www.trinomics.eu

Building business cases using economicvaluation

Jurgen Vermeulen

Today - Agenda

• Context - What is the financing problem?

• Our approach

• Case study – Manchester Northern Gateway Redevelopment• Description of the project

• Group work

• Discussion

What is the problem?

• Everyone wants more green infrastructure

• The implementation of GI is slower than hoped (2015 Mid-term Review of

the EU Biodiversity Strategy)

• Despite a long tradition of assessments identifying perverse financial incentives, they are still commonplace both from public and private sources (ten Brink et al., 2014)

• So how to finance additional investments?

• Who should pay? How much should they pay?

One approach – Economic valuation

Steps:

1. Consider the outcomes of the investment

2. Translate into (economic) benefits

3. Measure economic benefits

4. Link benefits to relevant stakeholders

5. Seek funding from multiple stakeholders

Step 1

Identifying

outcomes

Step 2

Translate to (economic) benefits

Step 3

Measure benefits

Step 4

Identify

beneficiaries

Step 5

Seeking

funding

Many benefits – many beneficiaries

Recycled water / urban greening

• Sunbury

-$ 160 m

-$ 140 m

-$ 120 m

-$ 100 m

-$ 80 m

-$ 60 m

-$ 40 m

-$ 20 m

$ 0 m

$ 20 m

$ 40 m

$ 60 m

Marginal

capital expenditure

Sewer Mining

Plant

Land

acquistion costs

Development

of Public open space

Avoided

potable expenditure

Avoided

wastewater expenditure

Deferral of

Preston Upgrade and

St Kilda Rd Junction

Co-location of

SMP benefits

Public open

space

Local

Government's alternative

water target benefits

Property value

increase

Community

willingness to pay for

recycled water use

Car park

benefits

Total net expenditure -$136.83m

Project Net Present Value $31.73m

www.trinomics.eu

Northern Gateway - Redbank

The Northern Gateway

- Meadowside by FEC

- 756 new homes across 4 buildings

- 40 storey landmark tower

- Ground floor commercial uses

- All apartments for open market sale

- First new homes expected to be

completed mid-2020

- Major upgrade of Angel Meadow

Northern Gateway – Red Bank

• Fantastic green infrastructure opportunity

• Limited funding available

• How to progress this investment?

Step 1: Identifying outcomes

• Consider the project described by Matt and Tom

• List the project features – what are the outcomes?

Step 1

Identifying outcomesStep 2 Step 3 Step 4 Step 5

Step 2: Translate to benefits

• Differentiate between economic, social and environmental benefits

• Is there a link to an economic value? Which? Many outcomes can be measured in economic terms

• Step 2 in your groups:• 15 minutes

Step 1

Identifying outcomes

Step 2

Translate to (economic) benefits

Step 3 Step 4 Step 5

Translate to economics (Step 2)

What are the economic benefits of the

NBS intervention. Draw a line to connect

these benefits to the outcomes listed.

Identify benefits (Step 2)

List the benefits of the Northern Gateway

project. These outcomes should include

social and environmental elements.

Example: Aesthetic improvement to

area surrounding the project

Example: Increased value of housing

in area surrounding the project.

Step 3: Measuring benefits

• This stage typically requires trained economists

• Many methods exist to quantify economic benefits:• Market values

• Avoided costs

• Willingness to pay (for non-market values)

Step 1

Identifying outcomes

Step 2

Translate to economics

Step 3

Measuring benefitsStep 4 Step 5

Step 3: Measuring benefitsStep 1

Identifying outcomes

Step 2

Translate to economics

Step 3

Measuring benefitsStep 4 Step 5

Step 3: Measuring benefits

• This stage typically requires trained economists

• Many methods exist to quantify economic benefits:• Market values

• Avoided costs

• Willingness to pay (for non-market values)

• Methods must be matched with benefits

• Some methods will overlap - beware of double-counting

• Not all benefits will be quantifiable

Step 1

Identifying outcomes

Step 2

Translate to (economic) benefits

Step 3

Measuring benefitsStep 4 Step 5

Example: waterway restoration and property prices

Example: waterway restoration and property prices

• Physical restoration projects improve aesthetics

• Households overlooking or nearby the project benefit the most

• ‘Hedonic pricing’ captures the impact of projects on property prices

• Value: 4.7% increase in property price

• Properties within 200m of project

From benefits to economics

• Surface water treatment – avoided cost of sewage treatment

• Physical and mental health – avoided healthcare costs

• Aesthetic improvements – property price increases

• Waterway health improvement – community willingness to pay (non-use value), property price increase (use value)

• Street trees and wetlands - carbon sequestration

Step 4: Identify beneficiaries

For the major benefits:

• Who receives the benefit?

• What entity is responsible for the benefit?

• Link them together

Step 1

Identifying outcomes

Step 2

Translate to (economic) benefits

Step 3

Measuring benefits

Step 4

Identify beneficiariesStep 5

Translate to economics (Step 2)

What are the economic benefits of the

NBS intervention. Draw a line to connect

these benefits to the outcomes listed.

Identify benefits (Step 2)

List the benefits of the Northern Gateway

project. These outcomes should include

social and environmental elements.

Identify beneficiaries (Step 4)

Who are the beneficiaries of the listed

outcomes? List these stakeholders and

connect them with the economics

benefits.

Example: Aesthetic improvement to

area surrounding the project

Example: Increased value of housing

in area surrounding the project.Example: Property developers

Step 5: Seeking funding

• No magic pill – attracting funding from stakeholders is difficult

• This process can help by:• Clearly identifying outcomes

• Linking them to economic benefits

• Quantifying economic benefits in credible ways

• Linking benefits to stakeholders who may co-contribute

• This process can be commenced early to engage stakeholders early, contribute to design, encouraging financial contribution

Step 1

Identifying outcomes

Step 2

Translate to (economic) benefits

Step 3

Measuring benefits

Step 4

Identify beneficiaries

Step 5

Seeking funding

Concluding thoughts

• Funding cannot be solved in isolation of broader planning and implementation of NBS

• It is part of effective project planning

• Useless without broad and effective stakeholder engagement

• But – this process provides a framework for identifying and quantifying co-contributions from stakeholders who might otherwise not engage