Photo by Josh Wheeling

Hydroelectricity is the largest source of energy in Brazil’s portfolio and has brought with it a charged economic and environmental debate about the impact of hydropower plants (HPP) on their surrounding areas. This debate often pits perceived economic benefits against environmental damage. However, without a systematic analysis of the effects that the construction of dams actually have on an area, these generalizations may paint an inaccurate picture.

As policymakers seek to maximize the economic, social, and environmental consequences of hydropower, a more robust analysis is needed to promote development more effectively while also addressing social and environmental concerns.

This brief summarizes an analysis conducted by Climate Policy Initiative/ PUC-Rio (CPI), under INPUT and in cooperation with the Brazilian Development Bank (BNDES), that measures the effects of HPP’s on economic performance and finances of municipalities. CPI researchers examined 82 municipalities (in 13 states) that had areas flooded by a hydropower plant between 2002 and 2011.

The economic impact dams have on their local areas varies widely, but, on average, the results show that in municipalities where plants were constructed, the effects, both positive and negative, are short-lived. Economic growth that occurs during the first two to three years after the start of construction tends to dissipate after five or six years, which typically coincides with the end of construction.

Nevertheless, the researchers show municipalities vary widely post-dam construction and certain municipalities experience distinct effects. Some areas maintain economic momentum while others lose it. This variation highlights the caution needed when forming conclusions about the impact of dam construction and emphasizes the benefit of case-by-case analysis.