Presentation on theme: "Sustainable/Green Water Resources Management"— Presentation transcript:
1 Sustainable/Green Water Resources Management Prof. Dr. Phoebe KoundouriHead of Research Unit of Environmental & Natural Resource EconomicsATHENS UNIVERSITY OF ECONOMICS AND BUSINESSWeb Pages:NEW Website of the Research Unit of Environmental & Natural Resources Economics will be running on Monday at
3 An obligation of result WFD, A MILESTONE IN EUROPEAN WATER POLICYNever-ending processWFD: 3 key principlesAn obligation of resultContinuous transparency
4 AN OBLIGATION OF RESULT A compulsory goal: "good status of water"a general obligation: applies to all member-states applies to surface and groundwatera secondary goal: prevent deterioration of statusActions to be defined with regards to the goalXGood statushow to fill-in the potential gap between "business as usual" scenario and the goal?20032015XBusinessas usualupdate measures in order to reach the goalLimited possibilities for exemptionsextensions of deadlinesachievement of less stringent environmental objectives
5 Underlining Concept: Sustainable Development Sustainable development (SD) is a pattern of resource use that aims to meet human needs while preserving the environment so that these needs can be met not only in the present, but also for future generations.
6 Triple goal of SD over space (i) and time (t) Environmental/ Ecological Sustainability (ecosystem resilience, resource-specific equilibrium)Economic Sustainability (economic efficiency by economic sector)Social Sustainability (affordability & equity by income group)
7 Where do economics come in? Articles 5: Socio-Economic characterization of RBArticle 9: cost-recovery and allocationAnnex III: guidance for economic analysis, program of measures & CBA
8 WFD: A Manual of Implementation 3-step economics approach Economic characterizationof the river basinStep 1The assessment of the recovery ofthe costs of water servicesStep 2The economic assessment of potentialmeasures for balancingwater demand & supplyStep 3
9 Step 1: Economic characterization of the river basin & identification of significant issues Step1_A. Evaluation of the economic significance of water in the region.Step1_B. Identification of key economic drivers influencing pressures and water uses.Step1_C. How will these economic drivers evolve over time & how will they influence pressures?Step1_D. How will water demand and supply evolve over time & which problems their paths are likely to cause?ConstructBaselineScenarioTime & Money Constraints Define the Detail of Step 1!
10 Step1_A. Evaluate the Economic Significance Step1_A. Evaluate the Economic Significance of Water Uses in the RegionResidential (e.g. population connected to public water supply system, population with self-supply, number of water supply companies, etc.).Industrial (e.g. turnover for key sub-sectors, employment in sectors, etc.)Agricultural (e.g. total cropped area, cropping pattern, livestock, gross production, income, farm population, etc.)Tourism (e.g. total number of tourist days, daily expense per tourist day, employment and turnover in the tourism sector, etc.)Health Related ServicesEnvironmental and Ecosystem Services
11 Step1_B. Identify Key Economic Drivers Influencing Pressures and Water Uses General socio-economic indicators and variables (e.g. population growth, income, employment).Key sector policies that influence significant water uses (e.g. agricultural and environmental policies).Production or turnover of main economic sectors / significant water uses.Implementation of planned investments linked to existing regulation, likely to affect water availability.Implementation of future (environmental and other) policies likely to affect water uses.
12 Step1_C. Evolution of Economic Drivers & their Influence on Pressures Changes in demographic factors, e.g. population growth in specific urban areas.Economic growth and changes in economic activity composition, e.g. changes in the relative importance of services/sectors.Changes in land planning, e.g. new areas dedicated to specific economic activities, etc.Changes in social values and policy drivers, e.g. globalization.Changes in natural conditions, e.g. climate changes.Changes in non-water sector policies, e.g. changes in agricultural policy or industrial policy that will affect production and consumption in economic sectors.Planned investments in the water sector, e.g. for developing water services, for restoring the natural environment/mitigating for damage caused by given water uses.Development of new technologies likely to impact water use for industrial production and related pressures.TrendvariablesCriticalUncertaintiesWater PolicyVariables
13 Step1_D. Evolution of Demand and Supply - Evaluation of spatial and dynamic availability of significant water bodies.- Apply appropriate methodologies to assess sector-specific water demand.AnthropocentricValues Structure & Processes EnvironmentalFunctions HumanBenefitsEnvironmentUse Non-UseValues Values
14 Market Failure Environmental resource is a Public Good Not explicitly traded in any marketNo market price exists to reveal TEV (Hidden demand).We need to retrieve TEV via WTPNon-market Valuation Methods
15 Estimating Demand in Step1 i. Identification of Sector Water Demands in the Watershed AreaHouseholdsIndustryAgricultureEnvironmentii. Valuation Techniques for Specific Types of Water DemandUse ValueNon-useRevealed preference methods (indirect methods)Hedonic Pricing MethodTravel Cost MethodAverting Behaviour MethodResidual Analysis (Production Cost Method)Valuation techniquesHedonic valuation technique: The behavior of users and markets is observed. For instance, farm prices in an area with good groundwater are most likely higher than in an area without either ground- or surface water. Comparing differences in farm prices across a certain region and assuming that other variables are the same, then the difference in prices of these farms would lie in groundwater access.Contingent valuation technique: Questioning on hypothetical futures. It involves asking people directly what they would be willing to pay for a hypothetical change in the future state of the world.The residual analysis: This method values all inputs for the good produced at their market price – except for the water itself. The remaining value of the good, after all other inputs are accounted for, is then attributed to the water input.Travel Cost Method: Inferring the value of a set of attributes from expenditure (time and money spent on the trip) on outdoor recreational facilities or visits to nature reserves.Existence & Values for others:Contingent Valuation MethodologyChoice Experiments: Field, LapMeta-Analysis MethodMethods not strictly based on economic welfareReplacement Cost MethodsRestoration Cost Methods
16 Hedonic Valuation Method (HVM) A resource can be defined in terms of services it yields or an `attribute' it embodies. This attribute may be embodied in other goods or assets which are marketed, and which do have observable prices. Using these prices you can derive economic value.E.g: Farm prices in an area with good groundwater are most likely higher than in an area without either ground- or surface water. Comparing differences in farm prices across a region and controlling for other influences, then the difference in prices of these farms would lie in groundwater access.Problems:Only capable of measuring the subset of use values that people are WTP for through the related market.If consumers are not fully informed about the qualities of the attributes being valued, hedonic price estimates are of little relevance.
17 Travel Cost Method (TCM) Infers the value of a set of attributes from expenditure (time and money spent on the trip) on outdoor recreational facilities or visits to nature reserves.E.g: Valuing the effects on the demand for recreation of a change in water quality in a river.Problems:- Capable of measuring the subset of values that people are WTP for in the related market.- Very few applications outside resource-based recreational amenities.- Data-intensive.- What value should be assigned to time costs of travel?- Statistical problems & sample bias.
18 Averting Behavior Method (ABM) Use of expenditures undertaken by households that are designated to offset an environmental risk, in order to infer WTP for avoiding environmental degradation.E.g: Use of water filters.Problems:- Limited to cases where households spend money to offset environmental hazards.- Insufficient studies to comment on convergent validity.
19 Residual Analysis Method (RAM) Values all inputs for the good produced at their market price – except for the water itself. The remaining value of the good, after all other inputs are accounted for, is then attributed to the water input.E.g: Valuing water as an input in production of different crops.Problems:Only part of use-value of water can be captured.Market imperfections can bias valuation estimates.
20 Contingent Valuation Method (CVM) CVM relies on a constructed, hypothetical market to produce monetary estimates of value. The value of an environmental resource to an individual is expressed as:- Maximum Willingness-to-Pay (WTP)Minimum Willingness-to-Accept (WTA, Compensation)E.g: Conduct survey to obtain peoples’ bids (either WTP or WTAC) for a specified change in the quality of water in a river, contingent upon the description of a hypothetical market where water quality is traded.Problems:Interviewing bias - Non-response biasStrategic bias - Yea-saying biasHypothetical bias - Information bias
21 Choice Experiment Method (CEM) CEM is a survey-based technique which can estimate the total economic value of an environmental stock/flow or service and the value of its attributes, as well as the value of more complex changes in several attributes.E.g: Each respondent is presented with a series of alternatives of the environmental stock/flow or service with varying levels of its price and non-price attributes and asked to choose their most preferred option in each set of alternatives.Problems:- Simplified version of reality … but CEM eliminates or minimises several of the CVM problems (e.g. strategic bias, yea-saying bias, embedding effects).
22 Operational at the policy level? Question: How can these methods be made operational in the context of the development of groundwater management strategies at the policy level?Answer: Recent years have seen a growing interest in the potential for producing generally applicable models for the valuation of non-market environmental goods and services, which do not rely upon expensive and time-consuming original survey work, but rather extrapolate results from previous studies of similar assets.This approach is called meta-analysis for the use and non-use values generated by environmental resources.
23 Meta-Analysis Method (MAM) Meta-analysis is the statistical analysis of the summary of findings of empirical studies: i.e. the statistical analysis of a large collection of results from individual studies for the purpose of integrating the findings.E.g: Freshwater fishing meta-analysis of valuation studies.Meta-analytical research seems to have been principally triggered by:Increases in the available number of environmental valuation studies.- Seemingly large differences in valuation outcomes as a result of use of different research designs.
24 Environmental Benefits-Transfer Transposing monetary environmental values estimated at one site (study site) to another (policy site).Values must be adjusted to reflect site specific features.When time or resources are limited, this provides an alternative to conducting a valuation study. Using meta-analysis for benefits transfer has advantages.E.g: Environmental Valuation Reference Inventory (Problems- May involve bias- Validity and reliability issues
25 List of case studies on water-valuation from my research team Direct use values:Irrigation for agriculture PF, RC, MPDomestic and industrial water supply PF, RC, MPEnergy resources (hydro-electric) CVTransport and navigation CVRecreation/amenity HP, TC, CVM, CEMWildlife harvesting CEMIndirect use valuesNutrient retention RCPollution abatement RCFlood control and protection RC, CEMStorm protection RC, PFExternal eco-system support RC, CEMMicro-climatic stabilisation PF, CEMReduced global warming RC, CEMShoreline stabilisation RC, CEMSoil erosion control PF, RC, CV, CEM
26 List of case studies on water-valuation from my research team Option valuesPotential future uses of direct and indirect uses CVM, CEMFuture value of information of biodiversity CVM, CEMNon-use valuesBiodiversity CVM, CEMCultural heritage CVM, CEBequest, existence and altruistic values CVM, CE
27 Methodology for Constructing Baseline Scenario Using Parameters from in Step 1 Consider three possibilities of evolution of population.Consider two possibilities of evolution of demography of other cities in the region.Consider possible evolution of rural population.2Build scenarios using basic assumptions and quantify the water balance with these assumptions.Key isssues:Forecast not only investments but other parameters and drivers influencing water supply and demand.Not rely too much on a mere projections of past trends.Identify uncertain variablesBuild a series of alternative scenarios using alternative assumptions wrt policy optionsPractical tasks for deriving the baseline scenario:3Apply step two over time.4Based on steps 1,2,3, imagine a plot that tells the story of the system from now until at least 2030, giving consistency to the assumptions and water balance curves.Longer-term projections of variables2. Project certain changes in water policy variablesBuild several baseline scenarios3. Integrate changes in “critical uncertainties”.Short-term projections of trend variables based on existing trends1. Assess current trends in trend variables (physical parameters & socio-economic drivers)OutputTask
28 How to apply the ‘Baseline scenario’? Measures to close the gap are needed!200320152021Water Balance/‘Good Water Status’Initial statusgapStarting from initialstatus it is possibleto elaborate abaseline scenario.The baseline scenariorefers to the situationwithout doinganything else thanplanned today.Task1:Identify trends in physical parameters (Map evolution of trends in water status over the past relevant period, e.g evolution of pollution & ecological quality)- Overview of the general trends in the hydrological systemIdentify trends in socio-economic drivers influencing water uses, water services and impacts (Map evolution of equipment, e.g. water distribution and sewage, pricing, uses & Impact) -Overview of general trends in water uses and servicesTask2:Make assumptions about the future dynamics of trend variables (Check stability of parameters, e.g. tax levels, public network connection, What is the effect of proposed future measures on water status?) Assumptions on future dynamic of trendsMake projections based on certain trends (Derive projected values of different parameters for 2015, propose one or several combinations of assumptions on trends) Baseline scenario projectionsTask3:Identify changes in parameters that are uncertain and could affect water policy (Increased magnitude and frequency of uncertain events: policy changes, technological advencements, floods, droughts, Socio-economic changes in: economic growth cycles, investment flows, employment, taxing system, consumption habits) - Altrenative Scenaria.Date at which ‘Water Balance’should be met.
29 Step2: Assess Cost-Recovery of Water Services Step2_A. How much do current water services cost?Step2_B. Who pays these costs?Step2_C. What is the current cost-recovery level?Step2_D. Propose cost-recovery mechanisms.
30 Step2_A&B. Current cost of services Who pays for these costs? Estimate costs of water services by sector.Do users and/or institutional mechanisms recover these costs?RESOURCECOSTENVIRONMENTALCOSTFINANCIAL COSTSTOTALECONOMICVALUECAPITALCOSTOPERATION &MAINTENANCE(O&M)COSTRESOURCEADMINCOSTFORGONEVALUE OFALTERNATIVEUSES(present/future)EXTERNAL COST OFWATERQUALITYREDUCTIONCOST OFWATERABSTACTIONPAIDBYUSERSAnalysis per use: Households, Tourism, Industry, Agriculture, Ecosystem, etc. per RBD
31 Step2_C. Current cost-recovery level. Elements to be investigated:Status of key water services (e.g. number of persons connected).Costs of water services (financial, environmental & resource costs).Institutional set-up for cost-recovery (e.g. prices and tariff structure, direct & indirect subsidies, cross-subsidies).Contribution from key water uses to the recovery of costs.Resulting extent of cost-recovery levels, linked with the affordability for water users.Assessing cost-recovery (for each water service):Prices for water services. Current water price (price level, price structure). Subsidies (government/regional authorities, cross-sectors)Financial costs of water services. Capital costs (historical value, replacement value). Operation and maintenance. Administrative costsEnvironmental costs. Internalised costs through charges and taxes. Direct assessment (changes in environmental quality, economic value/WTP). Costs of preventive and mitigation measures (implemented , required for restoring good water status)Basic economic information and indicators. Discount rate (for reasons related to sustainability you should consider declining discount rates)
36 Step2_D. Identify potential cost-recovery mechanisms/Green Investments? PricingTradable permitsQuotasTaxes/subsidiesDirect ControlsEducational/Awareness CampaignsVoluntary AgreementsLegal Instruments, etc.Green Investments in:Pollution Control and RemediationResource Conservation and ManagementLand Use and InfrastructureRenewable Energy SourcesSubsidies are allocated to either providers, users or polluters in different ways.Subsidies can be paid directly by the central or local government:to the provider of water services in the form of investment subsidies (capital subsidies, lowering fixed costs)to the provider of water services in order to co-finance the operation of infrastructure (operational subsidies, lowering variable costs)to water users (income transfers, lowering the price/charges paid by the user)Subsidies can be paid indirectly byusers/ polluters paying the costs of other users / polluters. Cross subsidization may arise between different users (households, agriculture, industry), different regions (dry and wet, populated or less populated) and/or different types of users (rich or poor, small or large users)
37 Step3: The economic assessment of potential measures for reaching good water status Step3_A. Identify least-cost set of measures.Step3_B. Assessment of cost of measures.Step3_C. Assessment of the impact of measures on economic sectors/uses.Step3_D. Are costs of measures disproportionate?
38 Step3_A. Search for Least-Cost Set of Measures COST EFFECTIVENESS OF PACKAGE OF MEASURES:Economic instruments (e.g. abstraction/pollution taxes, tradable permits, subsidies).Measures to increase awareness regarding water scarcity, aiming at reducing abstraction/pollution.Direct controls on pollution dischargers.Agri-environment programs providing financial and technical assistance for, e.g. reallocation of crop production mix over agricultural land, adoption of water-saving technologies coupled with land-allocation restrictions, etc.Green Investments
39 Classification of Economic Instruments AdvantagesDisadvantages1. Standards and QuotasNot economically efficient2. Water abstraction chargesAdjustment of price signals to reflect actual resource costs; encourage new technologies; flexibility; generation of revenuesLow charges will have minimal impact on user behavior and will continue in resource over-utilization; Difficult to police3. Pollution chargesSame as water abstraction charges; polluter-pays principleSame as water abstraction charges4. Subsidies on water saving measuresReadily acceptableFinancial Constraints5. Tradable permitsQuantity based targets that are able to attain least-cost outcome. Allows flexibility.May entail high transaction costs6. Voluntary agreements7. Liability legislationAssess and recover damages ex-post but can also act as prevention incentivesRequire an advanced legal system; high control costs; burden of proofNeeds High Env Awareness
40 Step3_B. Assessment of Cost of Measures - Estimate a range of costs along with key parameters influencing costs over time (cost change with developments in sectors).- Allocate costs of measures to water users and identify winners and losers, in order to potentially feed into the analysis of disproportionate costs to justify derogation (Step3._D).
41 Step3_C. Impact of Measures on Key Economic Sectors/Uses Net impacts on public expenditures and revenues: e.g.impacts on expenditures for agri-environment schemesrevenues of economic instrumentsimpacts of changes in the prices charged for publicly owned water services.Wider economic and social impacts: e.g.significant changes in patterns of employmenteconomic impacts on industries & local economic development from changes in the price of water supply, level of discharges and water quality.Effects on the retail price index and inflation.
42 Step3_D. Disproportionate Costs/Derogation Important forbudget-constraineddeveloping countries!Step3_D. Disproportionate Costs/DerogationDisproportionalityIf the achievement of good water status has significant adverse effects on the wider environment & human activities.If the beneficial objectives served by the artificial or modified characteristics cannot reasonably be achieved by other means.Measures to improve waterquality are expensiveHeavily Modified Water bodiesWater bodies substantially changed in characteras a result of physical alterations by human activity.Time derogationLess stringentobjectivesThe concept of disproportionate costs can be assessed by comparing the existing costs of delivering the use, service or beneficial objective, with the costs of alternative options.For the existing situation: operation and maintenance costs, but also replacement costs (principal and interest payment)For each option/alternative: capital costs, principal and interest payment), operation and maintenance costs and possible foregone benefits from changes in economic activities resulting from the option (e.g. reduction in agricultural production resulting from the development of a retention area as an alternative to dikes for preventing floods).!! Disproportionality is a political judgment informed by economic information: CBA- Disproportionality does not begin when measured costs exceed quantifiable benefits.- The margin of excess costs should be appreciable & have a high level of confidence.Disaggregated analysis to the level of separate socio-economic groups andsectors is needed, especially if the ability to pay is an issue for a particular group.
43 Step3_D. CBA: Cost-Benefit Analysis Cost Benefit Analysis (CBA) is an economic tool for government policy and investment project analysis used widely.Can incorporate environmental impacts of policies/projects within CBA to correct for market failure“Social” appraisal of policies and projects, carried out by aggregation of benefits from, and costs of a policy/project over individuals and over timeWelfare theoretic underpinning: Economic efficiency with a temporal dimensionThe concept of disproportionate costs can be assessed by comparing the existing costs of delivering the use, service or beneficial objective, with the costs of alternative options.For the existing situation: operation and maintenance costs, but also replacement costs (principal and interest payment)For each option/alternative: capital costs, principal and interest payment), operation and maintenance costs and possible foregone benefits from changes in economic activities resulting from the option (e.g. reduction in agricultural production resulting from the development of a retention area as an alternative to dikes for preventing floods).
44 CBA Steps Stage 1: Definition of policy/project: The reallocation of resources being proposedThe population of gainers and losers being consideredStage 2: Identification of policy/project impacts:Define all impacts that will result from policy/project implementationConsider additionality (net impacts) and displacement (crowding out)
45 CBA Steps Stage 3: Identification of economically relevant impacts: Environmental impacts of a policy/project are relevant in CBA if eitherThey change the utility of at least one person in the societyThey change the quantity or quality of the output of some positively valued commodityStage 4: Physical quantification of relevant impacts:Determine physical amounts of costs and benefits and when they occur in timeUse environmental impact analysis to estimate the impact of policy/project on the environmentEstimations will be made with uncertainty, calculate the expected value of costs and benefits
46 CBA Steps Stage 5: Monetary valuation of relevant effects All physical measures of impacts should be valued in common units to be comparableCommon unit = moneyCBA analyst mustPredict prices for value flows extending into the futureCorrect market prices where they are distortedCalculate prices where non exists using environmental valuation methods
47 CBA Steps Stage 6: Discounting of costs and benefits: Once costs and benefits are expressed in monetary units they should be converted to present value terms by discountingPV= Xt[(1+r)-t] where X= cost or benefit; r = discount rate; [(1+r)-t] discount factor; t= timeThe higher the value of t the lower the discount factorThe higher the discount rate for a given t the lower the discount factor
48 CBA Steps Stage 7:Applying the net present value test: Apply NPV test to choose those policies and projects that are efficient in terms of their use of resourcesWhere Bt = benefits of the project at period t, Ct = the costs of the project at period t, r = the discount rate, n = the number of years over which the project will operateNPV is the present value of the project’s/policy’s net benefit stream, obtained by discounting the stream of net benefits produced by the project/policy over its lifetime, back to its value in the chosen base period, usually the present.If NPV>0 accept policy or project (Based in Kaldor-Hicks Criterion) since it would improve social welfare
49 Is Discounting so straight forward? ‘Humanity has the ability to make development sustainable: to ensurethat it meets the needs of the present without compromising the abilityof future generations to meet their own needs.’ WCED, 1987‘There is something awkward about discounting benefits that arise acentury hence. For even at a modest discount rate, no investment willlook worthwhile.‘ The Economist (1991), March 23, p 73.In the decade since that comment in The Economist, the nature of theproblem with long-run discounting has become clearer.
50 The Need for Time Declining Social Discount Rate… There are powerful reasons for choosing a declining social timepreference rate. This conclusion is supported by robust recenttheoretical work, which has taken several different approaches to the subject.Although there is a paucity of empirical evidence on the pattern of that rate's decline, it may be better to use those data, which are available rather than to continue practicing discountingwith non-declining rate in the long term. The data best suited the policy-makers' need were produced by Newell & Prizer (2003) and Koundouri et al (2005).
52 Case Study: Floods Defense Over the last ten years, flood-defence investment has been characterized by annual expenditure that has been assumed to offset significant damage; i.e., a cost–benefit ratio much greater than unity.Stochastic model designed to assess the costs and benefits of investment in a particular cell (protected area) of flood defences for Shrewsbury for the Environment Agency.The model determines the net benefit of investment by comparing the damage suffered in a ‘do nothing’ scenario, with damages in the case where 100-year flood defences have been constructed. The benefits can then be compared with the costs of constructing and maintaining the defences.
53 Benefit–cost ratio for a particular cell of flood defences in Shrewsbury
54 Suggested Step Schedule of Discount Rates Period of YearsDiscount Rate (%)0 – 303.531 – 753.076-1252.52.01.5301 +1.0
55 Effect of shift from flat 3.5% to the step schedule of discount rates Project time horizonPotential effect on project NPV0-30 yearsSmall, generally insignificantyearsSignificant (± 50%)yearsLarge impact (± 100%)yearsMajor impact (± 150%)
56 Summary of the 3-Step Methodology Economic analysis needs to be integrated with other field expertise (hydrology, geology, engineering, sociology, etc.) and be considered all along the management & decision-making process.Summary of the3-Step Methodology1- Characterisation of the river basineconomic significance of water usestrends in key indicators and driversdynamic path of demand and supply of watergaps in water status by the agreed date of meeting ‘water balance’?2- Assess current cost-recoveryhow much water services cost and who pays this cost?how much of this cost is recovered?potential cost-recovery mechanisms3- Identification of measures and economic impactconstruction of a cost-effective programme of measuresassessment of cost-effectiveness of potential measuresfinancial & socio-economic implications of the programme of measuresare costs disproportionate? Derogations
57 Thank you. Prof. Dr. Phoebe Koundouri Head of Research Unit of Environmental & Natural Resources EconomicsATHENS UNIVERSITY OF ECONOMICS AND BUSINESSWeb Pages:NEW Website of the Research Unit of Environmental & Natural Resources Economics will be running on Monday at