Download Benefits and Costs of Compliance with Nutrient Criteria in Montana

Benefits of Compliance with Nutrient
Criteria: Montana’s Approach
Jeff Blend
Montana Department of Environmental
Quality
May 20, 2010
The Results
Benefits (annual)
Costs (annual)
Quantified
est. < $15.8 million
(Dodds et. al.)—Rec.,
drinking water, property
values, endang. species
est. > $40 million
$40 M for public sector
WWTP upgrades
based on DEQ assum.
Not Quantified
+ Other economic
benefits (agriculture,
health, WWTPs, aesth.)
+ Private sector costs
(30-40 businesses)
+ Ecosystem benefits
and Non-Use values
+ Other costs (admin,
transaction)
Long-term
At least 20 years
Benefits
 Use Values (quantified) + Use Values
(non-quantified) + Non-Use Values +
Indirect Use Values
 Use
Values refer to changes in economic
and social well being of people who
physically use the water resource:
WWTPs, businesses, recreation and
agriculture
 Non-Use Values: Existence Value
 Indirect Use (non-market): Natural
processes that still benefit humans
Benefits-Quantified
 Dodds Study- “Eutrophication of U.S.
Freshwaters: Analysis of Potential Economic
Damages” (2008)
 Estimated the economic value of higher water
quality as result of nutrient standards over
current water quality, for the entire U.S.
 Methods:



Compared current TN and TP concentrations for
the U.S. EPA nutrient ecoregions with estimated
reference conditions.
Calculated potential annual value losses in
recreational water usage, waterfront real estate
values, threatened and endangered species, and
drinking water from published data
Values may be underestimated/research gaps
Values Estimated in Dodds
 Recreational Water Usage—Algal bloom effects on
boating, fishing, other rec. loss of trip-related
expenses from lake closure due to eutrophication
 Lakeside property value decrease with declines in
water clarity--Calculated percent gain or loss in
property values per 1 m change in Secchi depth.
 Biodiversity: Assume 25% of all imperiled aquatic
species are threatened in part by human-induced
eutrophication and therefore 25% of all recovery
costs of U.S. Federal Endangered Species Act plans
was used as a proxy for this item
 Drinking water costs attributable to eutrophication
estimated using amount of money spent on bottled
water that could potentially be attributed to avoidance
of taste and odor problems in surface-water-derived
tap water
 Costs not measurable
 number of days water bodies were closed for
contact and noncontact use
 number of fish kills
 human and livestock deaths and sicknesses
 money spent on watershed restoration and
developing nutrient criteria
 money spent on macrophyte removal
 water treatments added by municipalities as a
result of eutrophication
 Costs (benefits) are probably conservative
Benefits-Quantifiable (Cont.)
 Dodds et al. estimated a value of $2.2 B




annually for total U.S. costs from not meeting
standards (or benefit of meeting standard)
DEQ prorated that number proportionately by
MT population (0.31%) to come up with a
Montana number-about $7 M in benefits
< $7 M because not meeting standards
$7 M = Rec water usage ($3.2 M) + waterfront prop values ($1 M) + endangered
species ($0.15 M) + drinking water ($2.6 M)
Could be more or less based on assumptions
Population versus land area numbers
 If we prorate the $2.2 B number using
Montana’s land area as a percent of the total
U.S. land area, the Dodds number for
Montana becomes an estimated $90 million
annual benefit as an upper bound (MT over
4% of the land area in the U.S. versus 0.3%
of the population). Low $7 M, High $90 M
 Using Montana’s population percentage is a
better measure for some components of
quantifiable nutrient benefit and Montana’s
land area percentage is a better measure for
other components. We combine the two
numbers.
 Drinking water and existing waterfront property
values are probably best linked to population.

Waterfront property values include some properties owned
by out of staters so the $1 M for Montana may be an
underestimate.
 The endangered species number is best used in
conjunction with land area
 The recreational water usage number is harder;
Some water recreation is done by residents and
some is done by out of staters. Using USFWP data
from in 2006, Montana residents made up 81% of all
fishing days in the state and non-residents made up
19%. This is the best proxy available for dividing out
the recreational value number between resident and
non-residents.
Final Benefit Number
 So, our compromise between prorating Dodds
number by population and by land area is $10.4 +
$1M + $1.8M + $2.6M= up to $15.8 M as a good
compromise between the $7 M and $90 M.
 $15.8 is an upper bound for annual benefits in
Montana from complying with nutrient standards
 Other studies besides Dodds:


Four other studies of Increase in property value per foot of
lake frontage for 1-foot improvement in water clarity (from
$2.34 to $28 in 1996 dollars).
Other quantitative studies on recreational benefits.


Value of improvement per trip from better dissolved oxygen
levels—Smith and Desvouges, 1986
Salinity---Carson and Mitchell, 1993
Non Quantified BenefitsAnthropocentric
Use Values:
 Improved water quality for economic uses: Less
treatment (cost) for a business, industry or WWTP
 Removal of overabundant macrophytes
 Improved Agricultural water supply (less clogging of
irrigation canals, cattle)
 Commercial fishing/Fishing guides
Non-Use Values:
 Option Value (possible future use) and Existence
value
 Aesthetics from meeting nutrient standards
(wilderness)
Some of these benefits could be minor, and may be
partially captured in $15.8 M figure.
Indirect Use or Non-Human
 Improved health of plants, wildlife, riparian
areas, water and nutrient cycles
 Maintenance of dissolved oxygen levels
suitable for aquatic life and fisheries
 Minimization of daily pH changes which can
harm fisheries
 Maintenance of healthy aquatic life
communities including more sensitive species
(fish kills down, biodiversity up, macrophyhte
growth).
Distributional Impacts
 Benefits to all Montanans. Especially to
those who recreate or live near water.
 Some benefits to out-of-state tourists or
those who live downriver from Montana
 Costs mostly to 135 towns (just over
50% of Montanans) and 30-40
businesses
 Some Government agencies (minor)
Conclusions
 Overall Benefits of Nutrient criteria are
cloudy-Lack of data problem
 A variety of ecosystem and nonmonetary benefits are hard to quantify
as are business costs
 Monetary decision versus policy
decision—Policy values are human
values that are codified
 Increase in property value per foot of
lake frontage for 1-foot improvement
in water clarity


Citation
Michael and others
 Michael and others
 Michael and others
 Steinnes
method
1996 Hedonic
1996 Hedonic
1996 Hedonic
1992 Hedonic
Location
Value
($1998)
China Lake, ME 28.00
Cobbossee L. ME16.37
Long Lake, ME 17.53
Northern Minn. 2.34
Benefits of Nutrient Criteria
 Direct Use Values: Quantified
 Market values: Recreation (swimming, boating,
fishing), property values, drinking water, industrial
use, commercial fishing
 Use Values: Non Quantified
 Irrigation ditches, wildlife quality, aesthetics
 Indirect Use Values: maintenance of
biodiversity and a more natural hydrological
cycle, habitat, and nutrient cycling
 Non Use Values: Non-quantified

Existence, Option Values:
Importance of the Economics of Nutrient
Criteria Compliance
 Economic analysis can define problems
and direct focus to areas with greatest
potential benefits and costs. This can
help policymakers.
 Changes in water quality can influence
the benefits and costs water users
receive and can cause harm to a
sensitive beneficial use of water.
 Economics can inform about
distributional impacts.