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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
International Water Management Course

Values, Prices and Instruments

For Water Management

Joel D. Scheraga, Ph.D.

September 29, 2004

presentation overview
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
slide3

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

slide4

Water is a Scarce Resource

  • Desired
  • Often limited in quantity
the challenge water is often scarce
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)

slide6

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
slide7

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!

fundamental problem of economics
Fundamental Problem of Economics

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

water provides diverse services
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!

example of difficult tradeoff for decision makers
Example of Difficult Tradeoff for Decision Makers

Use of water to sustain ecosystems

vs.

Use of water for food production

slide11

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
ecosystem services
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

ecosystem services14
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
ecosystem services cont
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
challenge for policy makers
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
differing methods of valuation
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
economic valuation
Economic Valuation
  • One approach for providing useful insights
  • Informed by ecological assessments
methods for economic valuation
Methods for Economic Valuation

Illustration:

Ecosystem Services

important caveat
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
measuring the economic value of ecosystem services
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)

values for ecological services categories and examples
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
valuing changes in ecological services
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
methods for valuing changes in ecological services
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
methods for valuing changes in ecological services25
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
challenges in translating ecological value to economic value
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)
slide28

Sample Application

“Ecological Impacts from Climate Change: An Economic Analysis of Freshwater Recreational Fishing”(EPA, April 1995)
slide29

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
slide30

Sample Application: Methods

  • Climate scenarios were chosen to provide plausible
  • range of outcomes
  • A thermal model predicted changes in fish habitat
slide31

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
slide32

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)

slide33

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)

concluding thought
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)