Why do an economic analysis? Estimating expenditures to abate pollution Assessing alternatives for multiple objectives Determining how costs of abatement.

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Presentation transcript:

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

Economic Concept of Value Maximizing human welfare - anthropocentric Substitutability - trade off

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

Economic Analysis for Water Resources: Legal Background The Clean Water Act “Maximum extent practicable” Feasibility Efficiency Economic efficiency Stormwater Management Professional judgement Cost effectiveness

Types of Economic Analysis Cost effectiveness At treatment site At receiving water Comparison of benefits and costs Benefit cost ratio Net benefit

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

Costs for nonpoint source pollution abatement Capital costs Operation and maintenance Monitoring

What are the benefits of nature? Source of material input to the economy Life support Amenity services Disposal of byproducts from economic activities

How do we estimate environmental benefits? Methods are classified based on two characteristics: Observed vs. hypothetical Direct vs. indirect

Observed direct valuation method Referendum voting Simulated markets

Observed indirect valuation method Travel cost method Hedonic method Cost of illness approach

Hypothetical direct valuation method Contingent valuation method: Bidding game Open ended questions

Hypothetical indirect valuation method Referendum approach Contingent ranking

Benefit Transfer Using results from existing studies for new application Resources are limited Large base of empirical studies exist

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 Cost Benefit and Cost Comparison Feasible BMPs Receiving Water Properties

Beneficial Uses and Pollutant Concentration Relationship 1 0 Benefit Value Multiplier (Mp) Concentration (mg/L) Unimpaired Use Eliminated Use  Cp  Mp BEN bmp = BEN unimpaired *  Mp

Beneficial Uses and Pollutant Concentration Relationship Limited information!!!! Variability of pollutants concentration Distinguishing between the effects of stormwater pollutants and other environmental conditions

Benefit and Cost Comparison of Available BMPs Cost of BMP Benefit of BMP $ Treatment Level (1) Min(2)(3)(4) Max

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

Best Management Practices Level 1: Detention and Screening Level 2: Filtration with Disinfection Level 3: Advanced Treatment - Reverse Osmosis

Results (Single Agency Treatment Only) 15,062 17,116 24, Level 1Level 2Level 3 $1000/year

Results (Basinwide Treatment) 168, , ,672 1,492 1,613 1,644 Level 1Level 2Level 3 $1000/year

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.