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International Water Management Course Values, Prices and Instruments For Water Management Joel D. Scheraga, Ph.D . September 29, 2004 Presentation Overview Water is a scarce resource Challenge for water resource managers Water provides diverse services Example: Ecosystem Services

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International Water Management Course

Values, Prices and Instruments

For Water Management

Joel D. Scheraga, Ph.D.

September 29, 2004


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Presentation Overview

  • Water is a scarce resource

  • Challenge for water resource managers

  • Water provides diverse services

  • Example: Ecosystem Services

  • Problem: How to value services?

    • Different disciplines have differing methods of valuation

    • Economic valuation

  • Sample application: Recreational fishing


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  • Water is a Linchpin

    • Many regions, localities, and sectors are linked by available

      water supplies

    • Multiple sectors demand and compete for available water for

      different uses:

      drinking water agriculture industry

      urban uses wildlife & ecosystems recreation


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Water is a Scarce Resource

  • Desired

  • Often limited in quantity


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The Challenge: Water is Often Scarce

Water is often (but not always) desired

….. but limitedin quantity

Too much water (not scarce)

(Bangladesh flood, 2004)

Too little water (scarce)

(Malawi drought, 2002)


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  • Challenge for Water Resource Managers

    Allocate scarce water supplies

    • efficiently

    • equitably

      Protect waterquality

  • Different disciplines have differing methods of valuation

    • ecology, biology & natural science

    • economics

  • Economic valuation

    • one approach for providing useful insights

    • informed by ecological assessments

    • market values

    • non-market values


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  • Emerging Challenges

    • Population growth

    • Economic development

    • Global environmental change

      • climate change

      • land use change

      • UV radiation

The water resource manager’s job

is only going to get harder!


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Fundamental Problem of Economics

The allocation of scarce physical and human resources among competing and unlimited human wants and desires


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Water Provides Diverse Services

Water for nature

Water for agriculture

Water quantity

Water quality

Seasonality of flow

Domestic water

Water for recreation

Water for industry

Given scarcity, trade-offs must be made!


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Example of Difficult Tradeoff for Decision Makers

Use of water to sustain ecosystems

vs.

Use of water for food production


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Tools Exist for Evaluating Trade-offs

Using Multiple Criteria For Decision Making

  • Example: EPA’s TEAM Web-based Decision-Support Tool

  • TEAM: Tool for Environmental Assessment and Management

  • Interactive, web-based tool

  • Purpose: Help water resource managers include considerations of climate change in their day-to-day decision making

  • Employs multi-criteria decision making approach

    • Decision criteria defined by user

    • Objectives defined by user


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Example of Types of Services Water Provides

Ecosystem Services


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Ecosystem Services

Ecosystem services refers to how humans benefit from ecosystems:

“…a wide range of conditions and processes through which

natural ecosystems, and the species that are part of them, help

sustain and fulfill human life”

- Daily et al., 1997


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Ecosystem Services

Ecosystem services relevant to freshwater ecosystems include:

  • recreation (including hunting and fishing)

  • intrinsic or existence values (value of something irrespective of any human use)

  • amenity functions

  • wildlife viewing

  • maintenance of biodiversity and landscape diversity

  • water quality protection and regulation of water flows

  • genetic material and maintenance of a gene pool

  • amelioration of weather and climate regulation


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Ecosystem Services (cont.)

  • pest control

  • fisheries

  • soil retention (erosion control), formation, and maintenance of fertility

  • storm protection, flood control and regulation of hydrologic cycles

  • nutrient cycling

  • cultural (e.g., aesthetic, artistic, spiritual, scientific values)

  • food and fiber production

  • medicines and pharmaceuticals


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Challenge for Policy Makers

  • Decide which use of scarce resources (e.g., water) is valued higher

    • Societal decision

  • Assessors can inform: Values human place on different

    resources, e.g.,

    • survival of wildlife

    • ecosystem functions/services

    • adequate human nutrition

  • We can facilitate: Understanding of tradeoffs (nature & magnitude) inherent in any decision

  • Assessors’ job is not to make policy decisions


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Differing Methods of Valuation

  • Different disciplines have differing methods of valuation

    • Ecologists, biologists & natural scientists

    • Economists

  • Potentially inconsistent water management recommendations emerging from different approaches


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Economic Valuation

  • One approach for providing useful insights

  • Informed by ecological assessments


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Methods for Economic Valuation

Illustration:

Ecosystem Services


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Important Caveat

There are aspects of ecosystems that are valuable but may not be amenable to economic analysis

Such circumstances may require:

  • other analysis and communication tools

  • other decision-making frameworks


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Measuring the Economic Value of Ecosystem Services

  • Economic definition of value:

    the amount of compensation required to make individuals

    as well off after a change as before the change.

  • Value to society:

    determined by the sum of individual values when there is a

    marginal change in an ecological service (e.g., recreational

    fishing)


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Values for Ecological Services: Categories and Examples

  • Market Use Values:

    • food, building materials (e.g., gravel), fuel, drinking water supplies, electric power generation, transportation of coal, tourism

  • Non-market Use Values:

    • recreation, fishing, swimming, boating, hunting, bird-watching, hiking, camping, sight-seeing, transportation and fuel;

    • flood control, mitigation of drought, storm water treatment and/or retention, partial stabilization of climate, water purification, cycling of nutrients and minerals, flow of energy

  • Non-market Nonuse Values:

    • habitat value, scarcity value, option value, existence value, cultural value, historical value, biodiversity, intrinsic value, bequest value, philanthropic value


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Valuing Changes in Ecological Services

  • Economists use several methods to measure people’s willingness to accept tradeoffs…

    • whether they are ecologists, economists, bird watchers, hikers, carpenters, baseball players, ballerinas, musicians, etc.

  • Prefer methods based on how people behave when faced with real-world tradeoffs

    • e.g., between ecological services and other goods

    • revealed preference approaches

  • When observed behavior does not reveal preferences:

    • survey techniques

    • stated-preference approaches


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Methods for Valuing Changes in Ecological Services

Revealed Preference

  • (Hedonic) Property Value

    • uses changes in private property values to estimate an implicit price for changes in ecological services

    • relies on “natural experiments”

  • Travel-Cost Method

    • observes recreators’ observed pattern of trips among available sites

    • accounts for observed variations in site characteristics, including ecological services


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Methods for Valuing Changes in Ecological Services

Stated Preference

  • Contingent Valuation

    • involves direct survey of individuals to elicit their “willingness to pay” for different levels of services

  • Stated Choice

    • Involves survey in which respondents are asked to express preferences among attributes that include specific ecological services (e.g., fish catch; protecting an endangered species)

    • Strength: respondents think in terms of tradeoffs

    • Researchers can identify equivalent tradeoffs by analyzing series of responses


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Challenges in Translating Ecological Value to Economic Value

  • Conditions ideal when:

    • possible to describe or predict the ecological change accurately,

    • nature of ecological good/service that is lost/gained is understood, and

    • importance of the change can be quantified (e.g., monetized) or ranked

  • These ideal conditions seldom are met.

  • Three major challenges:

    • uncertainty

    • irreversibility and cumulative effects

    • issues of fairness (e.g., intergenerational equity, discounting, and environmental justice)


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Economic Valuation: A Sample Application

Valuing Economic Lossesto Recreational Fishingdue to Climate Change


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Sample Application

“Ecological Impacts from Climate Change: An Economic Analysis of Freshwater Recreational Fishing”(EPA, April 1995)


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Sample Application: The Problem

  • Climate change poses risks to opportunities for

  • recreational fishing

  • Warmer water temperatures affect the range and

  • availability of different fish species

  • Recreational fishing is highly valued in the U.S.

  • and contributes substantially to the national economy


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Sample Application: Methods

  • Climate scenarios were chosen to provide plausible

  • range of outcomes

  • A thermal model predicted changes in fish habitat


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Sample Application: Methods (cont.)

  • An economic model predicted changes in angler behavior

    • National fishing model (Vaughan and Russell,

      1982)

    • Projected changes in total days spent on

      recreational fishing

      • By guild of fish (under baseline and climate-changed

      • conditions)

      • As a function of changes in fishable acreage for cold, cool,

      • warm, and rough guilds of fish species


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Sample Application: Valuation

Estimates of the value of fishing days for certain types of freshwater fishing were derived from 71 studies [travel cost models]

(Walsh, Johnson, and McKean, 1992)


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Sample Application: Results

Estimated economic impacts for recreational fishing range from damages of $320 (US) million per year to benefits of $81 (US) million per year (1993 dollars)


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Concluding Thought

“... benefit-cost analysis does not dictate choices; nor does it replace the ultimate authority and responsibility of decision makers. Rather, one should regard economic valuation and cost-benefit analysis as experiments testing the robustness of a project to alternative assumptions concerning the magnitude of costs and benefits, and the various social demands with respect to the return on invested capital.”

- Alex Dubgaard (2003)


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