Catchments as Assets: an Australian Case Study of Control Measures for Source Water Protection ROEL PLANT1*, JOANNE CHONG1 and ROD MCINNES2 1 2
Institute for Sustainable Futures, University of Technology, Sydney, AUSTRALIA Sydney Catchment Authority, Sydney, AUSTRALIA
* corresponding author:
[email protected] Number of words: 1186
Summary (100 words maximum) This paper addresses the economics of improving drinking water quality by investing in catchment management. Three catchment management scenarios were studied for the mid-Yarra catchment in Victoria, Australia. Impacts of management interventions on water quality and volume were compared against ‘business as usual’ investment in water quality management. Preliminary results for the mid-Yarra catchment in Victoria suggest that land use in this well-developed catchment would be expensive to modify. The cost of buying back land in order to protect the source water would be extremely high, whereas a suite of catchment management practices would be comparatively cheap. (97 words)
Introduction Since the concept of ecosystem services emerged in the mid 1990s (Costanza et al. 1997, Daily, 1997) it has been applied to a broad range of resource management issues. In Australia, where drought and increasingly erratic weather patterns are posing significant challenges, the ecosystem services approach has particular relevance to water management for consumptive, agricultural and environmental use. The best known example of an ecosystem services-based approach to drinking water management remains the Catskills ecosystem services study (Heal, 2000). It showcased a policy decision that depended on the economic value of the provision of clean drinking water for New York City by the Catskill Mountains, USA. In Australia, the Safe Drinking Water Act 2003 provides the regulatory framework for drinking water quality. The Act covers a risk management framework from “catchment to tap”, standards for water quality, information disclosure requirements, as well as community consultation processes. Investment in water quality poses a significant challenge with multiple land uses in a single catchment. Australian water businesses manage drinking water quality by investing in risk reduction. Traditionally this practice translates to investments in water treatment technology. The ecosystem services framework provides an opportunity to also invest in catchment management, provided that the associated risks can be managed to a level equivalent to traditional water treatment. The challenge for water businesses then becomes to understand how high risk land use in the catchment affects water quality, and manage these risks accordingly.
This paper addresses the economics of improving water quality in a Australian drinking water catchment through investment in catchment management rather than in water treatment technology. It presents results for the mid-Yarra catchment in Victoria, Australia.
Methodology The larger project that the mid-Yarra catchment case study forms part of was funded to provide guidance to economic regulators and water businesses; hence a conceptual basis that is well grounded in current economic practice and thinking was deemed imperative to ensure adoption. The theoretical foundation for analysis was a traditional cost-benefit framework, providing a basis for consistent definition and measurement of costs and benefits, identification of net gains from catchment investment activities, and a format for identification and discussion of externalities. Consistent with this identified approach, an information template was circulated among project participants to provide key water quality problem definitions, management responses, and associated costs and benefits. Using existing technical studies, three catchment management options and their effects on water quality in the mid-Yarra catchment were studied. Expected outcomes of these management interventions on water quality and volume were compared against a ‘business as usual’ baseline of investment in water quality management. The following options were evaluated: • • •
‘Treatment only’ – increased treatment reliability based on improved technology; ‘Buyback’ – buyback of privately owned unforested land and subsequent reforestation. ‘Managed Catchment’ – implementation of a targeted catchment management program based on assessment of the water quality and its potential impact on public health, including a detailed sampling program.
Data The net present value (NPV) of additional water treatment was estimated to be AU$ 30 -120 million. The NPV of a buy-back operation by the water business was estimated to be AU$ 700-5,000 million. The NPV of the ‘Managed Catchment’ option was estimated to be about $20 million, with the value range being dependent on the portfolio of catchment management options and their effectiveness in terms of pathogen, nutrient and biocide reduction.
Results and Discussion An important preliminary conclusion is that the well-developed mid-Yarra catchment would be very expensive to modify. The cost of buying back land in order to protect source waters in the mid-Yarra catchments would be very high, whereas a suite of catchment management practices would be comparatively low. When the costs of ‘Buyback’ and ‘Managed Catchment’ are compared with the estimated marginal cost of supplying water from Melbourne’s proposed desalination plant, the question arises whether the catchment options would allow the drinking water yield from the mid-Yarra
to increase at or below AU$ 1.60 per kilolitre. Where buyback of land would require a (substantial) one-off investment that would provide a permanent barrier for source water protection, actual water yield and water quality would still be dependent on weather variability. The desalination plant, on the other hand, would provide a guaranteed source of drinking water in times of drought or water scarcity, but would reflect a significant sunk cost when supply augmentation would be needed. Furthermore, depending on the exact nature of the suite of catchment management options, sampling and monitoring would always comprise a significant proportion of the costs of ‘Catchment Management’. In many real situations, sampling data for water quality monitoring - and perhaps even historical land use information – may not be sufficient to allow modelling of the impacts of complex interactions between catchment management regimes. This potentially introduces uncertainties with implications for the comparison of risks associated with catchment management and those of traditional water treatment. Although the emphasis of our analysis has been on the benefit-cost ratio, any quantitative economic analysis would be best placed within a decision-making framework that accommodates comparison of both monetised and non-monetised costs and benefits (for example, using some form of multi-criteria analysis). That is, in the many real-world situations where not all benefits and costs, even if measurable in physical units, can be meaningfully expressed in dollar terms, then the best use of cost-benefit analysis (or costeffectiveness analysis) would be within a multi-criteria context (Plant et al., 2008). A multi-criteria approach would be particularly useful when factoring in ecosystem services that are generated by catchment management activities that do not primarily focus on the improvement or maintenance of source water quality.
References Costanza R, D'Arge R, De Groot R, Farber S. Grasso M, Hannon B, Limburg K, Naeem S, O'Neill R, Paruelo J, Raskin RG, Sutton P, Van den Belt M (1997) The Value of the World’s Ecosystem Services and Natural Capital. Nature 387:253 Daily GC (ed) (1997) Nature's Services: Societal Dependence on Natural Ecosystems. Washington, DC: Island Press. Heal G (2000) Nature and the Marketplace: Capturing the Value of Ecosystem Services. Covelo, CA; Washington, D.C.: Island Press. 218 pp. Plant, R., Chong, J., Herriman, J. (2008). Smart Water Fund Externalities Toolbox. A resource for the Victorian water industry to enhance costing for sustainable decisionmaking. Institute for Sustainable Futures, Sydney.
