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Cost–Benefit Analysis and Water Resources Management Cost–Benefit Analysis and Water Resources Management Edited by Roy Brouwer Senior Economist, Institute for Environmental Studies (IVM), Vrije Universiteit Amsterdam, The Netherlands and David Pearce, OBE Emeritus Professor of Economics, University College London, UK Edward Elgar Cheltenham, UK • Northampton, MA, USA © Roy Brouwer and David Pearce, 2005 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. 136 West Street Suite 202 Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Cost–benefit analysis and water resources management/edited by Roy Brouwer and David Pearce. p. cm. Includes bibliographical references and index. 1. Water resources development—Cost effectiveness—Case studies. I. Brouwer, Roy. II. Pearce, David W. (David William). HD1691.C67 2005 333.91—dc22 2005040693 ISBN 1 84376 359 1 (cased) Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall Contents List of figures vii List of tables and boxes x List of contributors xiii Acknowledgements xxii List of abbreviations xxiii 1 Introduction 1 R. Brouwer and D.W. Pearce 2 Economic criteria for water allocation and valuation 13 R.A. Young 3Water as an economic good 46 J. Briscoe 4Appraising flood control investments in the UK 71 D.W. Pearce and R. Smale 5 Cost–benefit analysis and flood control policy in The Netherlands 93 R. Brouwer and J.M. Kind 6 Cost–benefit analysis of river restoration in Denmark 124 A. Dubgaard, M.F. Kallesøe, J. Ladenburg and M.L. Petersen 7 Cost–benefit analysis and complex river basin management in the Stockholm archipelago in Sweden 151 P. Frykblom, H. Scharin, T. Söderqvist and A. Helgesson 8 The costs and benefits of implementing the European Urban Waste Water Directive in Greece 176 A. Kontogianni, M. Skourtos, B. Zanou and I.H. Langford 9 Cost–benefit analysis of the Remedial Action Plan to improve water quality in the Great Lakes in Canada 195 D.P. Dupont and S. Renzetti 10 Benefit–cost analysis of regulations affecting surface water quality in the United States 223 C. Griffiths and W. Wheeler v vi Contents 11 The costs and benefits of a revised European Bathing Water Directive in The Netherlands 251 R. Brouwer and R. Bronda 12 Cost–benefit analysis of improved bathing water quality in the United Kingdom as a result of a revision of the European Bathing Water Directive 270 S. Georgiou, I.J. Bateman and I.H. Langford 13 Cost–benefit analysis of large-scale groundwater remediation in France 290 J.-D. Rinaudo and S. Loubier 14 Cost–benefit analysis and efficient water allocation in Cyprus 315 B. Groom, P. Koundouri and T. Swanson 15 Cost–benefit analysis, water scarcity and sustainable water use in Spain 340 J. Maestu, P. Campos-Palacín and J. López-Linage 16 Cost–benefit analysis of urban water supply in Mexico City 361 G. Soto Montes de Oca and I.J. Bateman Index 381 Figures 1.1 Basic case of supply and demand for water 2 2.1 Comparison of Pareto-efficiency and benefit–cost criteria 23 2.2 Price and quantity effects and change in economic surplus from non-marginal shift in supply of water 27 2.3 Change in economic surplus from non-marginal change in water supply 28 3.1 Optimal consumption and deadweight losses if water is underpriced 47 3.2 Typical market and non-market values for water in the western United States 49 3.3 Range of price elasticities of demand for water in the United States 52 3.4 Schematic representation of the definitions of use cost and opportunity cost 56 3.5 The relative magnitudes of use costs and opportunity costs for urban water supply 57 3.6 Relative efficiency of different American and Spanish water management procedures when water to an irrigation district is reduced by 10 per cent 60 3.7 Measures of equality – the Gini coefficient 61 3.8 The equity of different water allocation systems 61 3.9 Illustrative values of use and opportunity costs for urban supply and irrigation opportunity costs 62 3.10 The relative magnitudes of use costs and opportunity costs for irrigation 63 3.11 Schematic representations of deviation from economic pricing for urban water supply 63 3.12 Schematic representations of deviation from economic pricing for irrigation 64 5.1 Dike enclosures and safety levels in The Netherlands 94 5.2 Gross domestic product (GDP) in millions of euros generated within areas situated below sea level and protected from flooding by dike enclosures in 2000 95 5.3 The Meuse river basin divided into an unprotected and protected part 102 vii viii Figures 5.4 The financial value of total damage at a river discharge of 4600 m3/s (price level 2002) 102 5.5 Distribution of the total current damage costs in the protected and unprotected part across various damage categories (in percentages) 103 5.6 Expected increase in flood probabilities as a result of climate change for the area protected and the area not protected by dikes 104 5.7 Distribution of the total costs across the area protected and the area not protected by dikes in billions of euros (price level 2002) 105 5.8 Location of the Lower River Delta in The Netherlands 109 5.9 Dike enclosures examined in the follow-up study 115 5.10 Location of the flood disaster areas for the Rhine proposed by the Commission Luteijn 116 5.11 Dike enclosures which are expected to flood as a result of a dike breach 117 6.1 Location of the Skjern river project area 126 7.1 Map of the Stockholm Archipelago 160 7.2 Physical relationships underlying the Stockholm Archipelago CBA study 161 7.3 The river basin for the Stockholm Archipelago divided into six catchments 163 7.4 Contribution of each of the six catchments to their adjacent catchments and to the Stockholm Archipelago 164 7.5 Valuation scenario and WTP questions used in the contingent valuation survey 170 8.1 Drainage basin of Thessaloniki bay 180 9.1 Great Lakes’ Areas of Concern 204 9.2 Hamilton Harbour 206 11.1 Potential sources of bathing water quality deterioration 253 11.2 Estimated relative contribution of bathing water pollution sources to the overall problem of bacteriological bathing water contamination 258 11.3 Proposed cost-effective measures at the different bathing water locations and their relative contribution to solving bathing water quality problems at the sample sites (percentage of sites at which the measures were proposed) 259 11.4 Cumulative probability function of ‘yes’ replies to the WTP question 266 13.1 Location of the case study 292 Figures ix 13.2 Development of the chloride concentration in the reference scenario 297 13.3 Development of chloride concentration and related benefits in time 298 13.4 Location of agricultural wells used for irrigation and the extent of chloride pollution 304 14.1 Overall evaluation strategy applied to the Kouris watershed in Cyprus 322 14.2 The Kouris catchment in Cyprus 323 15.1 Location of the Doñana National Park in Spain (Andalusia) 352 16.1 The Federal District and the study zones 367 16.2 Benefits of the maintenance and improvement scenario 369 Tables and boxes TABLES 1.1 Subsidies to water ($109 1990s, per annum) 3 1.2 The role of costs and benefits in EU environmental Directives in the UK and The Netherlands 11 4.1 Total assets at risk in England and Wales (£ billion) 86 4.2 Benefit–cost ratios for flood protection in England 88 5.1 Costs and (net) benefits of various flood control alternatives in millions of euros (price level 2002) and benefit–cost ratios calculated under different assumptions 106 5.2 Expected impacts of managed realignment compared to a ‘do nothing’ baseline scenario 110 5.3 Present value of the costs and benefits of the proposed managed realignment measures compared to the ‘do nothing’ baseline scenario in billions of euros (price level 2000) 111 5.4 Economic values of wetland ecosystem characteristics 112 5.5 Present value of the costs and benefits of the proposed managed realignment measures compared to the ‘do nothing’ baseline scenario, including the non-priced socio-economic benefits, in billions of euros (price level 2000) 113 5.6 Costs of different measures to cope with residual risk in millions of euros (price level 2000) 116 5.7 Costs and benefits of structural and emergency strategies in millions of euros (price level 2000) 118 6.1 Present value of investment costs in constant (2000) prices 131 6.2 Arable land rents in the project area 133 6.3 Present value of land rents forgone due to land use changes (price level 2000) 134 6.4 Benefit estimation of the economic value of biodiversity 145 6.5 Cost–benefit results of the Skjern river project 146 7.1 Government and non-government organizations and agencies included in the survey 154 7.2 Use of CBA in governmental and non-governmental organizations in Sweden during the period 1997–2001 155 x Tables and boxes xi 7.3 Nitrogen emissions from different sources within the six Stockholm Archipelago river basin catchments in tons per year 163 7.4 Abatement costs at source and recipient water body for various abatement measures (price level 1998) 167 7.5 Nutrient abatement and associated costs to achieve a 1-metre Secchi-depth improvement with the help of various measures (price level 1998) 168 7.6 Computation of aggregate WTP based