Module 4: Cost-effectiveness analysis Example of a twinnng project in Malta Yannick Pochon Istanbul, 2015

The case of Malta

Draft document submitted to consultation, presented and discussed during workshops and updated.

Six main issues for groundwater management were identified for Malta groundwater resources.  Over abstraction is problematic for the majority of groundwater bodies in Malta. Tackling over- abstraction requires reducing groundwater abstraction for existing water users.  High nitrate concentrations above drinking water quality standards are recorded. Values 5 times higher than the permitted threshold of 50 mg of nitrate per liter are recorded in some cases.  More significant engagement in groundwater regulation and control is required to meet the environmental objectives of the WFD and to avoid infringement procedure at the European level.  Financing of the water sector is a significant issue. Current high subsidy rates are unlikely to be sustainable over the long term with forthcoming high investments in the water sector. And they are not complying with cost-recovery obligations promoted by the WFD and attached to the use of European funds.  There is limited awareness on groundwater issues at all levels of society in Malta. This hides responsibility while constraining implementation of innovative solutions.  More knowledge is required for supporting effective management of groundwater resources in Malta.

Overview of measures (Quantitative)  Promote water saving practices for households, industries, and farmers  Use economic instruments (meters +environmental tax) to reduce groundwater abstraction by private borehole owners (farmers, industries, households)  Increase rain water harvesting (households, industry, farmers)  Increase available water resources: desalination (WSC, hotels) and waste water reuse (households, agriculture, industry)

Promote water saving practices Households Industries Livestock farms Distribution of water saving devices (aerators…) 15% reduction water use (flushes, taps) Cost : 1LM/household Adopted by 50% household Tax rebate on water saving appliances (25%) 40% reduction water use (taps/flush/wash.mach) Ad. Cost = 250 Lm/household Adopted by 25% households Water saving contracts: subsidy for equipment, best practices, meter and volume ceiling Large/medium farms (60% =540) Investment 3500 Lm/farm (blisters…) 1800 m3/year/farm saved Best available technologies (changes in industrial processes) + awareness raising and information campaigns

Increase rain water harvesting Households Industries FarmsHotels Rehabilitate ancient cisterns 6000 households Invest: 700 Lm Water saved: 60m3/household Construct new cisterns Target: 35% households Uptake: 20% = 5000 households Invest: 3600 Lm Water saved: 60 m3 RWH systems for livestock farms Target: 60% largest farms= 540 Invest Lm/farm Water saved: 120 m3 Develop run-off storage for crop farms Installation of meters on wells + subsidy for tank construction (10%) Target: 10% farmers with registered well (= 529) Invest. 12,000 Lm/farm Water saved: 500 m3 RWH systems for livestock farms Target: 90% industries subject to GBR + permits Invest. 12,000 Lm/farm Water saved: 150 m3 RWH systems for hotels. Target: 50% 3 stars (4&5 stars already equipped) = 27 hotels Invest Lm/hotel Water saved: 120 m3

Increase available water resources Desalination (RO)Wastewater reuse Increase RO at WSC plants no investment 0,225 Lm/m3 15 M m3/year Installation of small RO plants in hotels 4&5 stars + 50% of 3 stars Invest. 40,000 Lm/hotel O&M=0,40 Lm/m3 150 litres/capita/day WW reuse in hotels in hotels 4&5 stars + 50% of 3 stars (50 hotels) Invest. 50,000 Lm/hotel O&M=0,10 Lm/m3 70 liters/capita/day Grey water reuse by households 4&5 stars + 50% of 3 stars Invest. 40,000 Lm/hotel O&M=0,40 Lm/m3 150 liters/capita/day WW reuse in industry In 2-3 industrial area managed by MIP (measure not completely specified) Centralized distribution of TSE for irrigation Effluent treatment with RO & centralized distribution system + boreholes closed Invest. 25 M Lm (?) O&M=0,15 Lm/m3 20,000 m3/day( average)

Economic incentives through taxes on private boreholes  Justification of a tax:  Groundwater over-abstraction by private borehole owners generate an environmental cost (sea water intrusion).  This environmental cost can be assessed using the replacement cost method: each cubic meter over- abstracted makes necessary the desalination of one additional cubic meter, at a cost of 1,1 Lm/ m3.  The maximum value of an environmental tax can thus be equal to 1,1 Lm/m3.  Lower values (0,1 to 0,25 Lm/m3) have been assumed but this choice is open for discussion

Economic incentives through taxes on private boreholes Households Industries FarmsBowsers Tax = 0,2 Lm/m3 Installation of meters Target: 2000 boreholes Average use 800m3/year 40% water use reduction Tax = 0,1 Lm/m3 Installation of meters Target: 5000 boreholes Irrigating 3500 ha Average GW use 3000m3/year 20% water use reduction Tax = 0,2 Lm/m3 Installation of meters Target: 50 largest GW users Average GW use 20,000m3/year 30% water use reduction Tax = 0,25 Lm/m3 Recording of sales, quality control Access to TSE allowed Target: 25 companies Average GW use 2 M. m3/year 50% water sales reduction, partly replaced with TSE + enforcing groundwater regulation legal framework (REG 1_1) + Waste water reuse in agriculture (QUAN 5_1) Uncertainty on effect of the tax on consumption

Cost effectiveness analysis Investment cost (annual equivalent, considering lifetime of equipment) Recurring costs (operation & maintenance) Indirect costs for private actors Administrative costs of measure implementation (inspection, creation of information system, etc. Environmental cost (CO2 emission valued at the rate of 14 €/Ton)

Cost effectiveness analysis

= 3,4 M. m3 Over-exploitation = 4 Millions m3 (rough estimate) Implement the most cost-effective measures to reduce imbalance Net social benefit = Lm /year Total investment cost = 5,8 M Lm Cost for drinking water consummers= 1,38 M Lm Benefit for government (tax payers) = -1,6 M Lm Cost for industry = 0,14 M Lm Environ. cost = 0,012 M Lm Desalinate additional volume of 0,6 M m3

 Economics do not prescribe which measure to implement, other criteria should be considered  Social acceptance: implement changes progressively (install meters, declare boreholes, levy environmental tax…  Economic impact on economic activities (e.g. agriculture)  Consistency with existing regulatory framework The choice of measures remains a political choice based on multiple criteria

Table 13: Sensitivity analysis for the discount rate.

 Preliminary results  Exploratory approach, all measures considered irrespective of possible technical & social acceptance constraints  Illustration of the methodology: showing the way forward  Intended to promote discussion  On the role of economics in the planning process  Help choosing between alternative options  Assess the total cost and its distribution among actors and sectors  But only one criteria among others to guide policy decision