An assessment of the economic impact of climate change on the tourism sector in Curacao

The Economic Commission for Latin America and the Caribbean (ECLAC) Subregional Headquarters for the Caribbean wishes to acknowledge the assistance of Sandra Sookram, Consultant, in the preparation of this report. 

In this study, an attempt is made to estimate the economic impact of climate change on the tourism sector in the (former) Netherlands Antilles. There are three main objectives in this study. The first is to examine the factors that influence the demand and supply of tourism in Netherlands Antilles. The second is to forecast the cost of climate change to the tourism sector until 2050 under the A2 and B2 climate scenarios with the (Business as Usual) as a comparator climate scenario, and the third is to estimate the cost of adaptation and mitigation strategies that can be undertaken by the tourism sector in the Netherlands Antilles to address climate change.

A tourism demand model is employed to determine the factors that impact tourism demand in the Netherlands Antilles during the 1977-2008 period using an error correction model within a co-integration framework and employing economic (per capita income in both source and destination countries) and climatic (temperature and precipitation) variables. This initial investigation suggests that per capita income in the Netherlands Antilles, per capita income in the United States of America, temperature and precipitation influence tourism demand in the Netherlands Antilles.

There are other factors, other than temperature and precipitation that have the potential to negatively affect the tourism sector in the Netherlands Antilles. As a result, the costs were calculated taking into consideration not only changes in temperature and precipitation but also extreme events (frequency and intensity), sea level rise and the destruction of ecosystems (particularly coral reef loss) due to ocean acidification. Projections of tourism demand from 2009 to 2050 are estimated on the basis of two climate scenarios: the International Panel on Climate Change’s A2 and B2 scenarios and a ‘baseline’ or a Business as Usual (BAU) scenario as a comparator.

It was found that under the two climate scenarios there is a decline in tourist income to the countries that make up the former Netherlands Antilles. Specifically, it was found that the costs associated with the various scenarios (2008 prices) amount to considerable sums: US$9.27 billion (A2 scenario) or US$11.67 billion (B2 scenario).

The next phase of the study examined mitigation and adaptation strategies that the tourism sector can implement and also estimates the cost of these strategies. Eleven adaptation and mitigation options were selected and a cost benefit analysis was undertaken on the selected options. These estimations indicate that at least three of the eight options (adaptation and mitigation) had cost-benefits ratios over 1, signalling that it is beneficial for the Netherlands Antilles to vigorously pursue adaptation and mitigation strategies in the tourism sector.