FINAL REPORT Corangamite River Health Strategy - Setting Priorities for Investment Using a Benefit Cost Analysis

FINAL REPORT Corangamite River Health Strategy - Setting Priorities for Investment using a Benefit Cost Analysis

Prepared for

Corangamite Catchment Management Authority

64 Dennis Street Colac Vic 3250

19 March 2009 42443891

C:\Documents and Settings\kerry_brehaut\Desktop\Cover.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Project Manager:

URS Australia Pty Ltd

Level 6, 1 Southbank Boulevard Lucas van Raalte Southbank Senior Economist VIC 3006 Australia Tel: 61 3 8699 7500 Project Director: Fax: 61 3 8699 7550

Neil Sturgess Associate Director

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Table of Contents

Table of Contents Executive Summary...... ES-1 ES 1 Background ...... ES-1 ES 2 Project Objectives...... ES-1 ES 3 Background to benefit cost analysis ...... ES-1 ES 3.1 Benefit cost ratios ...... ES-1 ES 4 River works programs ...... ES-2 ES 4.1 Aims of programs...... ES-2 ES 4.2 Measuring benefits of programs ...... ES-2 ES 5 Benefit cost analysis ...... ES-4 ES 5.1 Procedure for BCA...... ES-4 ES 6 BCA results...... ES-5 ES 6.1 Sensitivity analysis...... ES-7 ES 7 Discussion and conclusions ...... ES-7 1 Introduction ...... 1 1.1 Background ...... 1 1.2 Project Objectives...... 1 2 Background to Benefit Cost Analysis ...... 2 2.1 Introduction ...... 2 2.2 Benefit-cost ratios...... 2 2.3 Non-market benefits ...... 3 3 Aims and costs of river management...... 4 3.1 Aims of a management program ...... 4 3.2 Costs of a management program...... 4 4 Benefits of river works program ...... 5 4.1 Benefit valuation ...... 5 4.2 Estimating willingness to accept compensation...... 5 5 Estimating river health benefits ...... 7 5.1 Basis for non-market values...... 7 5.2 Aggregating value estimates ...... 9 5.3 Other values used in the evaluation ...... 11 5.4 Matching program outcomes with valued attributes ...... 12

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc i

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Table of Contents

6 Risk analysis...... 13 7 Procedure for benefit cost analysis...... 14 7.1 Implementing the methodology...... 14 7.1.1 Flow chart ...... 14 7.1.2 Case studies ...... 15 8 Case Study - Barwon River Reach B2 through Geelong...... 16 8.1 Background ...... 16 8.2 Assets of Very High Value...... 16 8.3 Assets at Risk and Threats to those assets...... 16 8.4 Priority Threats and Assets ...... 17 8.5 Implementation targets and project costs...... 17 8.6 Benefit-cost analysis ...... 18 8.6.1 Healthy native vegetation ...... 19 8.6.2 The loss of species of native fish...... 20 8.6.3 The loss of species of native fauna ...... 21 8.6.4 Water quality...... 22 8.6.5 Total benefits and costs...... 25 8.6.6 Sensitivity analysis...... 26 9 Benefit Cost Analysis for RHS Priority Reaches ...... 27 9.1 Introduction ...... 27 9.2 Waterway management actions...... 27 9.3 Improvements in waterway attributes...... 27 9.4 WTP/WTA multipliers...... 28 9.5 Population estimates ...... 29 9.6 BCA Results...... 30 9.7 Sensitivity analysis ...... 32 9.7.1 WTA/WTP Assumption ...... 32 9.7.2 Discount rate...... 34 9.7.3 In-catchment population ...... 36 9.7.4 Conclusions from sensitivity analysis ...... 38 9.8 Discussion and conclusions...... 38

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc ii

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Table of Contents

10 References...... 40 11 Limitations ...... 42

Appendices

A Impacts of management on river health attributes B Net present values from benefit cost analysis C Algal blooms D Case study - Barwon Reach B1 Barwon Estuary E Case study - Barwon River Reach 4 Upstream of Inverleigh F Case study - Barwon River Reach 7 Above West Barwon Dam G Case study - Gellibrand River Reach Gellibrand Estuary

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc iii

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Executive Summary

ES Executive Summary

ES 1 Background The Corangamite Catchment Management Authority (CCMA) has identified and defined 60 priority reaches as part of the Corangamite River Health Strategy (the RHS). The RHS outlines management programs for each of these reaches.

This assessment is concerned with the determination of priorities for investment in 31 of these programs, that is, what should be the order in which programs on these reaches are implemented so that the overall return to the community is maximised when funds are limited.

This assessment of priorities employs the methodology put forward in URS (2003). The principal feature of that methodology is the use of benefit-cost ratios as the criterion by which priorities are judged. Benefit-cost ratios are derived from benefit-cost analyses that involve the use of unpriced (or non-market) benefits. Those benefits are assessed using two methods of valuation. The first method uses the concept of the community’s willingness to pay (WTP) to gain an attribute of a river, as would be the case when the river or reach is to be improved. The second method uses the concept of the community’s willingness to accept compensation (WTA) for the loss of an attribute of a river, as would be the case if the river or reach were not preserved or maintained.

ES 2 Project Objectives The aim of this project is to implement the methodology developed in URS (2003) to help in the process of prioritising investment in the management of key waterways (or reaches) identified in the Corangamite River Health Strategy (RHS). By estimating the benefits achieved per dollar spent on each of the management programs, the project aims to assist in the process of identifying priority reaches. It should be noted that the purpose is not to assess individual management actions but rather to assess overall management programs for each reach that have been developed as part of the RHS. It is recognised that other considerations that do not form part of this assessment will necessarily influence the final determination of priorities such as emerging threats, established funding priorities, as well as other social and environmental factors. This project therefore aims to use benefit cost analysis to reveal one part of the overall understanding required for effective investments in river health in the CCMA.

ES 3 Background to benefit cost analysis Benefit-cost analysis (BCA) is the most widely used methodology for the economic evaluation of public investment projects. Benefit-cost analysis is best viewed as a framework within which all benefits and all costs of a contemplated project or policy can be systematically appraised. In BCA, the potential outcomes (benefits) of a project and the sacrifices (costs) which it entails are compared, as far as possible, in monetary terms. Benefits and costs, therefore, are directly comparable with one another and subtracting costs from benefits allows a measure of the net social benefit. BCA does not in itself make decisions, but rather assists decision makers by revealing and assessing the benefits and costs of options in a transparent way.

ES 3.1 Benefit cost ratios The benefit-cost ratio (BCR) arises from benefit-cost analysis and is a useful criterion for priority setting. A BCR is the ratio of the present value of benefits to the present value of costs (capital costs and operating costs). The Department of Finance (1991) stated that where there is a budget constraint, BCR can lead to misleading conclusions, particularly if the actions differ in size. This result, however, is only evident when the projects are

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc ES-1

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Executive Summary mutually exclusive, that is, if only one of a set of possible projects can be undertaken at a given site. In this assessment of investment priorities, the alternatives are single programs (comprising a set of actions) that can be implemented simultaneously on different rivers or reaches of a river – they are not mutually exclusive. It is under these circumstances that the decision-maker must choose a subset of the most efficient actions from all possible actions within budget constraints.

ES 4 River works programs

ES 4.1 Aims of programs Preservation, restoration, improvement and maintenance are different approaches to river management. The appropriate type of works depends on the condition of the rivers or wetlands relative to the desired condition.

Preservation activities aim to prevent future degradation of a pristine environmental asset.

Maintenance activities prevent the quality of the asset further degrading from its current degraded state.

Restoration activities restore the quality of an environmental asset to an earlier condition.

Improvement activities enhance the quality of the asset relative to its current level.

The impacts of management programs developed for the 31 reaches assessed here were estimated by CMA staff. These impacts were defined in terms of the following key attributes of river health:

• native vegetation;

• native fish species;

• fauna; and

• water quality.

These attributes are the same as those used in the Bennet & Morrison (2001) choice modelling study for NSW rivers, which estimated the benefits of improvements in these attributes in monetary terms. The values estimated in this study were applied here using Benefit Transfer.

ES 4.2 Measuring benefits of programs As discussed in URS (2003) two approaches to benefit valuation can be used. One is willingness to pay (WTP), which reflects the maximum monetary amount that an individual would pay to obtain a good. The other is willingness to accept compensation (WTA), which reflects the minimum monetary amount required to relinquish the good. There is a large body of empirical evidence from observation of human behaviour that demonstrates that willingness to accept compensation (WTA) frequently exceeds (often by many times) the WTP for the same good.

If analysts use WTP where WTA is appropriate, a whole class of environmental goods will be under-valued and hence under-supplied. For example, WTP is relevant to measure the gain in benefits of habitat improvements (restoration and improvement) but WTA is appropriate to measure the loss of benefits if there was habitat loss or damage from its existing condition. If WTP is used where WTA is appropriate, there may be insufficient investment in the prevention of losses and damage (preservation and maintenance), and the relevant river attributes will be under-supplied.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc ES-2

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Executive Summary

An appealing procedure to estimate WTA is to exploit the disparity between the two measures by recognising that WTP under estimates WTA and to multiply WTP up by a pre-determined factor, that is:

WTA = WTP * multiplier

This approach would be suitable if we can estimate an appropriate WTP and an appropriate multiplier.

It is argued in URS (2003) that an appropriate multiplier might lie between 1.0 and 5.0 and can be determined using three characteristics that relate to the river in question. These characteristics are:

• the degree to which the total river environment has substitutes;

• the rareness and accessibility of the attributes of the river; and

• the community’s sense of moral responsibility towards (or “ownership” of) the river.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc ES-3

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Executive Summary

ES 5 Benefit cost analysis

ES 5.1 Procedure for BCA The procedure for the benefit cost analysis is presented diagrammatically in Figure ES1.

Figure ES1 Procedure for benefit cost analysis

Identify river or reach to be assessed and the proposed management program.

Identify appropriate representative river from NSW study for Identify costs of benefit transfer of river health attributes, and from proposed management Corangamite Algal Bloom study for algal bloom values. program and the distribution of costs through time. Discount Determine if aim of program is to preserve to determine the or improve river health attributes present value of costs.

If preserve, WTA is appropriate If improve, WTP is measure. Score river characteristic appropriate measure. No to determine appropriate WTA/WTP modification to multiplier. Apply multiplier to unit household unit values household values found for required. representative river.

Determine in-catchment and out-of-catchment populations.

Multiply unit household values by Assess changes in attributes and appropriate populations (in- algal bloom numbers achieved by catchment and out-of-catchment) programs relative to without to determine aggregate values for programs. Estimate best, worst, and unit changes of attributes. likeliest outcomes.

Multiply changes (worst, best, likeliest) in Multiply reductions in algal each attribute by unit populations values blooms (worst, best, likeliest) by for in-catchment and out-of-catchment cost of algal bloom for populations. representative river from Corangamite region.

Determine the mean and standard deviation of benefits and benefit cost ratios using outcomes specified and Monte Carlo simulation.

Rank investment options in order of benefit cost ratios and consider the implications of unquantified benefits to further refine the ranking of the reaches.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc ES-4

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Executive Summary

ES 6 BCA results The results of the benefit cost analysis are presented in Table 9-3 for reaches in the Barwon Basin, and Table 9-4 for reaches in the Otway Coast Basin. The results have been ranked based on benefit-cost ratios. All analysis has been undertaken using a discount rate of four percent, with sensitivity to this and other factors subsequently assessed. ES1 BCA results - Barwon Basin (4 percent discount rate)

Present value of Present value of Benefit-cost Standard Reach benefits ($ million) costs ($ million) ratio deviation of BCR

B8 Waurns Pond Creek $ 172.88 $ 0.23 738.82 190.06 B28 Barwon R East Branch $ 19.93 $ 0.04 453.02 184.54

B24 Pennyroyal Ck $ 16.85 $ 0.39 43.76 13.47

B1 Barwon R $ 8.94 $ 0.43 20.68 7.77

B2 Barwon R $ 59.30 $ 8.34 7.11 2.05

B12 Leigh R $ 51.89 $ 7.75 6.70 1.54

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc ES-5

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Executive Summary

ES2 BCA results - Otway Coast Basin (4 percent discount rate)

Present value of Present value of Benefit-cost Standard Reach benefits ($ million) costs ($ million) ratio deviation of BCR

O51 Skenes Ck $ 64.49 $ 0.06 1,151.68 435.29 O46 Wye R $ 35.32 $ 0.04 905.52 296.44 O28 Aire R $ 70.29 $ 0.12 605.98 133.26 O33 Erskine R $ 46.55 $ 0.08 604.49 218.03 O34 Anglesea R $ 42.77 $ 0.08 570.29 204.17 O42 Painkalac Ck $ 79.99 $ 0.18 454.49 82.32 O47 Kennett R $ 18.78 $ 0.06 312.99 102.89 O44 St George R $ 22.66 $ 0.08 302.13 115.08 O32 Cumberland R $ 23.54 $ 0.11 224.20 104.90 026 Ford R $ 28.74 $ 0.14 211.35 82.20 O52 Wild Dog Ck $ 32.67 $ 0.26 123.76 48.77 O27 Aire R $ 49.77 $ 0.46 108.44 24.20 O2 Curdies R $ 20.10 $ 0.23 88.92 17.65 O12 Gellibrand R $ 40.60 $ 0.56 72.11 25.12 O30 Barham R $ 68.17 $ 1.38 49.36 10.59 O1 Curdies R $ 39.57 $ 1.47 27.01 5.56 O13 Gellibrand R $ 19.96 $ 0.80 24.98 4.61 O36 Thompson Ck $ 22.13 $ 0.91 24.40 7.82 O16 Gellibrand R $ 6.48 $ 0.65 9.98 3.77 O56 Aire R Upper $ 0.00 $ 0.00 - - O54 Elliott R $ - $ 0.01 0.00 0.00 O50 Smythes Ck $ - $ 0.01 0.00 0.00 O55 Parker R $ - $ 0.01 0.00 0.00 O48 Grey R $ - $ 0.01 0.00 0.00 O49 Carisbrook Ck $ - $ 0.01 0.00 0.00

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc ES-6

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Executive Summary

ES 6.1 Sensitivity analysis A sensitivity analysis was performed to test the sensitivity of results to the following variables/assumptions:

• WTA/WTP assumption;

• discount rate; and

• in-catchment population assumption.

In all sensitivity test undertaken, the ranking of reaches by benefit cost ratio was relatively unchanged (with only a couple of exceptions).

ES 7 Discussion and conclusions It is evident from these results that the size of the benefits of river management when multiplied across the Victorian population are very large relative to the costs of the works programs. However this fact is of little consequence to this analysis. The purpose of this assessment is to prioritise investments in the CCMA’s river management programs, and as such it should be noted that it is not the absolute magnitudes of the benefits and costs that is importance, but rather the relativities between works programs. Hence it is the ranking of management programs, based on benefit-cost ratios, that is of interest.

Even though we have undertaken a formal risk analysis in undertaking this assessment along with a sensitivity analysis of various factors, there is still considerable uncertainty involved in the analysis. The uncertainty in the value of attributes, in-catchment population numbers, and appropriate WTA/WTP multipliers is, nevertheless, consistent across all rivers considered. These uncertainties may lead to high absolute values, however we still have faith that the underlying methodology is appropriate and robust enough to set priorities for investment.

The results of the BCA suggest that the highest benefit per dollar spent (as reflected in the benefit cost ratio) is not necessarily achieved simply by setting the protection of high-value waterways as a priority over more degraded waterways. For example, management of B24 Pennyroyal Creek, a degraded reach, provides five times more benefit per dollar spent than O27 Air River, a reach of a “Heritage River”. This occurs despite the allowance made for the differences between WTA and WTP.

The obvious interpretation for this is that, in some cases, improving degraded rivers may be more cost-effective than preventing degradation of healthy rivers. That is, in some cases, a unit improvement in the health of a degraded river would cost less than preventing a unit of degradation of a healthy river. This would suggest that priorities for investment in river management should be set by evaluating each program on its merits rather than a blanket approach of targeting healthy rivers first. However, it is possible that other factors have contributed to these outcomes. An important factor is that the study has been limited to reaches either being improved or protected, but not both. The analysis is therefore better suited to reaches that are either healthy (with actions aimed at preventing degradation, and little scope for improvement) or degraded (with actions aimed at improving river health, and little requirement for protection). Reaches that sit between these extremes may have actions that both protect and improve river health but whose effects have only been assessed as improvements. This would tend to result in lower assessed benefits for these reaches. Additionally, CCMA staff have stated that it is inherently more difficult to estimate the impact of actions aimed at protecting river health as opposed to improving it, and as such it is possible that these impacts are underestimated. This would tend to bias the results towards investment in reaches with greater opportunities for improvement.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc ES-7

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Executive Summary

It should be emphasised again that the analysis here only considers a limited number of attributes of river health in assessing the benefits of management programs. Although these attributes were the aspects deemed most important to the community in research performed by Bennet and Morrison (2001), there are inevitably benefits of management programs that are not measurable in terms of these attributes.

It should also be noted that some of the programs have associated costs that do not directly provide river health benefits – audits, assessments, monitoring, and plans tend to fall into this category. Although they help guide and facilitate works that do impact on river health, they do not themselves have any impacts and hence do not provide any direct improvements in river health and hence no direct benefit. It could, however, be argued given the relatively low cost of these programs, the value of the knowledge derived from these programs would not need to be great for these to be worthwhile investments. Given this, it is highly likely that these would proceed regardless of their ranking in the analysis presented here.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc ES-8

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Introduction Section 1

1 Introduction 1.1 Background The Corangamite Catchment Management Authority (CCMA) has identified and defined 60 priority reaches as part of the Corangamite River Health Strategy (the RHS). The RHS outlines management programs for each of these reaches.

The assessment of priorities is dependent on an understanding of the physical and biological relationships that underlie the response of a river and its ecosystem to management. There is, however, considerable uncertainty in predicting the outcomes of management actions. This risk is incorporated in the assessment by using a probabilistic form of benefit-cost analysis.

The main elements of the methodology set out in URS (2003) are summarised in the following sections. The summary of the methodology is exemplified by five example case studies. 1.2 Project Objectives The aim of this project is to implement the methodology developed in URS (2003) to help in the process of prioritising investment in the management of key waterways (or reaches) identified in the Corangamite River Health Strategy (RHS). By estimating the benefits achieved per dollar spent on each of the management programs, the project aims to assist in the process of identifying priority reaches. It should be noted that the purpose is not to assess individual management actions but rather to assess overall management programs for each reach that have been developed as part of the RHS. It is recognised that other considerations that do not form part of this assessment will necessarily influence the final determination of priorities such as emerging threats, established funding priorities, as well as other social and environmental factors. This project therefore aims to use benefit cost analysis to reveal one part of the overall understanding required for effective investments in river health in the CCMA.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 1

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 2 Background to Benefit Cost Analysis

2 Background to Benefit Cost Analysis 2.1 Introduction Benefit-cost analysis (BCA) is the most widely used methodology for the economic evaluation of public investment projects. Benefit-cost analysis is best viewed as a framework within which all benefits and all costs of a contemplated project or policy can be systematically appraised.

It is not the purpose of this report to provide a detailed description of BCA and its application to natural resource management issues. A number of useful publications on BCA and methods of valuation for non-market benefits are readily available, for example, Department of Finance (1991), Hanley and Spash (1993), Zerbe and Dively (1994), Sinden and Thampapillai (1995), Wills (1997).

In BCA, the potential outcomes (benefits) of a project and the sacrifices (costs) which it entails are compared, as far as possible, in monetary terms. Benefits and costs, therefore, are directly comparable with one another and subtracting costs from benefits allows a measure of the net social benefit. Net benefit is described as ‘net social benefit’ because the benefits are measured in terms of the gains and losses to the economy as a whole irrespective of to whom they accrue. BCA does not in itself make decisions, but rather assists decision makers by revealing and assessing the benefits and costs of options in a transparent way.

BCA has a unified theoretical base provided by the body of economic theory known as ‘welfare economics’. Furthermore, accounting for the timing of benefits and costs on a consistent and sound basis, through the discounting processes, is an essential part of BCA.

Probabilistic procedures for considering risky outcomes are well developed and employed in this assessment of investment priorities. Where possible, simple probability distributions of outcomes were elicited and used to measure the potential dispersion of net benefits and benefit-cost ratios for the management activities on the various river reaches. 2.2 Benefit-cost ratios The benefit-cost ratio (BCR) arises from benefit-cost analysis and is a useful criterion for priority setting. A BCR is the ratio of the present value of benefits to the present value of costs (capital costs and operating costs). Such a definition implies that total funds – both capital and operating - are limited.

A BCR less than one indicates that the action is uneconomical (that is, the present value of the costs is greater than the present value of the benefits). Of those alternatives that have a BCR greater than one, the higher the BCR, the more return is expected from each dollar expended.

The Department of Finance (1991) stated that where there is a budget constraint, BCR can lead to misleading conclusions, particularly if the actions differ in size. This result, however, is only evident when the projects are mutually exclusive1, that is, if only one of a set of possible projects can be undertaken at

1 The more complex question of the best action to implement on a given river or reach does, of course, involve mutually exclusive options. The present methodology does not address that question, suffice it to note that that decision must be based on a comparison of net present values.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 2

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Background to Benefit Cost Analysis Section 2 a given site. In this assessment of investment priorities, the alternatives are single programs (comprising a set of actions) that can be implemented simultaneously on different rivers or reaches of a river – they are not mutually exclusive . It is under these circumstances that the decision-maker must choose a subset of the most efficient actions from all possible actions within budget constraints. Provided all benefits and costs can be quantified, the comparison of BCRs for each action is an appropriate tool for priority setting in order to maximise the net benefits from the given budget (Sinden and Thampapillai, 1995). 2.3 Non-market benefits The challenge with BCA when applied to the analysis of natural resource management (and, therefore, with the use of BCRs) is the need to value non-market environmental benefits of actions. In the case of river management, such benefits include the benefits of improved (or damage avoided to) opportunities for river based recreation, and benefits to river health. Unfortunately, the methods of valuing non-market benefits, such as contingent valuation, choice modelling or travel cost estimates, using either willingness to pay and willingness to accept are labour intensive and expensive. The process of benefit transfer, however, is a way in which the results from rigorous valuation studies can be used to infer values for the unpriced benefits in this study. The process of benefit transfer, along with its pros and cons, is discussed in Devousges et al. (1992), Bennett (2001), and Sturgess (2001).

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 3

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 3 Aims and Costs of River Management

3 Aims and Costs of River Management 3.1 Aims of a management program Preservation, restoration, improvement and maintenance are different approaches to river management. The appropriate type of works depends on the condition of the rivers or wetlands relative to the desired condition.

Preservation activities aim to prevent future degradation of a pristine environmental asset.

Maintenance activities prevent the quality of the asset further degrading from its current degraded state.

Restoration activities restore the quality of an environmental asset to an earlier condition.

Improvement activities enhance the quality of the asset relative to its current level.

In general, preservation and maintenance actions attempt to avoid future losses, restoration attempts to replace past losses, whereas improvement attempts to increase gains. It should be noted, however, that these categories are not mutually exclusive in that a given action may produce joint outcomes. For example, an action (say, upstream sediment reduction) that is primarily designed to preserve most attributes (such as, healthy in-stream habitat) on the reach in question may simultaneously bring about an improvement in another attribute (say, a reduction in algal blooms). Rather than consider the consequences of an action for a reach attribute-by-attribute, it seems appropriate to account for the overall intention (for example, preservation or restoration) of the action on that reach2.

The Corangamite CMA specified the aim and structure of the management program for each reach used in this assessment. 3.2 Costs of a management program BCA enables future benefits and costs to be expressed at a common point in time, usually the present, through the process of discounting. The Corangamite CMA has identified the total cost of the program for each river or reach and the distribution of the costs over time. For comparison with the benefits of the program, the stream of costs must be converted to an equivalent (lump sum) present value using an appropriate rate of discount.

The rate of discount only affects costs and the value of the annual impacts of algal blooms. The values of changes in each of the attributes are already stated as present values, and are therefore unaffected by discount rate. As a result, we expect the analysis to be relatively insensitive to the chosen discount rate.

However, two rates of discount, 4 per cent and 8 per cent, are used in the assessment so as to demonstrate the sensitivity of rankings to this parameter.

2 A variant of this allows the impact of management on each attribute to be independently determined as preserving, or alternatively improving, that attribute. The appropriate WTA/WTP multiplier is then applied to those attributes when the action is seen to preserve rather than improve the attribute.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 4

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Benefits of River Works Program Section 4

4 Benefits of River Works Program

4.1 Benefit valuation

As discussed in URS (2003) two approaches to benefit valuation can be used. One is willingness to pay (WTP), which reflects the maximum monetary amount that an individual would pay to obtain a good. The other is willingness to accept compensation (WTA), which reflects the minimum monetary amount required to relinquish the good. WTP, therefore, provides a purchase price, relevant for valuing the proposed gain of a good, whereas WTA provides a selling price, relevant for valuing a proposed relinquishment. Conventional economic theory suggests that, in most circumstances, these two measures should yield roughly equal estimates of value. However, there is a large body of empirical evidence from observation of human behaviour that demonstrates that willingness to accept compensation (WTA) frequently exceeds (often by many times) the WTP for the same good.

It is our belief (shared by others, for example, Knetsch 1990, and Brown and Gregory 1999) that this empirical evidence cannot be ignored, and that the correct measure of value must be used in the analysis of environmental programs. In short, the benefits of restoration and improvement should be valued by WTP for an improved environmental asset or service, while the benefit of preservation and maintenance should be valued by WTA for the loss of the asset or service.

If analysts use WTP where WTA is appropriate, a whole class of environmental goods will be under- valued and hence under-supplied. For example, WTP is relevant to measure the gain in benefits of habitat improvements (restoration and improvement) but WTA is appropriate to measure the loss of benefits if there was habitat loss or damage from its existing condition. If WTP is used where WTA is appropriate, there may be insufficient investment in the prevention of losses and damage (preservation and maintenance), and the relevant river attributes will be under-supplied.

4.2 Estimating willingness to accept compensation

Unfortunately, estimates of WTA are hard to find and difficult to collect. Contingent valuation or choice modelling are perhaps the only ways to derive these estimates, but such survey methods may tend to overestimate WTA. An appealing procedure to estimate WTA is to exploit the disparity between the two measures by recognising that WTP under estimates WTA and to multiply WTP up by a pre-determined factor, that is:

WTA = WTP * multiplier

This approach would be suitable if we can estimate an appropriate WTP and an appropriate multiplier.

• the degree to which the total river environment has substitutes;

• the rareness and accessibility of the attributes of the river; and

• the community’s sense of moral responsibility towards (or “ownership” of) the river.

We set the multiplier equal to 1.0 (that is, WTA = WTP) when:

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 5

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 4 Benefits of River Works Program

• substitutes: the river environment has near perfect, readily available, substitutes;

• attributes: the river attributes are common and the site is easy and cheap to access; and

• responsibility: the community feels little or no moral responsibility for the river.

We set the multiplier to its maximum value (5.0) when:

• substitutes: the river environment is unique;

• attributes: the river attributes are rare and the site is difficult and expensive to access; and

• responsibility: the community feels a strong moral responsibility for the river.

Each of these characteristics can be scored on a scale of from 1.0 to 5.0 and the results added and averaged to determine intermediate multipliers.

For this assessment of priorities for waterway investment, Corangamite Catchment Management Authority (CCMA) staff provided scores on the substitutes scale while representatives of Landcare groups in the various catchments scored the other two characteristics. These scores are presented in Section 9.4.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 6

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Estimating River Health Benefits Section 5

5 Estimating River Health Benefits 5.1 Basis for non-market values Bennett and Morrison (2001) is considered to contain river attribute values most suitable for benefit transfer to Victorian case studies. The approach taken by those authors was to divide the catchments of NSW into five ‘geographic regions’. One catchment from within each region was selected, and the environmental values of the rivers in these ‘representative’ catchments were estimated in five separate choice modelling applications3. The ‘representative river’ was selected in each region in consultation with river ecologists, and policy advisers. The rivers and their regions were:

• Bega River (southern coastal region);

• Clarence River (northern coastal region);

• Georges River (urban region);

• Murrumbidgee River (southern inland region); and

• Gwydir River (northern inland region).

After extensive consultation with policy makers, scientists and the community, five attributes were selected for valuation, namely:

• percentage increase in the length of the river with healthy native vegetation and wetlands;

• increase in the number of native fish species present;

• increase in the number of waterbird and other fauna species present;

• increase in water quality from boatable to fishable across the whole river; and

• increase in water quality from fishable to swimmable across the whole river.

The process of benefit transfer is complicated by a person’s location in relation to the river in question. It is to be expected that the values people attach to a river attribute may change with their distances from the river. The total extent of the market for the attributes of a given river may be small (say, confined to the population of the catchment) or it may be large, say, involving all residents of the State or of Australia in the case of ‘national icon’ rivers. In the extreme, as may be the case for some rivers (or their wetlands) with unique attributes, the market may be an international one. In their study of NSW rivers, Bennett and Morrison postulated two market segments – households within the catchment in question and households outside the catchment. The latter was confined to the households within the State of New South Wales.

Our application of benefit transfer also uses two market segments, ‘within the catchment’ and ‘outside the catchment’, where the latter, in line with the source study (Bennett and Morrison 2001), is confined to households in the remainder of the state – in this case Victoria. Even if it were considered that interest in

3 A detailed discussion of choice modelling and applications of the technique may be found in Bennett and Blamey (2001).

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 7

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 5 Estimating River Health Benefits a given river stretched beyond Victoria’s borders, no basis for extrapolation beyond those borders is provided by the source study.

By way of example, it is believed the Clarence, in the northern coastal region, is the appropriate representative NSW river from which to transfer benefits to the Barwon River of Victoria. Like the Barwon River, the Clarence has a notable estuary and flows through a large centre of population (Grafton), although not the same size as Geelong. It might be considered that the Georges River through Sydney would be better suited to represent attribute values for the Barwon River through Geelong. However, estimates of the values of the attributes of a given river cannot be used to represent a single reach where the values of attributes of a second river is used for other reaches (J. Bennett, pers comm.).

The values for northern coastal rivers estimated from the benefit transfer model of Bennett and Morrison are shown in Table 5-1.

Table 5-1 Attribute value estimates for northern coastal rivers (from Bennett and Morrison 2001)

Attribute Value estimate($ per Value estimate($ per within catchment outside catchment household) household) Native Vegetationa 2.02 2.61 Native Fishb 2.02 2.02 Faunac 1.86 0.87 Water Quality:Boatable to Fishabled 47.92 30.10 Water Quality:Fishable to 24.73 38.74 Swimmablee a Vegetation Unit = Value ($) per 1% increase in river length with healthy vegetation and wetlands b Fish Unit = Value ($) per unit increase in the number of native fish species present c Fauna Unit = Value ($) per unit increase in the number of waterbird and other fauna species present d Water Quality Unit = Value ($) of increasing water quality from boatable to fishable across the whole river e Water Quality Unit = Value ($) of increasing water quality from fishable to swimmable across the whole river

In consultation with CCMA staff, it was decided that the use of NSW northern coastal rivers was only appropriate for benefit transfer to reaches of the Barwon River and the Aire River. It was decided that the attributes of the southern coastal river in the Bennet and Morrison study was better suited for benefit transfer to all other priority reaches being assessed. The value of these attributes is presented in Table 5-2.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 8

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Estimating River Health Benefits Section 5

Table 5-2 Attribute value estimates for southern coastal rivers (from Bennett and Morrison 2001)

Attribute Value estimate($ per Value estimate($ per within catchment outside catchment household) household) Native Vegetationa 2.32 2.61 Native Fishb 7.37 6.27 Faunac 0.92 0.87 Water Quality:Boatable to Fishabled 0.5316 0.301 Water Quality:Fishable to Swimmablee 0.5014 0.3874 a Vegetation Unit = Value ($) per 1% increase in river length with healthy vegetation and wetlands b Fish Unit = Value ($) per unit increase in the number of native fish species present c Fauna Unit = Value ($) per unit increase in the number of waterbird and other fauna species present d Water Quality Unit = Value ($) of increasing water quality from boatable to fishable across the whole river e Water Quality Unit = Value ($) of increasing water quality from fishable to swimmable across the whole river

5.2 Aggregating value estimates

The units used to measure the attributes are different for each attribute. That is, the native fish attribute is per additional species and the vegetation attribute is per additional one per cent of the river’s length having healthy riverside vegetation and wetlands. These units of measurement can be simply aggregated for the population in question.

The vegetation attribute can be readily applied to reaches provided it is remembered that any change is expressed as a percentage of the length of the entire river. Care must be taken when considering on a reach-by-reach basis the attributes of a change in the number of native fish species present and a change in the number of species of waterbirds and other species fauna present. This is because a species of fish may be lost in a given reach but would persist in other reaches of the same river. It is the presence or absence across the whole river that was valued. Consistent with the idea of long-term changes resulting from river management actions, the ‘presence’ of a species should be taken to imply, at least, the minimum self-sustaining population of the species.

Valuing changes in the abundance of members of a given species is not possible at this stage. Nevertheless, avoiding reductions in the populations of non-threatened species has been shown to be valued by communities (Blamey, Rolfe, Bennett and Morrison 2000) but this was in the context of land clearing in Central Queensland. Brisbane residents were prepared to make a once-off payment of $1.69 to avoid a one per cent loss in the population of non-threatened species. It is not considered appropriate, however, to transfer such a value to the loss of non-threatened species in a riverine environment in Victoria. Therefore, the results of case studies presented here may underestimate the true benefits of a program.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 9

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 5 Estimating River Health Benefits

Water quality adopts the qualitative unit of measurement – “boatable to fishable” and “fishable to swimmable”. The use of qualitative units for the water quality attribute requires further interpretation when a change in water quality results in a level between the defined levels. Bennett and Morrison (2001) describe an example where an improvement in water quality from boatable to fishable from 40 per cent of the river’s length to 60 per cent of its length occurs. The attribute value estimate is predicated on the improvement occurring over the entire length of the river, therefore, it is necessary to adjust the attribute value estimate. Assuming that the relationship between value and length of river is linear, then the value associated with the additional 20 per cent of the river improved is 20/60 per cent (or 33 per cent) of the value for the entire length of the river.

It should be noted that the attribute values estimated by Bennett and Morrison do not require aggregation over time. They were estimated as one-off payments made by households and as such represent respondents’ “present values” of the stream of value they will enjoy from the attributes through time.

Also recommended is that while the within catchment value estimates can be extrapolated to the number of households in the catchment, to be conservative, they should be extrapolated across the percentage of households that responded to the survey in each catchment. Bennett and Morrison (2001) recommended that the overall response rate in the survey across all rivers (38 per cent), both within and outside the catchment, should be used for extrapolation as a conservative measure. This suggests the assumption that non-respondents have a zero value for the good in question. While there may be some legitimate reasons for not responding and, therefore, not all non-respondents would have a zero value, it would be difficult to gauge the proportion of non-respondents who would have a positive value without a comprehensive survey of non-respondents.

Morrison (2000), in a study that estimated values of environmental improvements to wetlands, found that around one-third of non-respondents have value estimates similar to respondents, but for one reason or another, failed to respond. This implies the appropriate proportion of the population across which extrapolation could be made is the proportion of respondents (38 per cent), plus one-third of the proportion of non-respondents ([1/3 x 62%] + 38% = 59%). However, this is clearly a less conservative approach to estimating aggregate values. Therefore, extrapolation over 38 per cent of the respective catchment populations is preferred.

Example As an example of the aggregation process, consider a river management option in a northern coastal catchment of NSW that would4:

• increase native vegetation along 5 per cent of the river,

4 The outcomes specified in this example are most likely outcomes. In this study, however, we consider the triangular distribution of outcomes around the most likely outcomes. That is, we estimate values for the mode, upper and lower limits of the estimated outcomes and calculate a mean through risk assessment techniques discussed in Section 6.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 10

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Estimating River Health Benefits Section 5

• result in the reintroduction of 2 native fish species, and

• improve water quality across 15 per cent of the length of the river from boatable to fishable.

The catchment population was estimated at 4,000 households, leading to the following within catchment aggregate value estimate:

Within catchment value = 4000 x 0.38 x [(5 x 2.02) + (2 x 2.02) + (0.15 x 47.92)]

= $32,817

Given the NSW population is around 1.8 million households, the outside catchment aggregate value estimate is:

Outside catchment value = 1.8m x 0.38 x [(5 x 2.61) + (2 x 2.02) + (0.15 x 30.10)]

= $14.8 million

5.3 Other values used in the evaluation

In addition to the water quality benefit valued using the Bennett and Morrison study, there are other benefits that arise as a result of reductions in the frequency of algal bloom when water quality is improved. A detailed study of algal bloom impacts is beyond the scope of this project. However an estimate of algal bloom benefits has been derived from a study by Read Sturgess and Associates that investigated the benefits and costs of reducing algal blooms in the Corangamite region. These include current costs (and hence benefits of avoidance) to recreation, water supplies, irrigation, and amenity, as well as avoidance of current costs of managing blooms.

Unfortunately not all of the waterways being assessed here were included in the study. To estimate the current costs of algal blooms in these waterways, CCMA staff provided an indication of waterways in the study that are comparable in terms of social values affected by algal blooms, along with a scaling factor to account for differences in severity of algal bloom impacts. These scaling factors are presented in Appendix C.

Since the valuation of algal bloom reduction will involve some attributes that are valued using the Bennet and Morrison values, an unknown amount of double-counting is possible when measuring the benefits of improved water quality. However, we would not expect this to have a considerable influence on the overall results.

Presented in Table 5-3 are the representative rivers taken from the study, along with their associated costs of algal bloom impacts.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 11

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 5 Estimating River Health Benefits

Table 5-3 Algal bloom impacts from Read Sturgess and Associate study

Representative Expected annual cost of algal blooms Expected Average Waterway ($) number of annual blooms cost per Low High Average per bloom decade per decade

Moorabool River 1,439 2,382 1,911 2 955 Leigh River 8,768 12,807 10,788 30 360 West Barwon Reservoir 1,422 2,123 1,773 1 1,773 Lower Barwon River 3,062,302 4,966,970 4,014,636 60 66,911 Gnarkeet Chain of Ponds 4,499 4,501 4,500 20 225 Curdies River 146,018 238,146 192,082 50 3,842 Anglesea River 34,040 50,770 42,405 20 2,120 Thompson Creek 26,113 42,450 34,282 32 1,071

5.4 Matching program outcomes with valued attributes

Dollar values will not be available for all physical, ecological, or hydrological outcomes of a management program. Indeed, some may not be able to be valued by the community in dollar terms. The community is concerned about the results of the programs that translate into services they use or outcomes they understand. For example, the community may not attach a direct value to a change in river flow (an outcome variable used by the Corangamite CMA) but does attach a value to activities or other outcomes that a change in flow would affect. Such outcomes may include a change in opportunities for sport fishing, canoeing, the number of native fish species, or the health of the in-stream vegetation.

The process of translating the outcomes measured by the Corangamite CMA into the outcomes that can be valued, that is, those provided by the study of Bennett and Morrison (2001), is not an easy task and will inevitably require judgement by the Corangamite CMA. It has not been possible to value all outcomes and there will invariably be river health attributes other than the five assessed here that are valued by the community but have not been included in the analysis. As a result, this analysis may underestimate the benefits of improved river health. Nevertheless, the Bennet and Morrison (2001) study found that, at least in NSW, these five attributes judged to be the most important attributes to the public.

In the assessment undertaken here, reaches are treated as discrete units in which the management programs of other reaches do not affect the reach being assessed. Although this is unrealistic in practice, it is a necessary assumption in order to achieve the project aims of developing investment priorities for individual reaches. This limitation can be overcome, if necessary, by broadening the unit of investigation to “bundles” of reaches whose management programs interact.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 12

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Risk Analysis Section 6

6 Risk Analysis Risk is referred to in this assessment as a situation where the probability of a given outcome can be specified. For river management actions, it is extremely difficult to determine the precise probability distribution of outcomes for each action or river works. Therefore, we employ simple triangular distributions by requesting the Corangamite CMA to specify his/her best estimate of the most likely, absolute minimum (worst) and absolute maximum (best) physical outcomes of the attributes that can be valued.

A triangular distribution provides flexibility in modelling a limited set of data points when knowledge of the outcomes is sparse. However, one limitation of a triangular distribution is that it is bounded by the minimum and maximum data estimates, “thereby eliminating the possibility of extreme outlying values that might possibly occur” (Evans and Olson, 1998).

Each point on the triangular distributions of physical outcomes for an attribute is weighted by the value of the attribute (Section 5) for each set of households (inside and outside the catchment). The value of the outcome for each set of households is added to obtain the three points on the triangular distribution of benefits for that river attribute. This process is repeated to obtain the triangular distribution of benefits for each relevant attribute.

The value of the benefits of each outcome is used as input into simple simulations that enable the calculation of the distribution of total benefits. These simulations use Crystal Ball™ software (a Microsoft Excel™ add-in). Each of the distributions of net benefits and BCRs in the case studies were derived using the Monte Carlo technique which randomly sampled 3000 trials from the triangular distribution of the value of each outcome for each river health attribute. The results of interest from this process are the mean net benefit of the program (net present value), the mean BCR and their respective standard deviations.

An example distribution of net benefits from a single simulation using 3,000 trials of a program is shown in Figure 6-1.

Forecast: Net Present Value - R4_State_Correlated

3,000 Trials Frequency Chart 3,000 Displayed

.028 84

.021 63

.014 42

.007 21

.000 0

$5,000,000 $13,750,000 $22,500,000 $31,250,000 $40,000,000

Figure 6-1 Histogram of 3000 sampled outcomes for a river health attribute using a triangular distribution

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 13

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 7 Procedure for Benefit Cost Analysis

7 Procedure for Benefit Cost Analysis 7.1 Implementing the methodology 7.1.1 Flow chart The flow chart presented in Figure 7-1 demonstrates how the methodology outlined in the previous sections is implemented in undertaking a benefit cost analysis.

Figure 7-1 Methodology flowchart

Identify river or reach to be assessed and the proposed management program.

Determine in-catchment and out-of-catchment populations.

Determine the mean and standard deviation of benefits and benefit cost ratios using outcomes specified and Monte Carlo simulation.

Rank investment options in order of benefit cost ratios and consider the implications of unquantified benefits to further refine the ranking of the reaches.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 14

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Procedure for Benefit Cost Analysis Section 7

7.1.2 Case studies The process undertaken in this assessment involves 31 rivers and reaches. Rather than go through in detail each step in the analysis, five case studies have been developed to illustrate the process by which the assessment has occurred. One of these is presented in Section 8, with the other four presented in Appendix D through G.

Some of the case studies presented here were also used in URS (2003), however in many places the information and analysis has been updated and refined.

A summary of the inputs and results for the 31 reaches is then presented in Section 9.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 15

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case Study - Barwon River Reach B2 through Section 8 Geelong

8 Case Study - Barwon River Reach B2 through Geelong

8.1 Background

Around Geelong, the Barwon River is a major recreation feature where fishing, rowing, water skiing, passive recreation and other water activities are frequently enjoyed. The Barwon River is a major feature of the city of Geelong and much of the southern and northern banks through Geelong have been converted to parklands, reserves and recreation areas.

The reach being considered in this part of the case study is approximately 35 kilometres in length stretching from upstream of the Barwon Estuary, through Geelong to Pollocksford Bridge. This reach includes Reedy Lake (a Ramsar site), has a high regional significance as a social asset and is at high risk from several threats including degraded riparian vegetation and algal blooms.

8.2 Assets of Very High Value

The Barwon River through Geelong has numerous environmental, social and economic assets of very high value. These have been identified in the RHS and are summarised in Table 8-1.

Table 8-1 Assets of Very High Value in the Barwon River Estuary

Environmental Social Economic Significant Flora Recreational Fishing Infrastructure Ecological Vegetation Class (EVC) Non-motorised Boats Significant Fauna Motorised Boats Fish Migration Camping Sites of Significance Swimming Passive Recreation European Heritage Listed Landscape Flagship Species

8.3 Assets at Risk and Threats to those assets

Of the highly valued assets presented in Table 8-1 the RHS identifies assets at most risk, ordered by risk score, are shown in Table 8-2.

Table 8-2 Assets at most risk

Asset Risk Score Flagship Species 13 Recreational Fishing 11 Fish Migration 9 Significant Fauna 9

The RHS identifies the threats to the assets at most risk and are shown in Table 8-3.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 16

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case Study - Barwon River Reach B2 through Geelong Section 8

Table 8-3 Threats posing most risk

Threat Risk Score Degraded Riparian Vegetation 23 Algal Blooms 22 Flow Deviation 12

8.4 Priority Threats and Assets

The priority assets to which the threats outlined above pose most risk are detailed in Table 8-4 (from the RHS). This identifies the priority 1 and priority 2 assets at most risk from the priority threats.

Table 8-4 Priority threats and assets

Threats Priority 1 Assets Priority 2 Assets Algal Blooms Significant Fauna Invertebrates Observed v Expected Fish Observed v Expected Fish Migration Recreational Fishing Non-motorised Boats Motorised Boats Listed Landscape Flagship Species Water Supply Irrigation Tourism Water Quality Invertebrates Fish Migration Wetland Rarity Swimming Water Supply (Irrigation) Flow Deviation Fish Migration Listed Landscape Recreational Fishing

8.5 Implementation targets and project costs

The five year implementation targets and estimated project costs listed in the RHS are shown in Table 8-5.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 17

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case Study - Barwon River Reach B2 through Section 8 Geelong

Table 8-5 Five-year implementation targets, and project costs

Activity Number Unit Cost ($) Riparian Fencing 224 km $1,788,000 Riparian Revegetation 229 ha $1,374,000 Barwon through Geelong $4,350,000 Stormwater management Not costed Environmental Best Management Practices Not costed Fish Passage $100,000 Blue-green algae monitoring $125,000 Bed stabilisation $800,000 Gully stabilisation Not costed Water Quality Monitoring $49,000 Private Forestry Audit Not costed Drop structures Not costed Stability of alluvial valleys Not costed Stream stability investigation $100,000 Willow management $564,000 Ecological risk assessment Not costed Monitoring, evaluation and reporting $118,000

TOTAL (rounded) $9,368,000

8.6 Benefit-cost analysis

Analysis of this reach is complex because of the diversity and intensity of recreation activities, the interaction with upstream reaches as sources of sediment and nutrients, and the existence of a Ramsar wetland – Reedy Lake. The overall thrust of management is to maintain the reach in its present condition – particularly Reedy Lake and the recreation and aesthetic amenity on the 20 kilometres through Geelong. See Appendix 9.4 for intermediate multiplier calculations.

As a joint product with maintenance, the program on this reach and that on Reach 4 (see Section E), is expected to bring about a reduction in the incidence of algal blooms in this reach (as well as in Reach 4). The analysis of Reach 2 (and Reach 4) presented here is an approximation to the form of analysis that might be used in a comprehensive analysis of a waterway program for the entire river. That analysis would need to give greater attention to the interactions between reaches and sites than is possible in the reach-by-reach analysis used here. Such a detailed analysis would combine the reaches so that as far as possible all causes and effects were expressed within the aggregate of the reaches.

The maintenance program for the reach is expected to cost $0.60m per year. For comparability with the other case study reaches we have assumed that this is equivalent to a program with a present value cost

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 18

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case Study - Barwon River Reach B2 through Geelong Section 8 of $2.67m (at a discount rate of 4 per cent) spread over 5 years. In other words, it is assumed that the benefits outlined below could be achieved with a five-year program with a present cost of $2.67m5.

Possible outcomes of valued attributes that would be avoided by implementation of the program are:

• a reduction in the length of the river with healthy native vegetation and wetlands;

• the loss of summer recreation; and

• the loss of a native fish species.

A number of important species of waterbirds frequent Reedy Lake (Australian Nature Conservation Agency 1996, p.686), but how the management program might affect them cannot be predicted. The loss of species of water birds and other fauna, therefore, has been excluded from the analysis.

Water quality would remain fishable (although some people do swim). It is unlikely to attain a generally accepted swimmable standard but there is likely to be an improvement as measured by a reduction in algal blooms.

8.6.1 Healthy native vegetation

“Reedy Lake is the largest natural freshwater lake in central Victoria and has outstanding significance due to its large size, floristic richness and structural diversity” (Australian Nature Conservation Agency 1996, p.686).

The three points on the triangular distribution of the reduction in the length of the stream with healthy native vegetation and wetlands that would be avoided with the program are:

• zero loss worst outcome;

• 7 km (20 percent of the reach’s length = 4.1 percent or river’s length) most likely loss; and

• 17.5 km (50 percent of the reach’s length = 10.3 percent of river’s length) best outcome.

The valuation process for healthy native vegetation and wetlands using WTA is shown in Table 8-6. WTP estimates are those in Table 5-1.

5 We note a different result would be obtained if it were necessary to continue this maintenance program for a longer period to achieve the benefits.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 19

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case Study - Barwon River Reach B2 through Section 8 Geelong

Table 8-6 Estimated benefits from healthy native vegetation – Barwon Reach 2

Avoided loss of 17.5 Avoided loss of 7 km Avoided loss of zero km of river (10.3 per of river (4.1 per cent km of river – worst cent of length)– best of length) – most Item outcome outcome likely outcome

Within Outside Within Outside Within Outside catchment catchment catchment catchment catchment catchment WTP per HH per 1% of river length $2.02 $2.61 $2.02 $2.61 $2.02 $2.61 WTP/WTA multiplier 4.3 3.7 4.3 3.7 4.3 3.7 WTA per HH per 1% of river length $8.69 $9.66 $8.69 $9.66 $8.69 $9.66 WTA per HH per outcome percentage of river length $86.86 $96.57 $34.74 $38.63 $0.00 $0.00 No. HH (at 38% of total) 22,000 631,000 22,000 631,000 22,000 631,000 Value of outcome for each market ($m) $1.91 $60.94 $0.76 $24.37 $0.00 $0.00 Value of outcome ($m) $62.85 $25.14 $0.00

8.6.2 The loss of species of native fish

The best outcome of the program would be to avoid the loss of grayling. The most likely and worst outcomes would be that the loss of the species did not occur with the program in place. Therefore, we propose that the three points on the distribution of avoided potential loss of native fish species would be:

• loss of zero species of native fish worst outcome;

• loss of one species of native fish most likely outcome; and

• loss of two species of native fish best outcome.

The valuation process for such potential losses avoided by the program is shown in Table 8-7(see Table 5-1for estimates of WTP per fish species).

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 20

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case Study - Barwon River Reach B2 through Geelong Section 8

Table 8-7 Benefits from avoiding loss of native fish species – Barwon Reach 2

Avoiding loss of one Avoiding loss of two Avoiding zero loss of species of native species of native native fish species– fish – most likely Item fish – best outcome worst outcome outcome

Within Outside Within Outside Within Outside catchment catchment catchment catchment catchment catchment WTP per HH per fish species $2.02 $2.02 $2.02 $2.02 $2.02 $2.02 WTP/WTA multiplier 4.3 3.7 4.3 3.7 4.3 3.7 WTA per HH per fish species $8.69 $7.47 $8.69 $7.47 $8.69 $7.47 WTA per HH per outcome number of fish species lost $17.37 $14.95 $8.69 $7.47 $0.00 $0.00 No. HH 22,000 631,000 22,000 631,000 22,000 631,000 Value of outcome for each market ($m) $0.38 $9.43 $0.19 $4.72 $0.00 $0.00 Value of outcome ($m) $9.81 $4.91 $0.00

8.6.3 The loss of species of native fauna In the absence of a management program, there is expected to be a loss in the number of species native fauna. The proposed three points on the distribution of avoided potential loss of native fauna species is:

• loss of zero species of native fauna worst outcome;

• loss of two species of native fauna most likely outcome; and

• loss of four species of native fauna best outcome.

The valuation process for such potential losses avoided by the program is shown in Table 8-8 (see Table 5-1 for estimates of WTP per species of fauna).

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 21

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case Study - Barwon River Reach B2 through Section 8 Geelong

Table 8-8 Benefits from avoiding loss of native fauna – Barwon Reach 2

Avoiding loss of four Avoiding loss of two Avoiding zero loss of species of native species of native native species of fauna – best fauna – most likely fauna– worst Item outcome outcome outcome

Within Outside Within Outside Within Outside catchment catchment catchment catchment catchment catchment WTP per HH per fish species $1.86 $0.87 $1.86 $0.87 $1.86 $0.87 WTP/WTA multiplier 4.3 3.7 4.3 3.7 4.3 3.7 WTA per HH per fish species $8.00 $3.22 $8.00 $3.22 $8.00 $3.22 WTA per HH per outcome number of fish species lost $31.99 $12.88 $16.00 $6.44 $0.00 $0.00 No. HH 22,000 631,000 22,000 631,000 22,000 631,000 Value of outcome for each market ($m) $0.70 $8.12 $0.35 $4.06 $0.00 $0.00 Value of outcome ($m) $8.83 $4.41 $0.00

8.6.4 Water quality

The present frequency of algal blooms is estimated to be about 60 every 10 years, on average, about six per year. The program is expected to bring about an improvement in water quality by reducing the frequency of blooms.

The three points of the triangular distribution of outcomes are estimated to be:

• no change in the number of blooms per decade worst outcome;

• the number of blooms reduced by 10 per decade most likely; and

• the number of blooms reduced by 15 per decade best outcome.

The anticipated average annual cost of a bloom under current conditions in this reach is about $0.67m (derived from the costs for the lower Barwon derived from Read Sturgess and Associates 1998 - see Section 5.3). Most of this cost (about 75 per cent) is due to the effect on summer recreation, and most of the remainder is due to loss of amenity to residents. For this reason we avoid double counting by assuming the management program at least maintains summer recreation through its effect on the incidence of algal blooms.

Table 8-9 shows the distribution of savings in the costs of blooms over a 30 year period at a discount rate of 4 per cent.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 22

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case Study - Barwon River Reach B2 through Geelong Section 8

Table 8-9 Benefits from reducing algal blooms – Barwon Reach 2

Number of blooms Number of blooms reduced by 20 per reduced by 10 per No change in number decade (average of 2 decade (average of 1 of blooms – worst per year) – best per year) – most outcome outcome likely outcome NPV of savings in the costs of algal 17.35 11.57 0.0 blooms ($m)

As well as impacting on algal bloom frequency, management is also likely to improve general water quality. In this case this is measured by avoiding a loss in water quality from swimmable to fishable for a percentage of the river’s length, and a further avoidance of a loss in length of river from fishable to boatable for another percentage of the river’s length.

The three points on the triangular distribution of the length of river for which a loss of water quality from swimmable to fishable is avoided, is:

• no change in water quality worst outcome;

• 8.9km (25 percent of the reach’s length = 5.3 percent of the river’s length) likeliest outcome; and

• 14.3 km (40 percent of the reach’s length = 8.4 percent of river’s length) best outcome.

The valuation for process for these potential losses avoided by the program is presented in Table 8-10.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 23

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case Study - Barwon River Reach B2 through Section 8 Geelong

Table 8-10 Benefits of avoiding loss of water quality from swimmable to fishable

Avoiding loss of Avoiding loss of Avoiding loss of water quality from water quality from water quality from swimmable to swimmable to swimmable to fishable on 8.4 fishable on 5.3 fishable on zero Item percent of river percent of river percent of river length – best length – most likely length – worst outcome outcome outcome

Within Outside Within Outside Within Outside catchment catchment catchment catchment catchment catchment WTP per HH per fish species $0.25 $0.39 $0.25 $0.39 $0.25 $0.39 WTP/WTA multiplier 4.3 3.7 4.3 3.7 4.3 3.7 WTA per HH per fish species $1.08 $1.44 $1.08 $1.44 $1.08 $1.44 WTA per HH per outcome number of fish species lost $9.03 $12.12 $5.70 $7.65 $0.00 $0.00 No. HH 22,000 631,000 22,000 631,000 22,000 631,000 Value of outcome for each market ($m) $0.20 $7.65 $0.13 $4.83 $0.00 $0.00 Value of outcome ($m) $7.85 $4.95 $0.00

The three points on the triangular distribution of the length of river for which a loss of water quality from fishable to boatable is avoided, is:

• no change in water quality worst outcome;

• 14.3 km (40 percent of the reach’s length = 8.4 percent of river’s length) likeliest outcome; and

• 26.8 km (75 percent of the reach’s length = 15.8 percent of river’s length) best outcome.

The valuation for process for these potential losses avoided by the program is presented in Table 8-11.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 24

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case Study - Barwon River Reach B2 through Geelong Section 8

Table 8-11 Benefits of avoiding loss of water quality from fishable to boatable

Avoiding loss of Avoiding loss of Avoiding loss of water quality from water quality from water quality from fishable to boatable fishable to boatable fishable to boatable on 15.8 percent of on 8.4 percent of on zero percent of Item river length – best river length – most river length – worst outcome likely outcome outcome

Within Outside Within Outside Within Outside catchment catchment catchment catchment catchment catchment WTP per HH per fish species $0.48 $0.30 $0.48 $0.30 $0.48 $0.30 WTP/WTA multiplier 4.3 3.7 4.3 3.7 4.3 3.7 WTA per HH per fish species $2.06 $1.11 $2.06 $1.11 $2.06 $1.11 WTA per HH per outcome number of fish species lost $32.61 $17.54 $17.34 $9.32 $0.00 $0.00 No. HH 22,000 631,000 22,000 631,000 22,000 631,000 Value of outcome for each market ($m) $0.72 $11.07 $0.38 $5.88 $0.00 $0.00 Value of outcome ($m) $11.78 $6.26 $0.00

8.6.5 Total benefits and costs

For the simulations using Crystal Ball™, the individual benefits from the maintenance program (including the reduction in algal blooms) are assumed to be additive. Also the individual benefits are assumed to be perfectly correlated. The results of the simulations of the benefits and costs of the program are shown in Table 8-12.

Table 8-12 Estimated benefits and costs – Barwon Reach 2

Item Value Mean present value of benefits ($m) 59.30 Present value of program cost at 4 per cent 8.34 discount ($m) Expected NPV (standard deviation) ($m) 50.95 (17.09) Expected BCR (standard deviation) 7.11 (2.05)

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 25

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case Study - Barwon River Reach B2 through Section 8 Geelong

8.6.6 Sensitivity analysis

• If all the worst outcomes for each source of benefit were achieved simultaneously no contribution towards the cost of the program would be recovered.

• It is not possible with the information available to determine the benefits to the ‘within catchment’ community. This would depend primarily on the recreational use of the reach made by locals, and how that use would be affected by changes in the incidence of algal blooms6. If all the benefits of reducing algal blooms are regarded as local benefits, the ‘within catchment’ mean NPV would be $3.89m, with a mean BCR would be 1.

If the program were evaluated on the distribution of outcomes valued at WTP rather than the estimated WTA, the mean NPV would be about $14.62 million and the mean BCR would be about 2.75. The implication of this valuation of benefits is that the priority allocated to investment in this reach if assessed on WTP may be lower than it should be if the competing reaches were to be improved or restored.

6 The data that is available suggests considerable local use. It is estimated that there would be about 8,000 to 11,000 passive recreationists per year, most of whom would be locals. There are about 5,000 rowers at each major events or about 25,000 per year – most of whom would be visitors from outside the catchment. The are about 100 local rowers per day over summer – about 9,000 per year. Over summer there would be about 5,000 water skiers (mainly local), while canoeists over the whole year would number about 3,000 (mainly local).

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 26

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Benefit Cost Analysis for RHS Priority Reaches Section 9

9 Benefit Cost Analysis for RHS Priority Reaches 9.1 Introduction The Corangamite Catchment Management Authority identified 31 reaches from its River Health Strategy to be prioritised based on a benefit cost analysis of the management actions proposed under the Strategy. These reaches were selected as representatives of various categories of waterways that exist within the catchment, as outlined in Table 9-1.

Table 9-1 Waterway categories

Category Representative waterways Heritage rivers O28 Aire River, O56 Aire River Upper, O27 Aire River Ecologically healthy waterways O50 Smythes Creek, O55 Parker River, O54 Elliot River, B28 Barwon River East Branch, O48 Grey River, O49 Carisbrook Creek, O51 Skenes River Water supply with environmental value B8 Waurns Pond Creek, O13 Gellibrand River, Water supply requiring environmental restoration O16 Gellibrand River, O26 Ford River, B24 Pennyroyal Creek Estuaries O1 Curdies River Waterways with high social value O52 Wild Dog Creek, O36 Thomsons Creek Waterways with high tourism value O32 Cumberland River, O46 Wye River, O47 Kennett River, O33 Erskine River High risk waterways O2 Curdies River Other waterways requiring protection B1 Barwon River, B2 Barwon River, O34 Anglesea River, O12 Gellibrand River, O30 Barham River, O42 Painkalac Creek, O44 St George River, B12 Leigh River

9.2 Waterway management actions Management programs for each of the rivers have been developed for the Strategy and form the basis for estimating the magnitude of avoided degradation and/or improvement of the ecological health of the waterways. Descriptions of the management actions within these programs and their associated costs are described further within the Strategy. 9.3 Improvements in waterway attributes As outlined previously in this report, for the purposes of this assessment waterway health is described by four key attributes: native vegetation, native fish species, native fauna, and water quality. The improvements, and avoided losses, in these attributes arising as a result of the management actions prescribed by the Strategy were assessed by CCMA staff. These are presented in Appendix A. Note that where the aim of management is to protect the waterway, the attribute scores reflect the level of degradation avoided by management. Where the aim is restoration or improvement of the waterway, the attribute scores reflect improvements in each of the river health attributes.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 27

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 9 Benefit Cost Analysis for RHS Priority Reaches

For each attribute of each waterway, three potential outcomes arising from management activities, the worst, likeliest, and best outcomes, have been estimated. These define a triangular distribution of the possible outcomes for use in Monte Carlo Simulations. 9.4 WTP/WTA multipliers As discussed previously, the benefits of management actions aimed at protecting or maintaining the health of the river, as opposed to restoring or improving it, should be more appropriately measured using WTA rather than WTP. This requires a conversion factor when applying the benefit transfer technique, as discussed in Section 4.2, which is determined based on three main characteristics:

• the degree to which the total river environment has substitutes;

• the rareness and accessibility of the attributes of the river; and

• the community’s sense of moral responsibility towards (or “ownership” of) the river.

CCMA staff have provided estimates of these characteristics on a scale of 1 to 5 for both populations within the catchment and populations outside (but within Victoria). These are outlined in Table 9-2. Note that only waterways that are being preserved or maintained are listed here, since the others are measured using WTP and do not require a multiplier.

Table 9-2 WTP/WTA multipliers

Within Catchment Outside Catchment

River Moral River River Moral River Env Attributes Respons Average Env Attributes Respons Average Reach Subs. & Access ibility Within Subs. & Access ibility Outside O28 Aire R 5 5 5 5.0 4 554.7 O56 Aire R Upper 3 3 3 3.0 3322.7 O27 Aire R 5434.0 4534.0 O50 Smythes Ck 4 5 5 4.7 4554.7 O55 Parker R 4 5 5 4.7 4554.7 O54 Elliott R 4 5 5 4.7 4554.7 B28 Barwon R East Branch 5454.7 4454.3 O48 Grey R 4 5 5 4.7 4554.7 O49 Carisbrook Ck 4 5 5 4.7 4554.7 O51 Skenes Ck 3 2 3 2.7 3232.7 B1 Barwon R 5 4 5 4.7 4444.0 B2 Barwon R 5 4 4 4.3 5333.7 O34 Anglesea R 4454.3 4354.0 O12 Gellibrand R 4444.0 3523.3 O30 Barham R 4444.0 3333.0 O42 Painkalac Ck 4 4 5 4.3 4343.7 O44 St George R 5 4 4 4.3 4444.0 B12 Leigh R 5 5 3 4.3 3222.3 B8 Waurns Pond Creek 3 4 4 3.7 3412.7 O13 Gellibrand R 4 5 4 4.3 2523.0 O32 Cumberland R 4 5 3 4.0 4544.3 O46 Wye R 3 4 4 3.7 3343.3 O47 Kennett R 3 3 4 3.3 3343.3 O33 Erskine R 3 443.7 3 443.7

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 28

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Benefit Cost Analysis for RHS Priority Reaches Section 9

9.5 Population estimates There are two distinct populations that are of interest to this study: those people that reside within the waterway catchment (the ‘in-catchment population’, and those that reside elsewhere in the State (the ‘out- of-catchment population’).

Based on Census population data for Victoria, and applying an average of 2.3 people per household, there are approximately 1,719, 000 households within the State. After scaling to 38 percent, as described in Section 5.2, the relevant household population for this assessment becomes approximately 653,000 households. These are then divided into ‘in-catchment’ and ‘out-of-catchment’ household populations.

Strictly speaking, the in-catchment population refers to those people that reside within the catchment of the waterway in question. It was not possible to get data at such a fine level of detail. The in-catchment population has therefore been considered to be those people that live within the larger waterway basin (which is either the Otway Coast or the Barwon for all waterways here), but also within the boundary of the CMA. These populations have been derived from ABS data of the population of Local Government Areas (LGAs). Where only part of an LGA exists within the in-catchment boundary described above, an estimate (using GIS) has been made of the proportionate area of this part, and this proportion has been applied to population numbers. For example, if one third of the area of an LGA exists within the in- catchment boundary, then one-third of the LGA’s population is assumed to be part of the in-catchment population.

Based on this method, the in-catchment population of waterways has been estimated at 28,532 for the Otway Coast Basin, and 132,407 for the Barwon Basin. Dividing these numbers by an average of 2.3 people per household, the number of in-catchment households is 12,327 households and 57,568 households, respectively. These are scaled to 38 percent for this assessment (see Section 5.2) to become approximately 4,700 households and 22,000 households, respectively.

Note that the sensitivity of the results to these assumptions has been tested by assuming an in-catchment population of zero in Section 9.7.3

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 29

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 9 Benefit Cost Analysis for RHS Priority Reaches

9.6 BCA Results The results of the benefit cost analysis are presented in Table 9-3 for reaches in the Barwon Basin, and Table 9-4 for reaches in the Otway Coast Basin. The results have been ranked based on benefit-cost ratios, as was described in Section 2.2 to be the most appropriate metric for describing and ranking the economic merits of the different management programs. The associated net present value for each of the waterways is presented in Appendix B. All analysis has been undertaken using a discount rate of four percent, with sensitivity to this factor tested in Section 9.7.2.

Table 9-3 BCA results - Barwon Basin (4 percent discount rate)

Present value Present value Standard Benefit-cost Reach of benefits ($ of costs ($ deviation of ratio million) million) BCR

B8 Waurns Pond $ 172.88 $ 0.23 738.82 190.06 B28 Barwon R East $ 19.93 $ 0.04 453.02 184.54 B24 Pennyroyal Ck $ 16.85 $ 0.39 43.76 13.47 B1 Barwon R $ 8.94 $ 0.43 20.68 7.77 B2 Barwon R $ 59.30 $ 8.34 7.11 2.05 B12 Leigh R $ 51.89 $ 7.75 6.70 1.54

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 30

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Benefit Cost Analysis for RHS Priority Reaches Section 9

Table 9-4 BCA results - Otway Coast Basin (4 percent discount rate)

Present value Present value Standard Benefit-cost Reach of benefits ($ of costs ($ deviation of ratio million) million) BCR

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 31

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 9 Benefit Cost Analysis for RHS Priority Reaches

9.7 Sensitivity analysis The results of the benefit cost analysis are contingent on a number of assumptions and estimates. The sensitivity of the results to changes in some of these are explored further in this section. 9.7.1 WTA/WTP Assumption The methodology employed here assumes that, based on evidence found in the literature, a discrepancy between WTP and WTA exists for commensurate changes in river health. Presented in Table 9-5 and Table 9-6 are the results of the waterway programs for each reach with this assumption relaxed, ranked by BCR for the Barwon Basin and Otway Coast Basin respectively. Although some the ranking for some reaches has changed slightly, the overall impact of this change is not significant.

Table 9-5 BCA sensitivity (WTA equals WTP) - Barwon Basin (4 percent discount rate)

Present value Present value Benefit-cost Reach of benefits ($ of costs ($ ratio million) million)

B8 Waurns Pond $ 62.38 $ 0.23 266.56 B28 Barwon R East $ 4.61 $ 0.04 104.77 B24 Pennyroyal Ck $ 16.59 $ 0.39 43.08 B1 Barwon R $ 3.08 $ 0.43 7.12 B12 Leigh R $ 22.01 $ 7.75 2.84 B2 Barwon R $ 22.96 $ 8.34 2.75

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 32

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Benefit Cost Analysis for RHS Priority Reaches Section 9

Table 9-6 BCA sensitivity (WTA equals WTP) - Otway Coast Basin (4 percent discount rate)

Present value Present value Benefit-cost Reach of benefits ($ of costs ($ ratio million) million)

O51 Skenes Ck $ 23.85 $ 0.06 425.86 O46 Wye R $ 10.65 $ 0.04 273.12 O28 Aire R $ 28.36 $ 0.14 208.53 O33 Erskine R $ 12.61 $ 0.08 163.72 O34 Anglesea R $ 10.73 $ 0.08 143.08 O42 Painkalac Ck $ 14.95 $ 0.12 128.85 O47 Kennett R $ 32.88 $ 0.26 124.55 O44 St George R $ 21.64 $ 0.18 122.98 O32 Cumberland R $ 5.68 $ 0.06 94.69 026 Ford R $ 20.15 $ 0.23 89.15 O52 Wild Dog Ck $ 5.68 $ 0.08 75.78 O27 Aire R $ 40.33 $ 0.56 71.64 O2 Curdies R $ 5.46 $ 0.11 52.03 O12 Gellibrand R $ 12.39 $ 0.46 27.00 O30 Barham R $ 21.79 $ 0.91 24.02 O1 Curdies R $ 12.24 $ 0.56 21.75 O13 Gellibrand R $ 26.16 $ 1.47 17.85 O36 Thompson Ck $ 22.72 $ 1.38 16.45 O16 Gellibrand R $ 6.60 $ 0.80 8.26 O56 Aire R Upper $ 0.00 $ 0.00 - O54 Elliott R $ - $ 0.01 0.00 O50 Smythes Ck $ - $ 0.01 0.00 O55 Parker R $ - $ 0.01 0.00 O48 Grey R $ - $ 0.01 0.00 O49 Carisbrook Ck $ - $ 0.01 0.00

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 33

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 9 Benefit Cost Analysis for RHS Priority Reaches

9.7.2 Discount rate Although we do not expect the discount rate to significantly impact on the outcomes of this analysis, we have tested this sensitivity here for completeness. There is generally some disagreement as to the most appropriate discount rate for assessments involving environmental benefits and costs, however a discount rate of four percent is fairly typical and has been used so far in this analysis. To test the sensitivity of the results to this factor, a higher discount rate of eight percent has been used here, with the results presented in Table 9-7 for reaches in the Barwon Basin and Table 9-8 for reaches in the Otway Coast Basin.

It is clear that the results are very insensitive to changes in discount rate. The reason for this is that the economic values derived from the study by Bennett et al that forms the basis of the measurement of benefits in this analysis are present values. Thus the changes in discount rates have no impact on these values.

Table 9-7 BCA sensitivity - discount rate (Barwon Basin)

Present value Present value Benefit-cost Reach of benefits ($ of costs ($ ratio million) million)

B8 Waurns Pond $ 172.87 $ 0.21 823.18 B28 Barwon R East $ 19.93 $ 0.04 511.10 B24 Pennyroyal Ck $ 16.85 $ 0.35 48.83 B1 Barwon R $ 8.54 $ 0.39 22.06 B2 Barwon R $ 56.04 $ 7.48 7.49 B12 Leigh R $ 51.88 $ 6.95 7.46

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 34

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Benefit Cost Analysis for RHS Priority Reaches Section 9

Table 9-8 BCA sensitivity - discount rate (Otway Coast Basin)

Present value Present value Benefit-cost Reach of benefits ($ of costs ($ ratio million) million)

O51 Skenes Ck $ 64.49 $ 0.05 1,289.75 O46 Wye R $ 35.31 $ 0.04 1,008.83 O28 Aire R $ 70.29 $ 0.10 675.90 O33 Erskine R $ 46.53 $ 0.07 674.39 O34 Anglesea R $ 42.75 $ 0.07 638.06 O42 Painkalac Ck $ 79.97 $ 0.16 506.12 O47 Kennett R $ 18.77 $ 0.05 347.64 O44 St George R $ 22.66 $ 0.07 338.20 O32 Cumberland R $ 23.54 $ 0.09 250.44 026 Ford R $ 28.74 $ 0.12 235.60 O52 Wild Dog Ck $ 32.67 $ 0.24 137.83 O27 Aire R $ 49.77 $ 0.41 120.81 O2 Curdies R $ 20.04 $ 0.20 98.72 O12 Gellibrand R $ 40.58 $ 0.51 80.36 O30 Barham R $ 68.17 $ 1.24 55.02 O1 Curdies R $ 39.52 $ 1.31 30.08 O13 Gellibrand R $ 19.96 $ 0.72 27.88 O36 Thompson Ck $ 22.11 $ 0.81 27.17 O16 Gellibrand R $ 6.48 $ 0.58 11.13 O56 Aire R Upper $ - $ - - O50 Smythes Ck $ 0.00 $ 0.01 0.00 O54 Elliott R $ 0.00 $ 0.01 0.00 O55 Parker R $ 0.00 $ 0.01 0.00 O48 Grey R $ 0.00 $ 0.01 0.00 O49 Carisbrook Ck $ 0.00 $ 0.01 0.00

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 35

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 9 Benefit Cost Analysis for RHS Priority Reaches

9.7.3 In-catchment population In Section 9.5, the method of estimating in-catchment populations was discussed. This method overstates the true in-catchment population of those that live within the catchment of the reach in question. To investigate the sensitivity of the rankings to this number, the analysis here has been conducted assuming that the in-catchment population is zero (and hence understates this value). The results are presented in Table 9-9 for the Barwon Basin and Table 9-10 for the Otway Coast Basin.

The results are very insensitive to changes in the in-catchment population numbers, and rank is unchanged in this analysis. The benefits accruing to households within the catchment make up a small component of the overall benefits, despite being larger on a per household basis. The sheer numbers of households outside the catchment make the in-catchment results virtually insignificant.

Table 9-9 BCA sensitivity - in-catchment population assumed zero (Barwon Basin)

Present value Present value Benefit-cost Reach of benefits ($ of costs ($ ratio million) million)

B8 Waurns Pond Creek $170.39 $0.23 728.15

B28 Barwon R East $19.88 $0.04 451.82

B24 Pennyroyal Ck $16.59 $0.39 43.08

B1 Barwon R $8.90 $0.43 20.6

B2 Barwon R $59.19 $8.34 7.1

B12 Leigh R $51.12 $7.75 6.62

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 36

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Benefit Cost Analysis for RHS Priority Reaches Section 9

Table 9-10 BCA sensitivity - in-catchment population assumed zero (Otway Coast Basin)

Present value Present value Benefit-cost Reach of benefits ($ of costs ($ ratio million) million)

O51 Skenes Ck $64.36 $0.06 1149.26

O46 Wye R $35.12 $0.04 900.47

O28 Aire R $70.27 $0.12 605.75

O33 Erskine R $46.53 $0.08 604.33

O34 Anglesea R $42.74 $0.08 569.93

O42 Painkalac Ck $79.96 $0.18 454.32

O47 Kennett R $18.71 $0.06 311.92

O44 St George R $22.73 $0.08 303.02

O32 Cumberland R $23.49 $0.11 223.71

026 Ford R $28.36 $0.14 208.53

O52 Wild Dog Ck $32.88 $0.26 124.55

O27 Aire R $49.58 $0.46 108.01

O2 Curdies R $20.15 $0.23 89.15

O12 Gellibrand R $40.33 $0.56 71.64

O30 Barham R $68.24 $1.38 49.41

O13 Gellibrand R $19.85 $0.80 24.84

O36 Thompson Ck $21.79 $0.91 24.02

O1 Curdies R $26.16 $1.47 17.85

O16 Gellibrand R $6.47 $0.65 9.96

O56 Aire R Upper $0.00 $0.00 -

O54 Elliott R $0.00 $0.01 0 O50 Smythes Ck $0.00 $0.01 0 O55 Parker R $0.00 $0.01 0 O48 Grey R $0.00 $0.01 0 O49 Carisbrook Ck $0.00 $0.01 0

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 37

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 9 Benefit Cost Analysis for RHS Priority Reaches

9.7.4 Conclusions from sensitivity analysis Based on the outcomes of the sensitivity analysis, it is clear that the ranked list of priority reaches is largely unchanged by changes in the assumptions relating to the WTA/WTP multiplier, in-catchment populations, and discount rate. As such, this provides a degree of confidence that the analysis and resultant ranking provided is robust. It is interesting to note that the discrepancy between WTA and WTP has not proved, in the examples provided here, to be an important factor in the prioritisation process. 9.8 Discussion and conclusions It is evident from these results that the size of the benefits of river management when multiplied across the Victorian population are very large relative to the costs of the works programs. However this fact is of little consequence to this analysis. The purpose of this assessment is to prioritise investments in the CCMA’s river management programs, and as such it should be noted that it is not the absolute magnitudes of the benefits and costs that is importance, but rather the relativities between works programs. Hence it is the ranking of management programs, based on benefit-cost ratios, that is of interest.

The obvious interpretation for this is that, in some cases, improving degraded rivers may be more cost- effective than preventing degradation of healthy rivers. That is, in some cases, a unit improvement in the health of a degraded river would cost less than preventing a unit of degradation of a healthy river. This would suggest that priorities for investment in river management should be set by evaluating each program on its merits rather than a blanket approach of targeting healthy rivers first. However, it is possible that other factors have contributed to these outcomes. An important factor is that the study has been limited to reaches either being improved or protected, but not both. The analysis is therefore better suited to reaches that are either healthy (with actions aimed at preventing degradation, and little scope for improvement) or degraded (with actions aimed at improving river health, and little requirement for protection). Reaches that sit between these extremes may have actions that both protect and improve river health but whose effects have only been assessed as improvements. This would tend to result in lower assessed benefits for these reaches. Additionally, CCMA staff have stated that it is inherently more difficult to estimate the impact of actions aimed at protecting river health as opposed to improving it, and

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 38

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Benefit Cost Analysis for RHS Priority Reaches Section 9 as such it is possible that these impacts are underestimated. This would tend to bias the results towards investment in reaches with greater opportunities for improvement.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 39

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 10 References

10 References Australian Nature Conservation Agency, 1996, A Directory of Important Wetlands in Australia, ANCA Canberra.

Bennett J. and Blamey R. (eds), 2001, The Choice Modelling Approach to Environmental Valuation, Edward Elgar Publishing Inc., MA, USA.

Bennett, J. and Morrison, M, 2001, Valuing the Environmental Attributes of NSW Rivers. Draft report prepared for the NSW Environment Protection Authority. Available at http://apseg.anu.edu.au/staff/jbennettr.php

Bennett J., 2001, ‘Non-market valuation: choice modelling’, pp.42-52 in Haszler H, (ed), Land Use Policy for Environmental Objectives: Contributions from Economics: Proceedings of Workshop for Environment Managers, Land and Water Australia, Discussion Paper 2001:1, Melbourne.

Blamey R., Rolfe J., Bennett J. and Morrison M. 2000, ‘Valuing remnant vegetation in Central Queensland using choice modelling’, Australian Journal of Agricultural and Resource Economics, 44, 439-456.

Brown, Thomas and Robin Gregory, 1999, “SURVEY Why the WTA-WTP disparity matters”, Ecological Economics, 28, 323-335.

Department of Finance, 1991, Handbook of Cost-Benefit Analysis. Australian Government Publishing Service.

Desvousges, W.H., Naughton, M.C. and Parsons, G.R. (1992), “Benefits Transfer: Conceptual Problems in Estimating Water Quality Benefits Using Existing Studies”, Water Resources Research, Vol.28(3): 675- 683.

Evans, J. R. and Olson, D. L, 1998, Introduction to Simulation and Risk Analysis. Prentice Hall, Inc.

Hanley N. and Spash C.L., 1993, Cost Benefit Analysis and the Environment, Edward Elgar Publishing, Aldershot, Hants, England.

Knetsch, J.L, 1990, “Environmental policy Implications of Disparities between Willingness to Pay and Compensation Demanded Measures of Values”, Journal of Environmental Economics and Management, 18, 227-237

Morrison M., 2000, ‘Aggregation bias in stated preference studies’, Australian Economic Papers, 39(2): 215-230.

Read Sturgess and Associates, 1998, Benefits and Costs from Reducing Frequency of Algal Blooms in Corangamite Region, A Report to the Corangamite Catchment Management Authority.

Sinden, J.A. and Thampapillai, D.J, 1995, Introduction to Benefit-Cost Analysis. Longman Australia.

Sturgess N., 2001, ‘Non-market valuation: the Benefit Transfer Method and Other Challenges’, pp.53-65 in Haszler H, (ed), Land Use Policy for Environmental Objectives: Contributions from Economics: Proceedings of Workshop for Environment Managers, Land and Water Australia, Discussion Paper 2001:1, Melbourne.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 40

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

References Section 10

URS (2003), An Economic Methodology to Analyse Investments in River Health – Preservation versus Restoration, prepared for the Department of Sustainability and Environment, Victoria.

Wills, I. 1997, Economics and the Environment: a Signalling and Incentives Approach, Allen and Unwin, Sydney.

Zerbe, R.O. and Dively, D.D, 1994, Benefit-Cost Analysis: In theory and practice. HarperCollins College Publishers.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 41

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Section 11 Limitations

11 Limitations URS Australia Pty Ltd (URS) has prepared this report in accordance with the usual care and thoroughness of the consulting profession for the use of Corangamite Catchment Management Authority and only those third parties who have been authorised in writing by URS to rely on the report. It is based on generally accepted practices and standards at the time it was prepared. No other warranty, expressed or implied, is made as to the professional advice included in this report. It is prepared in accordance with the scope of work and for the purpose outlined in the Proposal dated April 2004.

The methodology adopted and sources of information used by URS are outlined in this report. URS has made no independent verification of this information beyond the agreed scope of works and URS assumes no responsibility for any inaccuracies or omissions. No indications were found during our investigations that information contained in this report as provided to URS was false.

This report was prepared between May 2004 and October 2008 and is based on the conditions encountered and information reviewed at the time of preparation. URS disclaims responsibility for any changes that may have occurred after this time.

This report should be read in full. No responsibility is accepted for use of any part of this report in any other context or for any other purpose or by third parties. This report does not purport to give legal advice. Legal advice can only be given by qualified legal practitioners.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc 42

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Impacts of management on river health attributes Appendix A

A Impacts of management on river health attributes The impacts on river health attributes of the management actions outlined in the River Health Strategy are presented in the tables below. Note that scores represent improvements in attributes relative to a base case of no change in management program. Where the purpose of the program is to protect the waterway, the score represents the amount of degradation to the attribute that is avoided by the management actions. Where the purpose of the program is to restore (improve) the waterway, the attribute scores represent the improvement in the river health attribute.

Table A1 River attribute scores

Purpose SCORE REACH (protect/r ATTRIBUTE estore) Worst Likeliest Best Increase in Native Vegetation (% of river length) 0% 0% 0% Increase in Native Fish (No. Species) 0 0 0 Increase in Fauna (No. Species) 0 0 0 O56 Aire R Upper Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 10% 20% 30% Increase in Native Fish (No. Species) 0 0 1 Increase in Fauna (No. Species) 0 2 4 O27 Aire R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 0% 30% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 0% 0% 0% Increase in Native Fish (No. Species) 0 0 0 Increase in Fauna (No. Species) 0 0 0 O55 Parker R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 0% 0% 0% Increase in Native Fish (No. Species) 000 Increase in Fauna (No. Species) 0 0 0 O54 Elliott R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 0% 5% 10% Increase in Native Fish (No. Species) 000 Increase in Fauna (No. Species) 0 0 0 B28 Barwon R East Branch Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 0% 0% 0% Increase in Native Fish (No. Species) 0 0 0 Increase in Fauna (No. Species) 000 O48 Grey R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 0% 0% 0% Increase in Native Fish (No. Species) 0 0 0 Increase in Fauna (No. Species) 000 O49 Carisbrook Ck Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 0% 10% 25% Increase in Native Fish (No. Species) 0 0 0 Increase in Fauna (No. Species) 0 1 2 O51 Skenes Ck Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 15% 25% Reduction in algal blooms (blooms per year) 0 1 2 Increase in Native Vegetation (% of river length) 0% 0% 0% Increase in Native Fish (No. Species) 0 0 0 Increase in Fauna (No. Species) 0 0 0 O50 Smythes Ck Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 0 0

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Impacts of management on river health Appendix A attributes

Purpose SCORE REACH (protect/r ATTRIBUTE estore) Worst Likeliest Best Increase in Native Vegetation (% of river length) 0% 20% 50% Increase in Native Fish (No. Species) 0 1 2 Increase in Fauna (No. Species) 0 2 4 B2 Barwon R Protect Improvement in Water Quality - Boatable to Fishable 0% 40% 75% Imprvement in Water Quality - Fishable to 0% 25% 40% Reduction in algal blooms (blooms per year) 0 10 15 Increase in Native Vegetation (% of river length) 0% 2% 5% Increase in Native Fish (No. Species) 0 1 2 Increase in Fauna (No. Species) 0 2 5 O34 Anglesea R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 5% 10% Reduction in algal blooms (blooms per year) 0 2 3 Increase in Native Vegetation (% of river length) 0% 20% 50% Increase in Native Fish (No. Species) 0 1 2 Increase in Fauna (No. Species) 0 4 8 O12 Gellibrand R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 50% 100% Reduction in algal blooms (blooms per year) 0 2 2 Increase in Native Vegetation (% of river length) 1% 3% 5% Increase in Native Fish (No. Species) 001 Increase in Fauna (No. Species) 0 2 4 B1 Barwon R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 1 2 Increase in Native Vegetation (% of river length) 15% 20% 30% Increase in Native Fish (No. Species) 012 Increase in Fauna (No. Species) 0 1 3 O42 Painkalac Ck Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 57% 100% Reduction in algal blooms (blooms per year) 0 2 3 Increase in Native Vegetation (% of river length) 0% 10% 15% Increase in Native Fish (No. Species) 0 0 0 Increase in Fauna (No. Species) 000 O44 St George R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 10% 30% 30% Increase in Native Fish (No. Species) 0 2 3 Increase in Fauna (No. Species) 023 B12 Leigh R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 20% 30% 40% Reduction in algal blooms (blooms per year) 0 3 4 Increase in Native Vegetation (% of river length) 10% 30% 50% Increase in Native Fish (No. Species) 0 0 2 Increase in Fauna (No. Species) 0 5 8 B8 Waurns Pond Creek Protect Improvement in Water Quality - Boatable to Fishable 0% 23% 69% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 3 5 Increase in Native Vegetation (% of river length) 5% 10% 18% Increase in Native Fish (No. Species) 0 0 0 Increase in Fauna (No. Species) 0 0 0 O13 Gellibrand R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 15% 40% 75% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 0% 10% 15% Increase in Native Fish (No. Species) 0 1 2 Increase in Fauna (No. Species) 0 0 0 O16 Gellibrand R Restore Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 5% 15% 20% Increase in Native Fish (No. Species) 012 Increase in Fauna (No. Species) 0 2 4 O1 Curdies R Restore Improvement in Water Quality - Boatable to Fishable 0% 50% 100% Imprvement in Water Quality - Fishable to 0% 5% 15% Reduction in algal blooms (blooms per year) 0 2 5

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Impacts of management on river health attributes Appendix A

Purpose SCORE REACH (protect/r ATTRIBUTE estore) Worst Likeliest Best Increase in Native Vegetation (% of river length) 10% 20% 30% Increase in Native Fish (No. Species) 0 1 2 Increase in Fauna (No. Species) 1 2 4 O30 Barham R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 23% 46% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 10% 25% 40% Increase in Native Fish (No. Species) 0 0 0 Increase in Fauna (No. Species) 0 5 8 O36 Thompson Ck Restore Improvement in Water Quality - Boatable to Fishable 0% 22% 67% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 3 5 Increase in Native Vegetation (% of river length) 0% 10% 30% Increase in Native Fish (No. Species) 0 0 0 Increase in Fauna (No. Species) 0 1 2 026 Ford R Restore Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 13% 47% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 0% 15% 30% Increase in Native Fish (No. Species) 013 Increase in Fauna (No. Species) 0 1 2 O52 Wild Dog Ck Restore Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 5% 10% Reduction in algal blooms (blooms per year) 0 1 2 Increase in Native Vegetation (% of river length) 0% 15% 20% Increase in Native Fish (No. Species) 012 Increase in Fauna (No. Species) 0 0 0 B24 Pennyroyal Ck Restore Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 20% 40% Reduction in algal blooms (blooms per year) 0 1 1 Increase in Native Vegetation (% of river length) 0% 5% 10% Increase in Native Fish (No. Species) 0 0 0 Increase in Fauna (No. Species) 000 O46 Wye R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 8% 17% Reduction in algal blooms (blooms per year) 0 1 2 Increase in Native Vegetation (% of river length) 0% 2% 5% Increase in Native Fish (No. Species) 0 0 0 Increase in Fauna (No. Species) 000 O47 Kennett R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 7% 13% Reduction in algal blooms (blooms per year) 0 1 2 Increase in Native Vegetation (% of river length) 0% 5% 10% Increase in Native Fish (No. Species) 0 0 1 Increase in Fauna (No. Species) 0 1 2 O33 Erskine R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 8% 17% Reduction in algal blooms (blooms per year) 0 1 2 Increase in Native Vegetation (% of river length) 20% 40% 50% Increase in Native Fish (No. Species) 0 0 1 Increase in Fauna (No. Species) 0 2 5 O2 Curdies R Restore Improvement in Water Quality - Boatable to Fishable 0% 20% 50% Imprvement in Water Quality - Fishable to 0% 5% 20% Reduction in algal blooms (blooms per year) 0 2 5 Increase in Native Vegetation (% of river length) 0% 0% 0% Increase in Native Fish (No. Species) 0 1 3 Increase in Fauna (No. Species) 0 0 0 O32 Cumberland R Protect Improvement in Water Quality - Boatable to Fishable 0% 0% 0% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 0 0 Increase in Native Vegetation (% of river length) 10% 20% 30% Increase in Native Fish (No. Species) 000 Increase in Fauna (No. Species) 0 5 10 O28 Aire R Protect Improvement in Water Quality - Boatable to Fishable 0% 20% 40% Imprvement in Water Quality - Fishable to 0% 0% 0% Reduction in algal blooms (blooms per year) 0 0 0

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Net present values from benefit cost analysis Appendix B

B Net present values from benefit cost analysis Presented below are the net present values (NPVs) from undertaking the management programs for each of the reaches, ranked by NPV.

Table B1 Benefit cost analysis: Net Present Values

PV Benefits PV Costs NPV Reach 4% 8% 4% 8% 4% standard 8% standard discount rate discount rate discount rate discount rate discount rate deviation discount rate deviation B8 Waurns Pond Creek $172.88 $44.68 $0.23 $0.21 $172.65 $44.47 $172.66 $44.47 O42 Painkalac Ck $79.99 $14.65 $0.18 $0.16 $79.81 $14.49 $79.81 $14.49 O28 Aire R $70.29 $15.56 $0.12 $0.10 $70.18 $15.46 $70.19 $15.46 O30 Barham R $68.17 $15.86 $1.38 $1.24 $66.79 $14.62 $66.93 $14.62 O51 Skenes Ck $64.49 $24.43 $0.06 $0.05 $64.44 $24.38 $64.44 $24.38 B2 Barwon R $59.30 $24.57 $8.34 $7.48 $50.95 $17.09 $48.56 $16.79 O27 Aire R $49.77 $11.52 $0.46 $0.41 $49.31 $11.11 $49.36 $11.11 O33 Erskine R $46.55 $16.86 $0.08 $0.07 $46.47 $16.79 $46.46 $16.79 B12 Leigh R $51.89 $18.86 $7.75 $6.95 $44.14 $11.91 $44.93 $11.91 O34 Anglesea R $42.77 $15.38 $0.08 $0.07 $42.70 $15.31 $42.68 $15.31 O12 Gellibrand R $40.60 $14.65 $0.56 $0.51 $40.04 $14.14 $40.08 $14.14 O1 Curdies R $39.57 $9.45 $1.47 $1.31 $38.11 $8.14 $38.21 $8.14 O46 Wye R $35.32 $11.60 $0.04 $0.04 $35.28 $11.56 $35.27 $11.56 O52 Wild Dog Ck $32.67 $13.11 $0.26 $0.24 $32.41 $12.88 $32.43 $12.88 026 Ford R $28.74 $11.30 $0.14 $0.12 $28.61 $11.18 $28.62 $11.18 O32 Cumberland R $23.54 $11.11 $0.11 $0.09 $23.44 $11.01 $23.45 $11.01 O44 St George R $22.66 $8.70 $0.08 $0.07 $22.58 $8.63 $22.59 $8.63 O36 Thompson Ck $22.13 $7.90 $0.91 $0.81 $21.22 $7.09 $21.30 $7.09 B28 Barwon R East Branch $19.93 $8.16 $0.04 $0.04 $19.89 $8.12 $19.89 $8.12 O2 Curdies R $20.10 $4.19 $0.23 $0.20 $19.87 $3.99 $19.84 $3.99 O13 Gellibrand R $19.96 $4.40 $0.80 $0.72 $19.16 $3.69 $19.24 $3.69 O47 Kennett R $18.78 $6.23 $0.06 $0.05 $18.72 $6.17 $18.72 $6.17 B24 Pennyroyal Ck $16.85 $5.53 $0.39 $0.35 $16.46 $5.18 $16.50 $5.18 B1 Barwon R $8.94 $3.74 $0.43 $0.39 $8.50 $3.36 $8.15 $3.34 O16 Gellibrand R $6.48 $3.03 $0.65 $0.58 $5.83 $2.45 $5.89 $2.45 O56 Aire R Upper $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 O54 Elliott R $0.00 $0.00 $0.01 $0.01 -$0.01 $0.00 -$0.01 $0.00 O50 Smythes Ck $0.00 $0.00 $0.01 $0.01 -$0.01 $0.00 -$0.01 $0.00 O55 Parker R $0.00 $0.00 $0.01 $0.01 -$0.01 $0.00 -$0.01 $0.00 O48 Grey R $0.00 $0.00 $0.01 $0.01 -$0.01 $0.00 -$0.01 $0.00 O49 Carisbrook Ck $0.00 $0.00 $0.01 $0.01 -$0.01 $0.00 -$0.01 $0.00

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Algal blooms Appendix C

C Algal blooms As discussed in Section 5.3, the benefits of reducing algal blooms have been estimated based on a study by Read Sturgess and Associates into the benefits of algal bloom management. Although many of the waterways included in this analysis were not included in aforementioned study, estimates of the benefits of reducing algal blooms have been made based on comparisons with waterways with similar algal bloom impacts that appear in the study. CCMA staff have provided such comparisons, along with scaling factors to account for differences in the severity of algal bloom impacts these are presented in table and table.

Table C1 Rivers used in Read Sturgess and Associates’ Algal Blooms study

Moorabool BasinLeigh Basin Barwon Basin Corangamite Basin Otway Basin 1 Little River 12 Gong Gong Reservoir 17 Warrambine Creek 30 Woady Yaloak River 46 Lake Purrumbete 2 Moorabool River (west branch) 13 Lake Wendouree 18 West Barwon Reservoir 31 Gnarkeet Chain of Ponds 47 Scotts Creek 3 Moorabool Reservoir 14 White Swan Reservoir 19 Birregurra Creek 32 Mundy Gully 48 Curdies River 4 Bungal Dam/ Lal Lal Reservoir 15 Yarrowee Creek 20 Barwon River above Leigh River 33 Deep Lake 49 Kennedy's Creek 5 Bostock Reservoir 16 Leigh River 21 Wurdee Boluc Reservoir 34 Lake Tooliorook/Ettrick 50 Anglesea River 6 Moorabool River 22 Lake Murdeduke 35 Lake Gnarpurt 51 Thompsons Creek 7 Stony Creek Reservoir Upper 23 Waurn Ponds 36 Lake Martin/Cundare Pool 8 Stony Creek Reservoir Lower 24 Lower Barwon River 37 Lake Corangamite 9 Koweinguboora Reservoir 25 Lake Lorne & McLeod's Waterholes 38 Lake Terangpom 10 Hovells Creek 26 Barwon Valley Park Geelong 39 Lake Colungulac 11 Cowies Creek 27 Lake Connewarre 40 Lake Milangil 28 St Leonards Lake 41 Lake Bullen Merri 29 Lake Modewarre 42 Pirron Yallock Creek 43 Lake Colac 44 Deans Creek 45 Barrongarook Creek

Table C1 Comparable rivers and scaling factors

Reach Comparable with (no.) Scale factor O2 Curdies R 48 1 O56 Aire R Upper 31 3 O27 Aire R 50 1 O50 Smythes Ck 50 0.5 O55 Parker R 50 0.5 O54 Elliott R 50 0.5 R28 Barwon R East Branch 18 1 O48 Grey R 31 0.2 O49 Carisbrook Ck 31 2 O51 Skenes Ck 50 0.5 B1 Barwon R 24 1 R2 Barwon R 24 1 O34 Anglesea R 50 1 O12 Gellibrand R 6 2 O30 Barham R 50 1 O42 Painkalac Ck 50 1 O44 St George R 50 1 B12 Leigh R 16 1 B8 Waurns Pond Creek 51 1 O13 Gellibrand R 6 2 O16 Gellibrand R 6 2 O1 Curdies R 48 1 O52 Wild Dog Ck 50 0.5 O36 Thompson Ck 51 1 026 Ford R 50 0.5 B24 Pennyroyal Ck 18 0.5 O32 Cumberland R 50 0.5 O46 Wye R 50 0.5 O47 Kennett R 50 0.5 O33 Erskine R 50 1

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Case study - Barwon Reach B1 Barwon Estuary Appendix D

D Case study - Barwon Reach B1 Barwon Estuary

D.1 Background The Barwon River estuary is a 5 kilometre reach downstream of Lake Connewarre on the western shore of Port Phillip Bay. Port Phillip Bay (Western Shoreline) and the Bellarine Peninsula, including the Barwon estuary, is a listed Ramsar site. White mangroves, which support large fish populations grow along the edge of the estuary. This site is the furthest west that these mangroves grow in Australia. This site is a very popular boat and bank fishing destination and white mangroves are easily killed by fisherman trampling the root systems in search of their own piece of bank to fish from. There have been recent attempts to stabilise the sandy banks of the lower Barwon estuary to stop bank recession and the potential loss of roads and rare flora.

D.2 Assets of Very High Value The Barwon Estuary has numerous environmental, social and economic assets of very high value. These have been identified in the RHS and are summarised in Table D1 below.

D1 Assets of Very High Value in the Barwon River Estuary

Environmental Social Economic Significant Flora Recreational Fishing Infrastructure Ecological Vegetation Class (EVC) Non-motorised Boats Land Values Significant Fauna Motorised Boats Tourism Fish Migration Camping Wetland Significance Swimming Wetland Rarity Passive Recreation Sites of Significance European Heritage Flagship Species

D.3 Assets at Risk and Threats to those assets Of the highly valued assets presented in Table D1, the six assets identified at most risk in the RHS, ordered by risk score, are shown in Table D2.

Table D2 Assets at most risk

Asset Risk Score Flagship Species 11 Significant Fauna 10 Wetland Significance 9 Wetland Rarity 9 Sites of Significance 9 Recreational Fishing 9

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Appendix D Case study - Barwon Reach B1 Barwon Estuary

The threats posing most risk to the assets at most risk are shown in Table D3.

Table D3 Threats posing most risk

Threat Risk Score Algal Blooms 26 Degraded Riparian Vegetation 22 Loss of Instream Habitat 18

D.4 Priority Threats and Assets The priority assets to which the threats outlined above pose most risk are detailed in Table D4 (from the RHS). This identifies the priority 1 and priority 2 assets at most risk from the priority threats.

Table D4 Priority threats and assets

Threats Priority 1 Assets Priority 2 Assets Degraded Riparian Vegetation Significant Flora Invertebrates EVC Longitudinal Continuity Significant Fauna Structural Intactness Fish Proportion Fish Observed v Expected Recreational Fishing Wetland Significance Flagship Species Wetland Rarity Sites Significance Land Values Tourism Loss of Instream Habitat Significant Fauna Invertebrates Fish Proportion Fish Observed v Expected Fish Migration Wetland Significance Wetland Rarity Sites Significance Recreational Fishing Flagship Species

D.5 River Condition Targets Attributes from the RiVERS Model were matched as closely as possible with priority threats and assets to determine priority targets for the Barwon River Estuary. These targets were used to develop implementation targets and river works programs to reduce the risk to the high value assets. Table D5 shows the targeted reduction in threats and increase in attribute conditions.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Case study - Barwon Reach B1 Barwon Estuary Appendix D

Table D5 10 year resource condition targets

Attribute (from RiVERS Model) RiVERS Score Reduced Risk to Assets Current Target Bank Erosion (Threat) 2 1 Significant Flora Limited Erosion Stable EVC Significant Fauna European Heritage Infrastructure Degraded Riparian Vegetation (Threat) 4 3 Longitudinal Continuity Poor Moderate Fish Observed v Expected Fish Proportion Fish Migration Wetland Significance Wetland Rarity Flagship Species Land Values Tourism Loss of Instream Habitat (Threat) 5 3 Significant Fauna Very Poor Moderate Invertebrates Fish Observed v Expected Fish Proportion Fish Migration Wetland Significance Wetland Rarity Sites Significance Riparian Width (Asset) 1 3 N/a < 5m > 10m Riparian Long Continuity (Asset) 2 3 N/a Poor Moderate

D.6 Implementation targets and project costs The five year implementation targets and estimated project costs are shown in Table D6.

Table D6 Five-year implementation targets, and project costs

Activity Number Unit Cost ($) Streambank Erosion Control 1 km $60,000 Instream Fencing/Revegetation for Mangroves 15 Bays $75,000 Construction of Floating Fishing Platform 300 metres $350,000 TOTAL (rounded) $485,000

D.7 Benefit-cost analysis Although the resource condition targets indicate improvements in some attributes, the major thrust of the management program is to preserve the estuary in a healthy state. See Section 9.4 for intermediate multiplier calculations.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Appendix D Case study - Barwon Reach B1 Barwon Estuary

The possible outcomes7, in terms of the attributes valued by Bennett and Morrison (2001) that would be avoided by program implementation are:

• a reduction in the length of river with healthy native vegetation and wetlands;

• the potential to lose species of native fish (black bream and estuarine perch); and

• the potential to lose species of water birds and other fauna species (particularly the royal spoonbill, which relies on mangroves).

Additional benefits would be achieved through reduction in algal bloom numbers.

D.7.1 Healthy native vegetation The estimated length of the Barwon River is 170 km, of which the Barwon Reach B1 constitutes 10 km. The three points on the triangular distribution of the reduction in the length of the stream with healthy native vegetation and wetlands that would be avoided with the program are:

• 0.1 km (1 percent of the reach’s length = 0.06 percent of river’s length) worst outcome;

• 0.3 km (3 per cent of the reach’s length = 0.18 percent of river’s length) most likely outcome; and

• 0.5 km (5 per cent of the reach’s length = 0.3 percent of river’s length) best outcome.

D.7.2 The loss of species of native fish The best outcome of the program would be to avoid the loss of grayling. The most likely and worst outcomes would be that the loss of the species did not occur with the program in place. Therefore, we propose that the three points on the distribution of avoided potential loss of native fish species would be:

• loss of zero species of native fish worst outcome;

• loss of zero species of native fish most likely outcome; and

• loss of one species of native fish best outcome.

D.7.3 The loss of species of native fauna In the absence of a management program, there is expected to be a loss in the number of species native fauna. The proposed three points on the distribution of avoided potential loss of native fauna species is:

• loss of zero species of native fauna worst outcome;

• loss of two species of native fauna most likely outcome; and

• loss of four species of native fauna best outcome.

7 “Outcome” refers to the level of benefits derived from implementing the program, that is, an outcome may be either avoided losses (in the case of preservation programs) or gains in river health (in the case of restoration or improvement works).

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Case study - Barwon Reach B1 Barwon Estuary Appendix D

D.7.4 Water quality The program is expected to bring about an improvement in water quality by reducing the frequency of blooms.

The three points of the triangular distribution of outcomes are estimated to be:

• no change in the number of blooms per decade worst outcome; • the number of blooms reduced by 1 per decade most likely; and • the number of blooms reduced by 2 per decade best outcome. D.7.5 Procedure for the benefit-cost analysis The procedure used to undertake the benefit cost analysis of all priority waterways is illustrated in the following section. The same procedure is followed in each case study. When WTP alone is relevant to the aim of the program, the determination of multipliers is omitted.

Determine WTP for households (HH) within and outside catchment for the attribute in question. The WTP for the relevant attributes for this reach are presented in Table D7.

Table D7 WTP for relevant attributes for Barwon B1 Reach

Attribute Value estimate($ per Value estimate($ per within catchment outside catchment household) household) Native Vegetation (per 1 percent 2.02 2.61 increase of river length) Native Fish (per increase in number 2.02 2.02 of species present) Fauna (per increase in number of 1.86 0.87 species present)

Determine WTA/WTP multipliers. The assessed WTP/WTA multiplier for this reach, was 4.7 within catchment, and 4.0 outside catchment.

Determine WTA per HH inside and outside catchment per unit of the attribute in question. Using the above multipliers the estimated WTA for each of the relevant attributes is presented in Table D8.

Table D8 Estimated WTA for attributes of Barwon B1 Reach

Attribute Value estimate($ per Value estimate($ per within catchment outside catchment household) household) Native Vegetation (per 1 percent loss 9.49 10.44 of river length avoided) Native Fish (per loss of species 9.49 8.08 avoided) Fauna (per loss of species avoided) 8.74 3.48

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Appendix D Case study - Barwon Reach B1 Barwon Estuary

Determine the WTA per HH (inside and outside catchment) for the number of units of the attribute resulting from the best, worst and most likely outcomes of the program The next step is multiply the unit values per household outlined in the previous step by the unit improvements expected by the management program (best, likeliest, and worst) so that the value of the improvements per household can be estimated. These are presented in Table D9.

Table D9 Value of avoided loss per household

Attribute Value per household of Value per household of Value per household of avoided loss ($) – best avoided loss ($) – avoided loss ($) – worst outcome likeliest outcome outcome

Within Outside Within Outside Within Outside Catchment Catchment Catchment Catchment Catchment Catchment Native Vegetation $47.47 $52.20 $28.48 $31.32 $9.49 $10.44 Native Fish species $9.49 $8.08 $0.00 $0.00 $0.00 $0.00 Fauna species $34.97 $13.92 $17.48 $6.96 $0.00 $0.00

Determine the number of HH inside and outside the catchment. Using results from the ABS 2001 Census Profiles and Snapshots, the estimated numbers of households in the two segments of the ‘market’ were 58,000 households ‘within catchment’ (see Section 9.5) and 1,661,000 ‘outside catchment’8. Scaling to 38 per cent (see Section 5.2) gives approximately 22,000 within catchment HH and 631,000 HH outside the catchment.

Determine the value of the benefit of the attribute in question to each segment for each outcome. Multiplication of the value per HH in each segment of the market by the respective number of HH yields the value of each outcome for each segment. These are presented in Table D10.

8 The number of Victorian households is about 1,719,000 (ABS 2001 Census Profiles and Snapshots).

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Case study - Barwon Reach B1 Barwon Estuary Appendix D

Table D10 Value of avoided losses of attributes for each segment of the market

Attribute Value of avoided loss Value of avoided loss Value of avoided loss ($million) – best ($million) – likeliest ($million) – worst outcome outcome outcome

Within Outside Within Outside Within Outside Catchment Catchment Catchment Catchment Catchment Catchment Native Vegetation $0.06 $1.94 $0.04 $1.16 $0.01 $0.39 Native Fish species $0.21 $5.09 $0.00 $0.00 $0.00 $0.00 Fauna species $0.76 $8.78 $0.38 $4.39 $0.00 $0.00

Determine value of benefit for each outcome. The estimated value of each possible outcome for the attribute in question is obtained by adding the ‘within catchment’ value and the ‘outside catchment’ value.

Water quality benefits of algal blooms, which have been estimated as an aggregate rather than per household, are included at this point. The anticipated average annual cost of a bloom under current conditions in this reach is about $0.67m (derived from the costs for the lower Barwon derived from Read Sturgess and Associates 1998 - see Section 5.3). Most of this cost (about 75 per cent) is due to the effect on summer recreation, and most of the remainder is due to loss of amenity to residents. For this reason we avoid double counting by assuming the management program at least maintains summer recreation through its effect on the incidence of algal blooms.

Presented in Table D11 are the value of avoided losses for each of the attributes and algal blooms in the best, likeliest, and worst case scenarios.

Table D11 Total value of avoided losses

Attribute Value of avoided loss Value of avoided loss Value of avoided loss ($million) – best ($million) – likeliest ($million) – worst outcome outcome outcome

Native Vegetation $2.00 $1.20 $0.40 Native Fish species $5.31 $0.00 $0.00 Fauna species $9.55 $4.77 $0.00 Algal blooms $2.31 $1.16 $0.00

Determine the present value of the program costs. The present value of the cost of the program - $0.49m distributed evenly over five years - is $0.43 (at a discount rate of four per cent).

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS

Appendix D Case study - Barwon Reach B1 Barwon Estuary

Determine distributions of NPV and BCR for the program. The benefit cost analysis of potential losses avoided by the program, showing both NPV and BCR, is shown in Table D12.

Using Crystal Ball™ (see Section 6), the expected NPV of the program is $8.50m with a standard deviation of $3.36 m. The expected BCR is 20.7 with a standard deviation of 7.8. In other words, each dollar spent on the program would produce an average benefit of $20.70 plus or minus $7.80. That is, given the assumptions about outcomes and values, in 68 per cent of repeated trials of the program the BCR would lie in the range 12.9 to 28.50. Even if the actual BCR were twice the standard deviation below the mean, it would still be positive.

Table D12 Results of benefit cost analysis

Item Best outcome Likeliest Worst outcome outcome Total benefits (i.e. present value of $19.17 $7.13 $0.40 avoided losses) ($ million)

Mean value of total benefits ($million) $8.94

Program costs ($million) $0.43

Expected net present value $8.50 ($3.36) (standard deviation) ($ million)

Expected BCR (standard deviation) 20.7 (7.8)

Sensitivity analysis The sensitivity of the above result is tested with respect to three variables, namely: achievement of the worst possible outcome; consideration of only the ‘within catchment’ market; and valuation at the estimated WTP rather than the estimated WTA.

• The program would not be a sound investment if the worst outcome were achieved – NPV = negative $0.03m, BCR = 0.9.

• If only the ‘within catchment’ market were considered (with values assessed at WTA), the mean NPV would range between approximately negative $0.01 million and $$1.15 million, depending on the amount of algal bloom benefits that are expected to be accrued by ‘within catchment households’. If at least $0.01 million of the total $1.16 million in algal bloom benefits are accrued by households within the catchment, the proposed investment is economic even from the perspective of just the local community.

• If the program were evaluated on the distribution of outcomes valued at WTP rather than the estimated WTA, the NPV would be about $2.65m, and the BCR would be approximately 7.12. The implication of this valuation of benefits is that the priority allocated to investment in this reach if assessed on WTP may be lower than it should be if the competing reaches were to be improved or restored.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Barwon River Reach 4 Upstream of Inverleigh Appendix E

E Case study - Barwon River Reach 4 Upstream of Inverleigh

E.1 Background This reach is approximately 37.5 kilometres in length, stretching from the confluence of Retreat Creek near Ingleby, flowing through Winchelsea to the confluence of Leigh River at Inverleigh. This reach has a regional significance ranking of 10 (due to high social values) and an overall risk ranking of 2 in the Barwon Basin. This reach is in moderate condition with remnant native vegetation still lining much of the river’s length forming part of a narrow wildlife corridor, dominated by remnant redgums, to Barwon Heads.

E.2 Assets of Very High Value The Barwon River upstream of Inverleigh has numerous environmental, social and economic assets of very high value. These have been identified in the RHS and are summarised in Table E1.

Table E1 Assets of Very High Value in the Barwon River upstream of Inverleigh

Environmental Social Economic Ecological Vegetation Class (EVC) European Heritage Infrastructure Significant Fauna Flagship Species Invertebrates Fish Migration Wetland Rarity

E.3 Assets at Risk and Threats to those assets Of the highly valued assets presented in Table E1, the three assets identified at most risk in the RHS, ordered by risk score, are shown in Table E2.

Table E2 Assets at most risk

Asset Risk Score Wetland Rarity 12 Fish Migration 11 Significant Fauna 10

The threats posing most risk to the assets are shown in Table E3.

Table E3 Threats posing most risk

Threat Risk Score Algal Blooms 18 Degraded Riparian Vegetation 16 Water Quality (trend) 12

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Barwon River Reach 4 Upstream Appendix E of Inverleigh

E.4 Priority Threats and Assets The priority assets to which the threats outlined above pose most risk are detailed in Table E4 (from the RHS). This identifies the priority 2 assets at most risk from the priority threats. No priority 1 assets were identified for this reach.

Table E4 Priority threats and assets

Threats Priority 1 Assets Priority 2 Assets Algal Blooms Significant Flora Invertebrates Fish Migration Wetland Rarity Recreational Fishing Water Supply (Irrigation) Tourism Degraded Riparian Vegetation EVC Significant Fauna Invertebrates Recreational Fishing Water Quality Invertebrates Fish Migration Wetland Rarity Swimming Water Supply (Irrigation)

E.5 River Condition Targets Attributes from the RiVERS Model will be matched as closely as possible with priority threats and assets to determine priority targets for the Barwon River upstream of Inverleigh. The detailed targets have yet to be determined.

E.6 Implementation targets and project costs The five-year estimated costs for the program are shown in Table E5.

Table E5 Five-year implementation targets, and project costs

Activity Cost ($) Reduce sediment inputs from tributaries Erosion control $100,000 Fencing $520,000 Revegetation $480,000 Restore longitudinal continuity by Fencing (20km) $100,000 Revegetation (understory – 20 ha) $60,000 Weed management $20,000 Sub-Total (1) $1,280,000

Monitoring, Evaluation, Reporting (10% of Sub-Total 1) $128,000

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Barwon River Reach 4 Upstream of Inverleigh Appendix E

Sub-Total (2) $1,408,000

Project Management (15% of sediment inputs ($300,000) only) $45,000 Sub-Total (3) $1,453,000

Contingencies (10% of Sub-Total 3) $145,300 Sub-Total (4) $1,598,300

Employ coordinator 5 years $300,000 Sub-Total (5) $1,898,300

TOTAL (rounded) $1,898,300

E.7 Benefit-cost analysis The management program for this reach is designed to improve both the health of the waterway and the quality of the water by reducing erosion in tributaries and restoring longitudinal continuity.

The possible outcomes in terms of valued attributes that would be improved by implementation of the program are:

• an increase in the length of the river with healthy native vegetation and wetlands; and

• improved water quality as exhibited by a reduction in algal blooms.

There would be an increase in the populations of existing species of native fish, particularly black fish and mountain galaxids, but an increase in the number of species is unlikely. As a result, there could be some increase in recreational fishing.

E.7.1 Healthy native vegetation The three points on the triangular distribution of the increase in the length of the stream with healthy native vegetation and wetlands that might be restored by the program are:

• 10 km (6.3 per cent of the river’s length) worst outcome;

• 20 km (12.5per cent of the river’s length) most likely outcome; and

• 37.5 km (23.4 per cent of the river’s length) best outcome.

The valuation process for this attribute is similar to the estuary and is shown in Table E6 WTP estimates are those in Table 5-1. This is a reach to be improved so WTP alone is the relevant value9.

9 It is noted, however, that the Corangamite CMA believes there is a medium-high degree of moral responsibility held by the catchment community for this reach. This is believed to result from education about the causes of the need for management, the effects of management and growing awareness of the effects of actions on this reach on lower reaches of the river.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Barwon River Reach 4 Upstream Appendix E of Inverleigh

Table E6 Benefits from improved native vegetation – Barwon Reach 4

Improvement of 37.5 Improvement of 20 Improvement of 10 km of river (23.4 per km of river (12.5 per km of river (6.3 per cent of length) – cent of length) – cent of length) – Item best outcome most likely outcome worst outcome

Within Outside Within Outside Within Outside catchment catchment catchment catchment catchment catchment WTP per HH per 1% $2.02 $2.61 $2.02 $2.61 $2.02 $2.61 of river length WTP per HH per outcome percentage $47.26 $61.07 $25.25 $32.63 $12.73 $16.44 of river length No. HH (38% of 30,000 623,000 30,000 623,000 30,000 623,000 total) Value of outcome for 1.42 38.05 0.77 20.33 0.38 10.24 each market ($m) Value of outcome 39.4 21.10 10.62 ($m)

E.7.2 Water quality Water quality is categorised as swimmable in the absence of an algal bloom. The frequency of algal blooms is estimated to be about 40 in 10 years. The program is expected to bring about an improvement in water quality by reducing considerably the frequency of blooms. For the purposes of illustration, this is taken as a guide to the benefit of a reduction in blooms from the river management program.

The three points of the triangular distribution of outcomes are estimated to be:

• no change in the number (40) of blooms per decade worst outcome;

• the number of blooms reduced by 20 per decade most likely; and

• the number of blooms reduced by 30 per decade best outcome.

It is assumed that these reductions would take 20 years to be fully realised.

The anticipated average annual cost of a bloom in this reach is about $12,500 (Read Sturgess and Associates 1998b). Table E7 shows the distribution of savings in the costs of blooms over a 30 year period at a discount rate of 4 per cent.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Barwon River Reach 4 Upstream of Inverleigh Appendix E

Table E7 Benefits from reducing algal blooms – Barwon Reach 4

Number of blooms Number of blooms reduced by 30 per reduced by 20 per No change in decade (average of decade (average of number of blooms – 3 per year) – best 2 per year) – most worst outcome outcome likely outcome NPV of savings in the costs of algal blooms 0.37 0.25 0.0 ($m)

E.7.3 Total benefits and costs For the simulations using Crystal Ball™, the benefits from improvement in the two attributes are assumed to be additive. Also, they are assumed to be perfectly correlated. The results of the simulations of the benefits and costs of the program are shown in Table E8. The estimated coefficient of variation of the BCR is 0.25 – indicating a reasonably tight distribution of benefits around the mean.

Table E8 Estimated benefits and costs – Barwon Reach 4

Item Value Present value of benefits (standard deviation) 24.06 (5.97) ($m) Present value of program cost at 4 per cent 1.69 discount ($m) Expected NPV (standard deviation) ($m) 22.37 (5.97) Expected BCR (standard deviation) 14.24 (3.53)

E.7.4 Sensitivity analysis We have tested the sensitivity of results only to the benefits associated with the length of the river with healthy native vegetation and wetlands. The size of the benefits due to reduction in algal blooms is small in comparison.

• The program is estimated to be a sound investment even if the worst outcome were achieved – NPV = $8.93m, BCR = 6.38.

• If only the ‘within catchment’ market were considered (with values assessed at WTP), the mean NPV would be minus $0.63m with a standard deviation of $0.29m. Mean BCR = 0.63 with a standard deviation = 0.17. This suggests that the local community by itself is too small to render the improvement of this reach a worthwhile investment.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Barwon River Reach 7 Above West Barwon Dam Appendix F

F Case study - Barwon River Reach 7 Above West Barwon Dam

F.1 Background The Barwon River West Branch, above West Barwon Dam is approximately 7.5 kilometres in length. It is currently considered to be in a relatively pristine condition, having recovered from early forestry activities. This reach of the Barwon River possesses some high ecological values and feeds the West Barwon Dam, which provides water for Geelong and several other towns along its way, including water for irrigation, attributing to a high regional significance ranking due to high economic values.

F.2 Assets of Very High Value The Barwon River West Branch has numerous environmental, social and economic assets of very high value. These have been identified in the RHS and are summarised in Table F9.

Table F9 Assets of Very High Value in the Barwon River above West Barwon Dam

Environmental Social Economic Significant Fauna European Heritage Water Supply (Irrigation) Vegetation Width Flagship Species Water Supply (Proclaimed Longitudinal Continuity Catchment) Structural Intactness Fish Migration Wetland Rarity Sites of Significance

F.3 Assets at Risk and Threats to those assets Of the highly valued assets presented in Table F9, the six assets identified at most risk in the RHS, ordered by risk score, are shown in Table F10.

Table F10 Assets at most risk

Asset Risk Score Water Supply (Irrigation) 6 Water Supply (Proclaimed Catchment) 6 Fish Migration 4 Wetland Rarity 4 Recreational Fishing 3 Significant Fauna 3

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Barwon River Reach 7 Above West Appendix F Barwon Dam

The threats posing most risk to the assets at most risk are shown in Table F11.

Table F11 Threats posing most risk

Threat Risk Score Algal Blooms 16 Water Quality (Signal) 4 Barriers to Fish Migration 4 Water Quality (Trend) 2 Water Quality (Attainment) 2

F.4 Priority Threats and Assets The priority assets to which the threats outlined above pose most risk are detailed in Table F12. This identifies the priority 2 assets at most risk from the priority threats. For this reach, no priority 1 assets were identified.

Table F12 Priority threats and assets

Threats Priority 1 Assets Priority 2 Assets Water Quality (Signal) Water Supply (Irrigation) Water Supply (Proclaimed Catchment)

F.5 River Condition Targets Attributes from the RiVERS Model were matched as closely as possible with priority threats and assets to determine priority targets for the Barwon River West Branch. These targets were used to develop implementation targets and river works programs to reduce the risk to the high value assets. Table F13 shows the targeted reduction in threats and increase in attribute conditions.

Table F13 10 year resource condition targets

Attribute (from RiVERS Model) RiVERS Score Reduced Risk to Assets Current Target Algal Blooms (Threat) 5 1 Water Supply (Irrigation) Algal Blooms No Blooms Water Supply (Proclaimed Present Catchment) Water Quality - Signal (Threat) 3 2 Water Supply (Irrigation) Water Supply (Proclaimed Catchment)

F.6 Implementation targets and project costs The five year implementation targets and estimated project costs are shown in Table F14.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Barwon River Reach 7 Above West Barwon Dam Appendix F

Table F14 Five-year implementation targets, and project costs

Activity Number Unit Cost ($) Willow Control and Weed Management (2 man x 2 4 km $9,200 weeks) Sediment Reduction (Roading and Forestry Practices) $5,000 Bi-Annual Condition Assessment 3 Reaches $3,000 Sub-Total (1) $17,200

Monitoring, Evaluation, Reporting (10% of Sub-Total 1) $1,720 Sub-Total (2) $18,920

Project Management (15% of Sub-Total 2) $2,838 Sub-Total (3) $21,758

Contingencies (10% of Sub-Total 3) $2,176 Sub-Total (4) $23,934

TOTAL (rounded) $24,000

F.7 Benefit-cost analysis The major thrust of the management program for this reach is the preservation of river health and the quality of the water. This reach was not in the list of priority reaches to be assessed. Nevertheless, it was considered by Corangamite CMAs to be a good reach to demonstrate the application of the methodology used for this assessment. The WTA/WTP multipliers for this reach are 3.7 for both ‘within-catchment’ and ‘out of catchment’. Water quality on this reach is important because it lies immediately upstream of the West Barwon dam, which supplies water for Geelong. There is some recreational fishing on the reach but it is not a popular destination. Similarly there is some bush camping and passive recreation. The last two attributes are unlikely to be affected by the management program.

The possible outcomes in terms of valued attributes that would be avoided by implementation of the program are:

• a reduction in the length of the river with healthy native vegetation and wetlands; and

• loss of water quality.

F.7.1 Healthy native vegetation The three points on the triangular distribution of the reduction in the length of the stream with healthy native vegetation and wetlands that would be avoided with the program are:

• 1 km (0.6 per cent of the river’s length) worst outcome;

• 3 km (1.8 per cent of the river’s length) most likely outcome; and

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Barwon River Reach 7 Above West Appendix F Barwon Dam

• 4 km (2.5 per cent of the river’s length) best outcome.

The valuation process for this attribute is similar to Reach 1 and is shown in Table F15, WTP estimates are those in Table 5-1 Derivation of the WTP/WTA multipliers of 3.7 for both ‘within catchment’ households and ‘outside catchment’ households are shown in Appendix A.

Using Crystal Ball™, the expected NPV of the program is $10.28m with a standard deviation of $2.51m. The mean BCR is 489 with a standard deviation of 119. That is, given the assumptions about outcomes and values, in 68 per cent of repeated trials of the program the BCR would lie in the range 370 to 608. This is an extraordinarily profitable program, due not just to the high values associated with the reach but also the extremely low cost. The result suggests that even if the cost of the program were double the anticipated cost, it would remain very profitable.

F.7.2 Water quality Water quality is categorised as swimmable and would remain so in the absence of the program. Nevertheless, the program is expected to bring about a small improvement in quality by reducing the expected frequency of blooms from one in ten years to zero. The annual cost of an algal bloom in the West Barwon Reservoir has been assessed at about $1,800 (Read Sturgess and Associates 1998), which is likely to be indicative of the cost of a bloom in the reach above the reservoir. For the purposes of illustration, this is taken as a guide to the benefit of a reduction in blooms from the river management program10. Inclusion of this benefit would make little difference to the benefit of the program considering healthy native vegetation alone.

Table F15 Estimated benefits and costs – Barwon Reach 7

Avoiding Avoiding Avoiding degradation degradation of 4 degradation of 3 km of 1 km of river (0.6 km of river (2.5 per of river (1.8 per cent per cent of length) – cent of length) – of length) – most Item worst outcome best outcome likely outcome

Within Outside Within Outside Within Outside catchme catchment catchment catchment catchment catchment nt WTP per HH per 1% $2.02 $2.61 $2.02 $2.61 $2.02 $2.61 of river length WTP/WTA multiplier 3.7 3.7 3.7 3.7 3.7 3.7 WTA per HH per 1% $7.47 $9.66 $7.47 $9.66 $7.47 $9.66 of river length WTA per HH per outcome percentage $18.68 $24.15 $13.45 $17.39 $4.48 $5.80 of river length No. HH (38% of 30,000 623,000 30,000 623,000 30,000 623,000 total)

10 It is emphasised that this is for illustrative purposes only because, in fact, this benefit has already been counted in an evaluation of the nutrient management strategy for the catchment. (Read Sturgess and Associates 1998). It would be double counting to claim the same benefit for each strategy.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Barwon River Reach 7 Above West Barwon Dam Appendix F

Value of outcome for 0.56 15.05 0.40 10.83 0.13 3.61 each market ($m) Value of outcome 15.71 11.23 3.74 ($m) Present Value of program cost at 4 0.02 per cent discount ($m) Expected NPV (standard deviation) 10.28 (2.51) ($m) Expected BCR 489 (119) (standard deviation)

F.7.3 Sensitivity analysis

• We note that this program is estimated to be a sound investment even if the worst outcome were achieved – NPV = $3.72m and BCR = 187.

• If only the ‘within catchment’ market were considered (with values assessed at WTA), the program would remain profitable with a mean NPV = $0.34m with a standard deviation of $0.09m. Mean BCR = 17.35 with a standard deviation = 4.27.

If the program were evaluated on the distribution of outcomes valued at WTP rather than the estimated WTA, the mean NPV would fall to $2.72m with a standard deviation of $0.67m. The mean BCR would be 130 with a standard deviation of 32. In this case, the basis of valuation is unlikely to make a vast difference to the ranking of this program amongst its competitors – primarily due to its very low cost. However, as the results demonstrate, the potential losses of not spending this small amount of money a very large.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Gellibrand River Reach Gellibrand Estuary Appendix G

G Case study - Gellibrand River Reach Gellibrand Estuary

G.1 Background The Gellibrand River estuary is located near the township of Princetown, extending about 10 kilometers upstream. The Gellibrand River flows in a southerly direction, wast of Mount Acland, to Lower Gellibrand where it turns westerly and empties into the Gellibrand River estuary. The estuary then flows in a north-westerly direction, to the north of coastal sand dunes, before turning south at Princetown to the river mouth. The area surrounding the estuary “supports rare and threatened fauna species and includes significant archaeological and historical sites” (http://www.corangamite.vic.gov.au). This includes six local bird species that are considered endangered. The estuary also supports 24 native fish species and offers significant opportunities for migration, spawning and rearing of eels, bream, tupong and mullet. Tourism in the area is largely nature based, and a popular site for recreational fishing. Passive recreational attractions include sightseeing, cycling, walking and birdwatching, with the major attraction being the nearby 12 Apostles Marine National Park. G.2 Assets of Very High Value The Gellibrand River Estuary has numerous environmental, social and economic assets of very high value. These have been identified in the RHS and are summarised in Table G1.

Table G1 Assets of Very High Value in the Gellibrand River Estuary

Environmental Social Economic Statewide EVC’s Recreational Fishing Infrastructure Significant Fauna Camping Land Value Fish Migration Swimming Tourism Wetland Rarity Passive Recreation Sites of Significance Flagship Species G.3 Assets at Risk and Threats to those assets Of the highly valued assets presented in Table G1, the five assets at most risk identified in the RHS are shown in Table G2.

Table G2 Assets at most risk

Asset Risk Score Statewide EVC’s 7 Fish Proportion 7 Wetland Rarity 7 Recreational Fishing 7 Swimming 7

The threats posing most risk to the assets at most risk are shown in Table G3.

Table G3 Threats posing most risk

Threat Risk Score Degraded Riparian Vegetation 27 Stock Access 13 Loss of Instream Habitat 11

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Gellibrand River Reach Gellibrand Appendix G Estuary

G.4 Priority Threats and Assets The priority assets to which the threats outlined above pose most risk have been identified in the RHS and are detailed in Table G4. This identifies the priority 1 and priority 2 assets at most risk from the priority threats.

Table G4 Priority threats and assets

Asset Priority 1 Threats Priority 2 Threats Twelve Apostles Marine National Park Gellibrand Estuary (Tourism) Statewide EVC’s Exotic Flora Introduced Fauna Degraded Riparian Vegetation Stock Access Fish Proportion Degraded Riparian Vegetation Channel Modification Loss of Instream Habitat Flow Deviation Wetland Connectivity Wetland Rarity (Princetown Degraded Riparian Vegetation Flow Deviation Swamps) Stock Access Loss of Instream Habitat Wetland Connectivity Recreational Fishing Channel Modification Flow Deviation Degraded Riparian Vegetation Loss of Instream Habitat Swimming Water Quality Attainment Water Quality Signal Stock Access

G.5 River Condition Targets Attributes from the RiVERS Model were matched as closely as possible with priority threats and assets to determine priority targets for the Gellibrand River Estuary. These targets were used to develop implementation targets and river works programs to reduce the risk to the high value assets. Table G5 shows the targeted reduction in threats and increase in attribute conditions.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Gellibrand River Reach Gellibrand Estuary Appendix G

Table G5 10 year resource condition targets

Attribute (from RiVERS Model) RiVERS Score Reduced Risk to Assets

Current Target Degraded Riparian Vegetation (Threat) 5 3 Invertibrates Obs. V. Exp (ISC 1-2) (ISC 5-6) Structural Intactness Fish Observed v Expected Fish Proportion Fish Migration Wetland Significance Wetland Rarity Sites of Significance Land Values Tourism Loss of Instream Habitat (Threat) 4 3 Significant Fauna Poor Marginal Fish Proportion Fish Migration Wetland Rarity Sites of Significance Vegetation Width (Asset) 1 3 N/a (<5m) (10-30cm) Riparian Longitudinal Continuity (Asset) 1 3 N/a Very Poor Moderate Exotic Flora (Asset) 3 2 Significant Flora (11-40% cover) (1-10% cover) EVC Structural Intactness Land Values Stock Access (Threat) 5 3 Structural Intactness Wetland Significance Wetland Rarity

G.6 Implementation targets and project costs The five year implementation targets and estimated project costs are shown in Table G6.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Gellibrand River Reach Gellibrand Appendix G Estuary

Table G6 Five-year implementation targets, and project costs

Activity Number Unit Cost ($) Riparian Weed Management – Gellibrand River 4 Hectares $20,000 Riparian Fencing - Gellibrand River Frontage 12 Kilometers $66,000 Riparian Revegetation - Gellibrand River Frontage 35,000 No. of Plants $66,500 Reinstatement of LWD $70,000 Implement other Estuary Management Plan Actions $20,000 Sub-Total (1) $242,500

Monitoring, Evaluation, Reporting (10% of Sub-total 1) $24,250 Sub-Total (2) $266,750

Project Management (15% of Sub-total 2) $40,013 Sub-Total (3) $306,763

Contingencies (10% of Sub-total 3) $30,676 Sub-Total (4) $337,439

TOTAL (rounded) $338,000

G.7 Benefit-cost analysis The management program for this reach is designed to improve the health of the estuary primarily by improving the riparian vegetation and reinstating large woody debris.

The possible outcomes in terms of valued attributes that would be improved by implementation of the program are:

• an increase in the length of the river with healthy native vegetation and wetlands;

• an increase in the number of species of native fish present in the river; and

• an increase in the number of species of waterbirds present on the river.

It is estimated that there are about 600 households in the Gellibrand catchment, of which 38 per cent is about 230 households. Thirty-eight percent of remaining Victorian households (say, 1.718 m) is roughly 653,000.

G.7.1 Increase in healthy native vegetation The three points on the triangular distribution of the increase in the length of the stream with healthy native vegetation and wetlands that might be improved by the program are (the estimated length of the river is 93 km):

• 2 km (2.2 per cent of the river’s length) worst outcome;

• 6 km (6.5per cent of the river’s length) most likely outcome; and

• 8 km (8.6 per cent of the river’s length) best outcome.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Gellibrand River Reach Gellibrand Estuary Appendix G

The valuation process for this attribute is shown in Table G7. This is a reach to be improved so WTP alone is the relevant value. The WTP estimates are the same as those used for the Barwon estuary. (NOTE: this may change on further consideration.)

Table G7 Benefits from improved native vegetation – Gellibrand Reach 12

Improvement of 8 Improvement of 6 Improvement of 2 km of river (8.6 per km of river (6.5 per km of river (2.2 per cent of length) – cent of length) – cent of length) – Item best outcome most likely outcome worst outcome

Within Outside Within Outside Within Outside catchment catchment catchment catchment catchment catchment WTP per HH per 1% $2.02 $2.61 $2.02 $2.61 $2.02 $2.61 of river length WTP per HH per outcome percentage $17.37 $22.45 $13.13 $17.00 $4.44 $5.74 of river length No. HH (38% of 230 653,000 230 653,000 230 653,000 total) Value of outcome for 0.004 14.7 0.003 11.1 0.001 3.7 each market ($m) Value of outcome 14.7 11.1 3.7 ($m) (rounded)

G.7.2 Increase in species of native fish The best and most likely outcomes of the program would be to gain a self-sustaining population of estuary perch within the river. The worst outcome would be that this did not occur. Estuary perch are present but the numbers are believed not to constitute a self-sustaining population. We propose, therefore, that the three points on the distribution of gain in the number of species of native fish would be:

• gain of zero species of native fish worst outcome;

• gain of one species of native fish most likely outcome; and

• gain of one species of native fish best outcome.

The valuation process for such potential gains is shown in Table G8.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Gellibrand River Reach Gellibrand Appendix G Estuary

Table G8 Benefits from the gain of native fish species – Gellibrand Reach 12

Gain of one species Gain of one species Gain of zero native fish of native fish – best of native fish – most species– worst outcome Item outcome likely outcome

Within Outside Within Outside Within Outside catchment catchment catchment catchment catchment catchment WTP per HH per fish $2.02 $2.02 $2.02 $2.02 $2.02 $2.02 species WTP per HH per outcome number of $2.02 $2.02 $2.02 $2.02 $0 $0 fish species lost No. HH (38% of 230 653,000 230 653,000 230 653,000 total) Value of outcome for negligible 1.3 negligible 1.3 0 0 each market ($m) Value of outcome 1.3 1.3 0 ($m)

G.7.3 Gain of waterbird species The best outcome of the program would be to gain self-sustaining populations of two species of egret (the great egret and the little egret), the most likely outcome would be to gain one egret species, while the worst outcome would be no gain in waterbird species.

We propose, therefore, that the three points on the distribution of gain in the number of species of waterbirds would be:

• gain of zero species of waterbird worst outcome;

• gain of one species of waterbird most likely outcome; and

• gain of two species of waterbird best outcome.

The valuation process for such potential gains is shown in Table G9 over the page.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc

CORANGAMITE RIVER HEALTH STRATEGY - SETTING PRIORITIES FOR INVESTMENT USING A BENEFIT COST ANALYSIS Case study - Gellibrand River Reach Gellibrand Estuary Appendix G

Table G9 Benefits from the gain of waterbird species – Gellibrand Reach 12

Gain of two species Gain of one species Gain of zero of waterbird – best of waterbird – most waterbird species– Item outcome likely outcome worst outcome

Within Outside Within Outside Within Outside catchment catchment catchment catchment catchment catchment WTP per HH per $1.86 $0.87 $1.86 $0.87 $1.86 $0.87 waterbird species WTP per HH per outcome number of $3.72 $1.74 $1.86 $0.87 $0 $0 waterbird species lost No. HH (38% of 230 653,000 230 653,000 230 653,000 total) Value of outcome for negligible 1.1 negligible 0.6 0 00 each market ($m) Value of outcome 1.1 0.6 0 ($m)

G.7.4 Use values There are no estimates of the numbers of recreationists using the estuary and how these numbers might change with implementation of the program.

G.7.5 Total benefits and costs For the simulations using Crystal Ball™, the benefits for each attribute produced by the improvement program are assumed to be additive. Also, the individual benefits are assumed to be perfectly correlated. The results of the 3,000 simulations of the benefits and costs of the program are shown in Table G10. The coefficient of variation for the BCR is 0.25.

Table G10 Estimated benefits and costs – Gellibrand Reach 12

Item Value Present value of benefits (standard deviation) 11.28 (2.84) ($m) Present value of program cost at 4 per cent 0.30 discount ($m) Expected NPV (standard deviation) ($m) 10.97 (2.84) Expected BCR (standard deviation) 37.46 (9.44)

G.7.6 Sensitivity analysis

• The program is estimated to be a sound investment even if the worst outcome were achieved – NPV = $3.4 m, BCR = 12.33.

• The program is worthwhile because of the influence of the outside catchment population.

Prepared for Corangamite Catchment Management Authority, 19 March 2009 4J:\JOBS\42443891\Reporting\FINAL\Corangamite River Health BCA (Final Report)-18-3.doc