Cost-Benefit News

http://pubs.acs.org/doi/abs/10.1021/es305011z

Abstract: 

Streamflow augmentation has the potential to become an important application of recycled water in water scarce areas. We assessed the economic and ecological merits of a recycled water project that opted for an inland release of tertiary-treated recycled water in a small stream and wetland compared to an ocean outfall discharge. Costs for the status-quo scenario of discharging secondary-treated effluent to the ocean were compared to those of the implemented scenario of inland streamflow augmentation using recycled water. The benefits of the inland-discharge scenario were greater than the increase in associated costs by US$1.8M, with recreational value and scenic amenity generating the greatest value. We also compared physical habitat quality, water quality, and benthic macroinvertebrate community upstream and downstream of the recycled water discharge to estimate the effect of streamflow augmentation on the ecosystem. The physical-habitat quality was higher downstream of the discharge, although streamflow came in unnatural diurnal pulses. Water quality remained relatively unchanged with respect to dissolved oxygen, pH, and ammonia-nitrogen, although temperatures were elevated. Benthic macroinvertebrates were present in higher abundances, although the diversity was relatively low. A federally-listed species, the California red-legged frog (Rana draytonii), was present. Our results may support decision-making for wastewater treatment alternatives and recycled water applications in Mediterranean climates.

Calera Creek Water Recycling Plant

[In "Is Urban Stream Restoration Worth It?" which appeared in the Journal of the American Water Resources Association (2012) Kenney, Wilcock, Hobbs, Flores, and Martínez valued urban streams in Baltimore, depending on vegetation type] at US$1,800 - US$3,600 per linear meter of restored riparian habitat based on recreation and aesthetic benefits alone.

...

Total habitat value for the Calera Creek Water Recycling Plant (CCWRP) in Pacifica, California urban park and aquatic habitat was estimated using the results from a meta-analysis of 39 wetland valuation studies, broken down by ecosystem service, which reported wetland habitat values of $996 per hectare per year, with a 90% confidence interval of $309/hectare-yr to $3,192/hectare-yr (29). We multiplied the lower-limit, base-case, and upper-limit values by 6.5 hectares, the area of the rehabilitated CCWRP aquatic habitat.

...

Under the lower-limit and base-case, capital and O&M costs of the ocean-outfall scenario were less than for the CCWRP scenario. The cost of the CCWRP scenario was calculated to be greater than the cost of the ocean outfall scenario by $32.7M for the lower-limit, and $16.4M for the base-case. However, in the upper-limit scenario, the CCWRP scenario costs were calculated to be less than the ocean outfall scenario by $10.4M.

Abstract:

http://tinyurl.com/pesah4u

Executive summary:

Climate change poses special challenges for Caribbean decision makers related to the uncertainties inherent in future climate projections and the complex linkages between climate change, physical and biological systems, and socioeconomic sectors. At present, however, the Caribbean subregion lacks the adaptive capacity needed to address these challenges.

The present report assesses the economic and social impacts of climate change on the coastal and marine sector in the Caribbean until 2050. It aims both to provide Caribbean decision makers with cutting-edge information on the vulnerability to climate change of the subregion, and to facilitate the development of adaptation strategies informed by both local experience and expert knowledge.

Climate and extreme weather hazards related to the coastal and marine sector encompass the distinct but related factors of sea level rise, increasing coastal water temperatures, and tropical storms and hurricanes. Potential vulnerabilities for coastal zones include increased shoreline erosion leading to alteration of the coastline, loss of coastal wetlands, and changes in the profiles of fish and other marine life populations. The present report uses a modified version of the regional integrated model of climate and the economy (RICE model) (Nordhaus, 2010) to estimate the economic and social impacts of climate change. The RICE model views climate change in the framework of economic growth theory. The maximized economic and social welfare under the impacts of the three different climate change trajectories, shown below, are examined in the RICE model:

a) assuming there is no climate change (baseline)

b) under the A2 scenario/Business as Usual (BAU) [high impact scenario]

c) under the B2 scenario [low impact scenario]

The report considers the potential economic and social costs arising from damage to the coastal and marine sector as a consequence of tropical storms and hurricanes. The model employed assesses the impacts of tropical storm or hurricane strikes based, among other variables, on the power dissipation index (Emanuel, 2005), which computes the frequency, duration and intensity of hurricanes (Elliott, Lorde and Moore, 2012). Potential adaptation and mitigation strategies for the sector are discussed and cost-benefit analyses of  selected options undertaken.

Results indicate that sea level rise would lead to the definitive loss of land each year in the Caribbean.  By 2050, the area totally inundated would be just over 3,900 square kilometres under the A2/BAU climate change scenario and close to 3,500 square kilometres under B2. The value of the land lost by 2050 has been ECLAC – Project Documents collection An assessment of the economic and social impacts of climate change estimated at US$ 624 billion and US$ 406 billion, under A2/BAU and B2, respectively, accounting  for between 0.6 per cent and 0.7 per cent of total land mass. Loss of land is loss of capital, with negative consequences on output. Such a loss would affect the tourism sectors in the Caribbean severely. In addition to market economic impacts (tourism and real estate), climate change in the Caribbean is predicted to have a devastating impact on marine ecosystems and natural habitats. By 2050, there would be an almost virtual collapse in coral-reef-associated ecosystems (reefs, seagrasses, reef fisheries). Those ecosystems have provided important services, from the purely recreational and biodiversity protection to breeding zones for fish, tourism attractions and natural protection from storm surges. Under A2/BAU, the value of those ecosystems would fall, to an estimated value of US$ 2.7 billion in 2050 from a high of US$ 64.7 billion in 2030; under B2, the decline would be smaller, but still very severe, falling to US$ 36.3 billion in 2050.

Grand Anse beach, St. George's, Grenada
https://en.wikipedia.org/wiki/Caribbean

Total cumulative climate damage to the coastal and marine sector increases exponentially under both A2/BAU and B2 scenarios. The cumulative value of the damage is expected to be US$ 798.7 billion by  2050 if A2 occurs, and US$ 471.7 billion if B2 occurs. Total cumulative damage to the coastal and marine sector by 2050 induced by climate change is valued at 159 per cent and 98 per cent of gross domestic product under A2/BAU and B2, respectively.

The overall decline in welfare by 2050 compared to the baseline scenario ranges from 1.2 per cent to 1.5 per cent under B2, and 2.4 per cent to 2.8 per cent under A2/BAU, depending on the discount rate. While the differences in welfare among the three scenarios appear to be relatively small, the same monetary loss would have very different consequences within countries and across the Caribbean.

The model showed that the impact of hurricanes and storms on the coastal and marine sector of the Caribbean would be high. Cumulative losses to fisheries in the subregion to 2050 would range from US$ 13.3 million to US$ 18.2 million for the worst-case scenario, and US$ 7.5 million to US$ 13.3 million for the best-case scenario. The cumulative losses to the coral reef ecosystem would be very high under a worst-case scenario, over US$ 900 million per decade in 2010, 2020 and 2030. In 2050, the cost of the potential hurricane damage would drop significantly to US$ 39.3 million, reflecting the almost complete collapse of the coral reef ecosystem by 2050. Built coastal assets would be severely damaged under both the best-case and worst-case scenarios. Predicted damage would be around US$ $ 0.5 billion in a best-case scenario and over US$ 1 billion under a worst-case scenario. These results are reinforced by existing trends, with coastal areas becoming more densely populated in response to trends in economic structure and lifestyles. Confronted with growing populations, land scarcity and infrastructural gaps, more marginal and higher-risk land is urbanized in the Caribbean every year. Moreover, land loss due to sea level rise would amplify these trends.

Net Present Value of Consumption per capita in the Caribbean under Baseline,
A2/BAU and B2 SRES Climate Change Scenarios at 1%, 2% AND 4% Discount Rates US$

http://econpapers.repec.org/paper/aplwpaper/13-07.htm
Abstract: 

Hausman (2012) “selectively” reviews the CVM literature and fails to find progress over the 18 years since Diamond and Hausman (1994) argued that unquantified benefits and costs are preferred to benefits and costs quantified by CVM for policy analysis. In these comments, we provide counter-arguments to the claims made by Hausman. We provide these counterarguments not with the intent to convince the reader that the debate over contingent valuation is settled but rather to urge the community of economists to recognize that the intellectual debate over contingent valuation is still ongoing and that plenty of work remains to be done. We review the literature and argue that (1) hypothetical bias raises important research questions about the incentives guiding survey responses and preference revelation in both real and hypothetical settings that contingent valuation can help answer, (2) the WTP-WTA gap debate is far from settled and the debate raises important research questions about the future design and use of benefit cost analyses of which contingent valuation will undoubtedly be a part, and (3) CVM studies do, in fact, tend to pass a scope test and there is little support for the assertion that an adding up test is the definitive test of CVM validity.

by Timothy C. Haab 1, Matthew G. Interis 2, Daniel R. Petrolia 3 and John C. Whitehead 4

1. Ohio State University
2. Mississippi State University, petrolia@agecon.msstate.edu
3. Mississippi State University
4. Appalachian State University, whiteheadjc@appstate.edu
"From Hopeless to Curious? Thoughts on Hausman’s “Dubious to Hopeless” Critique of Contingent Valuation"

Appalachian State University Department of Economics http://econ.appstate.edu/

Working Paper No 13-07, 2013

via REPEC Research Papers in Economics www.REPEC.org

The full paper is available free of charge at http://econ.appstate.edu/RePEc/pdf/wp1307.pdf

The Hausman paper appeared in the Fall 2012 Journal of Economic Perspectives at http://www.aeaweb.org/articles.php?doi=10.1257/jep.26.4.43
Abstract:
Approximately 20 years ago, Peter Diamond and I wrote an article for this journal analyzing contingent valuation methods. At that time Peter's view was that contingent valuation was hopeless, while I was dubious but somewhat more optimistic. But 20 years later, after millions of dollars of largely government-funded research, I have concluded that Peter's earlier position was correct and that contingent valuation is hopeless. In this paper, I selectively review the contingent valuation literature, focusing on empirical results. I find that three long-standing problems continue to exist: 1) hypothetical response bias that leads contingent valuation to overstatements of value; 2) large differences between willingness to pay and willingness to accept; and 3) the embedding problem which encompasses scope problems. The problems of embedding and scope are likely to be the most intractable. Indeed, I believe that respondents to contingent valuation surveys are often not responding out of stable or well-defined preferences, but are essentially inventing their answers on the fly, in a way which makes the resulting data useless for serious analysis. Finally, I offer a case study of a prominent contingent valuation study done by recognized experts in this approach, a study that should be only minimally affected by these concerns but in which the answers of respondents to the survey are implausible and inconsistent.

by Jerry Hausman, MIT

"Contingent Valuation: From Dubious to Hopeless"
 Journal of Economic Perspectives

Volume 26, Number 4; Fall, 2012; pages 43-56.

The full paper is available  free of charge at: http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.26.4.43