De economische waarde van water

1. De economische waarde van water Roy Brouwer Institute for Environmental Studies Vrije Universiteit Amsterdam

2. Presentatie • Intro en benaderingswijzen • Blue accounting • Water in sector en macro-economische modellen (Leven met Water) • Publieke waardering van water • Toekomst

3. What makes water so special? • Critical environmental function: without water, no life • Water flows: complex cause-effect relationships in time & space • Knows no administrative boundaries international river basins • Multifunctional & re-useable (recycling) • Public good characteristics - technically impossible to break down in marketable units - property rights often historically & culturally determined • Too little: positive value; too much: negative value • Value, but no price

4. Increasing role of economics in water policy • Water as an economic good • Political-institutional embedding of: • Economic principles • Economic methods • Economic instruments value & price of water? Polluter Pays Principle Cost recovery Cost-Benefit Analysis User fees/charges Tradeable permits

5. Water as an economic good Water has value, but no pricePrice of water does not reflect true value of water

6. Wetland ecosystem structure and processes Functions • Hydrological • Flood water retention • Water recharge Biogeochemical -Nutrient retention & export Ecological -Wildlife habitat and nursery -Landscape structural diversity • -Natural flood protection • Water supply • Habitat maintenance • Socio-economic benefits • -Improved water quality • Waste disposal • -Fishing • Wildfowl hunting • Recreational amenities

7. Open ocean $ 252/ha/yr Coral reefs $ 675/ha/yr Tropical forests $ 2,007/ha/yr Grasslands $ 232/ha/yr Wetlands $14,785/ha/yr Lakes/rivers $ 8,498/ha/yr

8. Economic methods • Integrated ‘blue accounting’ • Integrated river basin modeling • Public valuation methods

9. Roman god Janus who looks both back and forward

10. Integrated blue accounting NAMWARiB: National Accounting Matrix including Water Accounts for River Basins

12. Share river basins in total value added in 2000 GDP=€371 billion

13. Economic structure per river basin in 2000

14. Water use (103 of m3)per sectorin 2001 Rhine West Meuse

15. Waste water production per basin in 2000 Total: 27.2 million i.e.

16. Emission of pollutants per basin, 2000

17. Emissions per sector, Rhine West, 2000 Cu Pb P

18. Relationship economic growth and water use National wastewater nutrients metals GDP

19. Source: Brouwer, Schenau and van der Veeren (2005). Integrated river basin Accounting and the European Water Framework Directive. Statistical Journal of the UN. The Netherlands Meuse Rhine west

20. Roman god Janus who looks both back and forward

21. Project: Water Economic Modeling for Policy Analysis Integrated River Basin Modeling and the WFD De rol van de Stuurgroep

22. Water Economic Modeling for Policy Analysis • Main objective: develop and make operational an integrated water quality and economic river basin model • Decision support: calculate the direct and indirect economic costs of different WFD scenarios • National and river basin level • Consistent aggregation procedures • micro-meso-macro • regional-national • www.falw.vu.nl/ivm/watereconomics

23. Enkele steekwoorden • Integraal • Nadruk economie • Stroomgebied • Eenvoudig beginnen • Van grof naar fijn • Haalbaar Modulair • Balans beleid en wetenschap • Nadruk ‘fundamenteel’ onderzoek zoektocht • Learning by doing

24. Integrated modeling • Abstractions of reality linking two realms of a system, i.c. economy and water • Key to integrated modeling: economic functions of aquatic ecosystems • Consumption: drinking water, recreation etc. • Production: cooling, food and beverages, irrigation etc. • Water as a Source and Sink transformations Economy Water transformations

25. River basin characteristics • Assessment of current causal relationships between water and economic stocks and flows (water use and water services) • Production: Qs t,p=ft,p(Ct,p,Lt,p,T(Rt,p)) (1) Qs: output (e.g. crop yield, electricity etc.) C: capital L: labour T: transformation function R: water resources (quantity, quality) t,p: time and place (basin) • Consumption: Qd t,p=ut,p(Pt,p,Yt,p,T(Rt,p)) (2) Qd: demand (e.g. drinking water, recreation etc.) P: preferences Y: socio-economic chars (e.g. income)

26. Model types

27. Cost-effective programme of measures • Large scale interventions: interconnected economic systems • Direct and indirect economic costs of measures across firms, sectors, a country, basins (in time) Firm model Micro level Sector model Meso level Regional model National model Macro level

28. Economic instruments • Price incentives in programme of measures (e.g. taxes, charges, marketable permits, subsidies) to stimulate more sustainable water use • Effectiveness depends on price and income elasticities of demand and supply  market equilibrium prices  demand and supply More comprehensive economic modeling approaches required than the ‘ad hoc’ approach often used in CEA (direct financial engineering costs of individual measures)

29. Applied General Equilibrium (AGE) Model • Static AGE model with 27 production sectors • Production structure: joint production ‘goods’ and ‘bads’ • Environmental (pollution abatement) sector • Emissions economic activities • Eutrophication (N, P) • Dispersion metals (As, Cr, Cd, Cu, Hg, Ni, Pb, Zn)

30. Nested CES structure Output s =0 0 s 1 s s s 4 2 3 Capital Labour Intermediates Abatement Abatable Unabatable Measures Emissions Emissions

31. Cause-effect chain ‘WFD TOOLS’ Water Economic Modeling for Policy Analysis • Households • Industry • -Chemical industry • -Food industry • -Shipping • - etc. • Agriculture • Dairy farming • Arable farming • Horticulture • etc. • Emissions • Nutrients • Metals • Pesticides • Hydrocarbons • etc. • Immissions • Nutrients • Metals • Pesticides • Hydrocarbons • etc. • Water quality • Nutrients • Metals • Pesticides • Hydrocarbons • etc. Spatial relationships Upstream Downstream

32. First model runs • Three emission reduction scenarios: 10%, 20% and 50% • Assumptions about rest of world • Very preliminary results

33. Preliminary results

34. Preliminary results

35. Preliminary results

36. Preliminary results

37. Public survey study • Assessment publicly perceived benefits implementation WFD in the Netherlands • Estimation economic value of implementation • Underpinning WFD quality objectives • Assessment disproportionate costs • Financial implications current water pricing mechanisms • Position Dutch Government: • Implementation has to be ‘affordable’ • Do benefits outweigh costs?

38. Methodology • Large scale questionnaire survey • Dichotomous choice contingent valuation • 5000 random households • 45 questions • National mail survey October ’03 • Regional follow-up November ’04 Projectbureau IKS Implementatie Kaderrichtlijn Water Schelde Vragenlijst Wat is Schoon Water U Waard?

39. Simple choice experiment • Take extra measures or not to reach good water status all water bodies in the Netherlands • Scenario without additional measures: water quality status most water bodies remains moderate to poor until 2015 • Scenario with additional measures to reach good water quality status water bodies in 2015

40. Summary statistics • €105/household/year • No significant differences between Rhine and Meuse (RM) river basin • Significant differences between RM and Scheldt and Ems basin €68 €108 €103 €68

41. Public perception water quality changes past 10 years

42. Relative importance(compared to other public issues deserving attention)

43. How do you prefer to pay?

44. Conclusions • One third population considers water quality a problem • Majority willing to pay extra to reach WFD objectives • Current water bill approx. €450/household/year • Maximum increase 20% over and above current water bill • Aggregated total economic value €625-725 per year • PV (11 yrs, 4%): €5.7 - 6.3 billion • Over and above current €3 billion per year for water quality management in the Netherlands

45. Complexity and uncertainty

46. Complexity and uncertainty Cost-effectiveness analysis water quality improvement Pressure reduction (ton equiv/year) Costs (mln €/year) Cost effectiveness (1000€/kg equiv) Measure Sanitation industrial discharge 1435 4,3 3,0 (5) Agricultural runoff 7057 38,0 5,4 (7) Drinking water purification 663 0,7 1,1 (2) Coating 200 1,8 9,0 (8) Tertiary treatment WWTP 3276 12,0 3,7 (6) Dislocation effluent outside estuarium 4681 5,4 1,2 (3) Replacement Zn containing paint ships 1467 2,2 1,5 (4) Replacement Zn anodes 13 0,3 22,5 (9) Dredging 11000 7,4 0,7 (1)

47. Complexity (1) • Contribution multiple pollution sources? • Where start taking ‘no regret’ measures? • Effectiveness of measures? • Decay functions?

48. Complexity (2) • Large scale interventions: interconnected economic systems • Direct and indirect economic costs of measures across firms, sectors, a country, basins (in time) Firm model Micro level Sector model Meso level Regional model National model Macro level

49. Uncertainty Emission reduction (ton/year) Cost effectiveness (1000€/kg) Uncertainty (±%) Uncertainty (±%) Uncertainty (±%) Costs (mln €/year) Maatregel Wastewater treatment industry 60? 1435 4,3 3,0 35 25 Linear-additive? Reduction agricultural runoff 2800? 70 40 7057 38,0 5,4 Exponential- multiplicative? Improvement sewer system 663 0,7 1,1 20 10 ? Coating 55 50 ? 200 1,8 9,0 Tertiary treatment WWTP 15 15 ? 3276 12,0 3,7 Dislocation effluent outside estuary 5 4681 5,4 1,2 ? 20 Replacement Cu containing paint ships 1467 2,2 1,5 ? 45 30 ? Replacement Zn anodes 13 0,3 22,5 30 25 15 Dredging 11000 7,4 0,7 15 ?

50. Typology of uncertainty Uncertainty as a result of limited knowledge/information Uncertainty as a result of variability inaccuracy lack of measurements unreliability conflicting information • Variability & unpredictability of: • Nature • Human behaviour/social events • Technological change not measurable reducible ignorance structural uncertainty indeterminable non-reducible ignorance Source: Adapted from van Asselt (2000). Perspectives on uncertainty and risk: the prima approach to decision support. Kluwer Academic Publishers.