, disrupted reproductive patterns for fish and wildlife species, and loss of coastal mangroves (e.g., Baxter 1977, Brooker 1981, Petts 1984, Amoros 1991, Nilsson and Dynesius 1994, Ligon et al. 1995, Church 1995, Ward and Stanford 1995b, Nilsson and Jansson 1995, Welcomme 1995, McCully 1996, Colonnello and Medina 1998, others). Social and economic impacts may include failed flood-recession agriculture, loss of grazing lands at end of dry season, reduced fishery and shellfish harvest, reduced availability of various natural resources on the floodplain, and decreased access to groundwater (e.g., Welcomme 1979, Scudder 1989, Barbier et al. 1997, Adams 1992 , others).

Governments and investors must become better informed about climate risks, and analyze hydropower projects for potential changes in water flow and power generation.

In the Inner Niger Delta, for example, a million people earn their livelihoods as fishermen, cattle breeders, or farmers (Zwarts et al. 2005). The construction of upstream dams reduced the level of floodwaters in the delta and had a dramatic impact on the livelihoods of the people who depend on the river, as well as broader biodiversity such as migratory birds, fish and mammals. A third dam under consideration would further reduce water levels during the critical dry season. An extended cost-benefit analysis was performed using a combination of four scenarios that aimed at quantifying the costs to biodiversity and socio-welfare to users against the benefits of hydropower generation and increased area for irrigation upstream. The results demonstrated that the construction of the third dam was not economically desirable, because the costs of impacts on downstream users would be greater than the expected benefits from the new development. Similar economic benefits have been described for threatened ecosystem services in other African basins (Polet and Thompson 1996; Barbier et al. 1997; Bruwer et al. 1996,; Horowitz and Salem-Murdock 1990; W e s s e lin g et al. 1996; Acreman 1994; Japanese International Cooperation Agency 1997).

The value of the ecosystem services threatened by hydropower development in the Zambezi River system is astonishing. A recent economic valuation study for the Zambezi Delta estimates that the annual total value of river-dependent ecosystem services ranges between US$0.93 billion and $1.6 billion (Guveya and Sukume 2008). The lifecycle of prawns, for example, depends on a wet season flood pulse and dry season low flows; the lost economic value of prawn fisheries in Mozambique due to dam-induced changes in Zambezi annual runoff patterns is valued at $10-20 million per annum (Gammelsrod 1992, 1996; Hoguane 2002). Turpie et al. (1998) estimated the net economic value of fisheries in four floodplain systems of the Zambezi Basin at $16.4 million per annum, providing more than $9.5 million in cash per annum to rural households. The reduction in freshwater fisheries directly related to reduced flooded area and duration, and mistimed flooding regimes is estimated at 30,000-50,000 tonnes per annum for the Zambezi Delta alone (Tweddle 2006). Economic assessment of annual floods for subsistence agriculture suggests additional millions of dollars per annum in lost value due to mistimed flow releases that damage riverbank cropping, and increase drought vulnerability due to failed floods (Beilfuss et al. 2002). Commercial agriculture is also affected: salinity intrusion associated with a reduction in flooding (flushing) events is considered a significant threat to sugar production in the Zambezi Delta. Hydrological changes related to hydropower production are linked to a reduction in the extent and quality of end-of-dry-season grazing lands for cattle and the prevalence of cattle disease caused by ticks (Bingham 1982), and reduced potential for revenue from wildlife ecotourism and safari hunting where wildlife populations are limited by water resources or a reduction in suitable floodplain habitat (Anderson et al. 1990). In the Kafue Flats, the invasion of mimosa pigra shrub is resulting in substantial reduction in feeding grounds for several threatened species, including the endemic Kafue Lechwe and Vulnerable Wattled Crane (Rees 1978b; Mumba and Thompson 2005; Shanungu 2009).

The loss of other ecosystem services, more difficult to quantify, has a profound effect on community life. Reduced presence of floodplain water bodies and shallow groundwater tables caused by diminished recharge from annual floods forces villagers to use the main Zambezi River channel rather than floodplain water bodies for domestic water uses, where they are more vulnerable to crocodile attacks and waterborne disease. The encroachment of permanent settlements and fishing camps on river banks and sandbars – an adaptation to the reduction in floodplain inundation – results in higher social and economic costs, including injury and death, during very large (uncontrollable) floods (Hanlon 2001). I m p o r t a n t c u l t u r a l v a l u e s linked to Zambezi waters – including ceremonial, recreational, aesthetic, and spiritual values – also are affected by changes in flow regime (Beilfuss et al. 2002). Cumulatively, the economic value of water for downstream ecosystem services exceeds the value of water for strict hydropower production – even without valuation of biodiversity and culture.

Climate change will exacerbate the trade-offs between water allocations for hydropower development and ecosystem services. In their study of the impact of climate change on the financial feasibility of further hydropower development in the Kafue River basin, Stenek and Boysen (2011) noted that operation of Itezhi-Tezhi Dam for hydropower will result in higher levels of conflict between the current operating rules for power generation and the need for water releases for downstream users and conservation purposes on the Kafue Flats. Anticipated increases in temperature and changes in precipitation, combined with increasing development and population growth, will increase water demands for irrigation, fisheries, and floodplain conservation. Heavy reliance on hydropower in the Zambezi River Basin will also be increasingly challenged by growing water needs for addressing conservation goals in light of impacts of climate change and variability on water supply.


2. Replacement value refers to the amount individuals or society would have to pay to replace these benefits, at the present time, according to their current worth.

3. Option value is the value that people place on having the option to use or enjoy something in the future, although they may not currently use it. Bequest value is the value that people place on knowing that future generations will have the option to use or enjoy something; it is measured by peoples' willingness to pay to preserve ecosystem services for future generations. Existence value is the value that people place on simply knowing that something exists, even if they will never see it or use it.