Benefits of Compliance with Nutrient Criteria: Montana ’ s Approach

1. Benefits of Compliance with Nutrient Criteria: Montana’s Approach Jeff Blend Montana Department of Environmental Quality May 20, 2010

2. The Results

3. Benefits • Use Values (quantified) + Use Values (non-quantified) + Non-Use Values + Indirect Use Values • Use Values refer to changes in economic and social well being of people who physically use the water resource: WWTPs, businesses, recreation and agriculture • Non-Use Values: Existence Value • Indirect Use (non-market): Natural processes that still benefit humans

4. Benefits-Quantified • Dodds Study- “Eutrophication of U.S. Freshwaters: Analysis of Potential Economic Damages” (2008) • Estimated the economic value of higher water quality as result of nutrient standards over current water quality, for the entire U.S. • Methods: • Compared current TN and TP concentrations for the U.S. EPA nutrient ecoregions with estimated reference conditions. • Calculated potential annual value losses in recreational water usage, waterfront real estate values, threatened and endangered species, and drinking water from published data • Values may be underestimated/research gaps

5. Values Estimated in Dodds • Recreational Water Usage—Algal bloom effects on boating, fishing, other rec. loss of trip-related expenses from lake closure due to eutrophication • Lakeside property value decrease with declines in water clarity--Calculated percent gain or loss in property values per 1 m change in Secchi depth. • Biodiversity: Assume 25% of all imperiled aquatic species are threatened in part by human-induced eutrophication and therefore 25% of all recovery costs of U.S. Federal Endangered Species Act plans was used as a proxy for this item

6. Drinking water costs attributable to eutrophication estimated using amount of money spent on bottled water that could potentially be attributed to avoidance of taste and odor problems in surface-water-derived tap water • Costs not measurable • number of days water bodies were closed for contact and noncontact use • number of fish kills • human and livestock deaths and sicknesses • money spent on watershed restoration and developing nutrient criteria • money spent on macrophyte removal • water treatments added by municipalities as a result of eutrophication • Costs (benefits) are probably conservative

7. Benefits-Quantifiable (Cont.) • Dodds et al. estimated a value of $2.2 B annually for total U.S. costs from not meeting standards (or benefit of meeting standard) • DEQ prorated that number proportionately by MT population (0.31%) to come up with a Montana number-about $7 M in benefits • < $7 M because not meeting standards • $7 M = Rec water usage ($3.2 M) + water-front prop values ($1 M) + endangered species ($0.15 M) + drinking water ($2.6 M) • Could be more or less based on assumptions

8. Population versus land area numbers • If we prorate the $2.2 B number using Montana’s land area as a percent of the total U.S. land area, the Dodds number for Montana becomes an estimated $90 million annual benefit as an upper bound (MT over 4% of the land area in the U.S. versus 0.3% of the population). Low $7 M, High $90 M • Using Montana’s population percentage is a better measure for some components of quantifiable nutrient benefit and Montana’s land area percentage is a better measure for other components. We combine the two numbers.

9. Drinking water and existing waterfront property values are probably best linked to population. • Waterfront property values include some properties owned by out of staters so the $1 M for Montana may be an underestimate. • The endangered species number is best used in conjunction with land area • The recreational water usage number is harder; Some water recreation is done by residents and some is done by out of staters. Using USFWP data from in 2006, Montana residents made up 81% of all fishing days in the state and non-residents made up 19%. This is the best proxy available for dividing out the recreational value number between resident and non-residents.

10. Final Benefit Number • So, our compromise between prorating Dodds number by population and by land area is $10.4 + $1M + $1.8M + $2.6M= up to $15.8 M as a good compromise between the $7 M and $90 M. • $15.8 is an upper bound for annual benefits in Montana from complying with nutrient standards • Other studies besides Dodds: • Four other studies of Increase in property value per foot of lake frontage for 1-foot improvement in water clarity (from $2.34 to $28 in 1996 dollars). • Other quantitative studies on recreational benefits. • Value of improvement per trip from better dissolved oxygen levels—Smith and Desvouges, 1986 • Salinity---Carson and Mitchell, 1993

11. Non Quantified Benefits-Anthropocentric Use Values: • Improved water quality for economic uses: Less treatment (cost) for a business, industry or WWTP • Removal of overabundant macrophytes • Improved Agricultural water supply (less clogging of irrigation canals, cattle) • Commercial fishing/Fishing guides Non-Use Values: • Option Value (possible future use) and Existence value • Aesthetics from meeting nutrient standards (wilderness) Some of these benefits could be minor, and may be partially captured in $15.8 M figure.

12. Indirect Use or Non-Human • Improved health of plants, wildlife, riparian areas, water and nutrient cycles • Maintenance of dissolved oxygen levels suitable for aquatic life and fisheries • Minimization of daily pH changes which can harm fisheries • Maintenance of healthy aquatic life communities including more sensitive species (fish kills down, biodiversity up, macrophyhte growth).

13. Distributional Impacts • Benefits to all Montanans. Especially to those who recreate or live near water. • Some benefits to out-of-state tourists or those who live downriver from Montana • Costs mostly to 135 towns (just over 50% of Montanans) and 30-40 businesses • Some Government agencies (minor)

14. Conclusions • Overall Benefits of Nutrient criteria are cloudy-Lack of data problem • A variety of ecosystem and non-monetary benefits are hard to quantify as are business costs • Monetary decision versus policy decision—Policy values are human values that are codified

15. Increase in property value per foot of lake frontage for 1-foot improvement in water clarity • Citation method Location Value ($1998) • Michael and others 1996 Hedonic China Lake, ME 28.00 • Michael and others 1996 Hedonic Cobbossee L. ME 16.37 • Michael and others 1996 Hedonic Long Lake, ME 17.53 • Steinnes 1992 Hedonic Northern Minn. 2.34

16. Benefits of Nutrient Criteria • Direct Use Values: Quantified • Market values: Recreation (swimming, boating, fishing), property values, drinking water, industrial use, commercial fishing • Use Values: Non Quantified • Irrigation ditches, wildlife quality, aesthetics • Indirect Use Values: maintenance of biodiversity and a more natural hydrological cycle, habitat, and nutrient cycling • Non Use Values: Non-quantified • Existence, Option Values:

17. Importance of the Economics of Nutrient Criteria Compliance • Economic analysis can define problems and direct focus to areas with greatest potential benefits and costs. This can help policymakers. • Changes in water quality can influence the benefits and costs water users receive and can cause harm to a sensitive beneficial use of water. • Economics can inform about distributional impacts.