Why do an economic analysis? Estimating expenditures to abate pollution Assessing alternatives for...
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![Page 1: Why do an economic analysis? Estimating expenditures to abate pollution Assessing alternatives for multiple objectives Determining how costs of abatement.](https://reader035.fdocuments.in/reader035/viewer/2022070412/56649d4c5503460f94a29f67/html5/thumbnails/1.jpg)
Why do an economic analysis?
• Estimating expenditures to abate pollution• Assessing alternatives for multiple objectives• Determining how costs of abatement should be
allocated• Evaluating the trade off between preservation and
development of new natural resources • Comparing short-term costs and long-term
benefits of protecting natural resources
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Economic Concept of Value
• Maximizing human welfare - anthropocentric• Substitutability - trade off
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Framework for Economic Analysis
• Economic considerations• Equity considerations• Intergenerational effects• Sustainability of resource systems• Social risk aversion
» Economic analysis is used to help organize available information
» Economic analysis should not be the sole determinant of choices
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Economic Analysis for Water Resources: Legal Background• The Clean Water Act
“Maximum extent practicable”
Feasibility
Efficiency
Economic efficiency• Stormwater Management
Professional judgement
Cost effectiveness
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Types of Economic Analysis
• Cost effectiveness
At treatment site
At receiving water
• Comparison of benefits and costsBenefit cost ratio
Net benefit
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Benefit Cost Analysis Background
• 1950s: Corp of Engineers pubic works projects
• 1960s: Growing awareness for public health, safety, and the environment
National Environmental Policy Act of 1969 (NEPA)
• 1970s: Clean Water Act
• 1980s: Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
Principal and guidelines
• 1990s: Oil Pollution Act
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Costs for nonpoint source pollution abatement
• Capital costs
• Operation and maintenance
• Monitoring
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What are the benefits of nature?
• Source of material input to the economy
• Life support
• Amenity services
• Disposal of byproducts from economic activities
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How do we estimate environmental
benefits?Methods are classified based on two
characteristics:
• Observed vs. hypothetical
• Direct vs. indirect
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Observed direct valuation method
• Referendum voting
• Simulated markets
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Observed indirect valuation method
• Travel cost method
• Hedonic method
• Cost of illness approach
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Hypothetical direct valuation method
Contingent valuation method:
• Bidding game
• Open ended questions
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Hypothetical indirect valuation method
• Referendum approach
• Contingent ranking
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Benefit Transfer
• Using results from existing studies for new application
• Resources are limited
• Large base of empirical studies exist
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Valuation Method
Identify Beneficial Uses
Identify Relevant Pollutants
Estimate Unimpaired Value
Develop Relationship between Beneficial Uses and Pollutants
Estimate Change in Beneficial Uses
BMP Benefit Value
Pollutant Conc. Threshold
Existing Pollutant Conc.
Pollutants Conc. with BMP
Pollutants Removal Efficiency
BMP CostBenefit and Cost
Comparison
Feasible BMPsReceiving Water Properties
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Beneficial Uses and Pollutant Concentration Relationship
1
0
Ben
efit
Val
ue
Mul
tiplie
r (M
p)
Concentration (mg/L)
Unimpaired Use
Eliminated Use
Cp
Mp
BENbmp = BENunimpaired*Mp
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Beneficial Uses and Pollutant Concentration Relationship
• Limited information!!!!
• Variability of pollutants concentration
• Distinguishing between the effects of stormwater pollutants and other environmental conditions
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Benefit and Cost Comparison of Available BMPs
Cost of BMP
Benefit of BMP
$
Treatment Level(1) Min (2) (3) (4) Max
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Study of Ballona Creek
Orit Wilchfort
Jay R. Lund
Dan Lew
Doug Larson
Department of Civil and Environmental Engineering
Department of Agricultural and Resource Economics
University of California, Davis
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Best Management Practices
• Level 1: Detention and Screening
• Level 2: Filtration with Disinfection
• Level 3: Advanced Treatment -
Reverse Osmosis
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Results(Single Agency Treatment Only)
15,062
17,116
24,873
20 36 38
Level 1 Level 2 Level 3
$100
0/ye
ar
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Results(Basinwide Treatment)
168,166
262,170
418,672
1,492 1,613 1,644
Level 1 Level 2 Level 3
$100
0/ye
ar
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The Value and Limitations of Economic Analysis
• BCA is useful in assessing and solving stormwater problems
• Provides grounds for learning about the watershed and the impacts of nonpoint source pollution on the receiving waters
• Supports discussion of possible management solutions
• Examines different levels of management options that may lead to economically favorable decisions for water quality management
• Regional treatment of stormwater provides greater benefits than single agency treatment
• Economic analysis should be part of nonpoint source management but should not be the only basis for decision making.