The Value of Water Flow Adjustments over Niagara Falls
Kendra Sakaguchi and Stephan Schott (Carleton University)
DRAFT-PLEASE DO NOT CITESept. 10 2013
1
I. Introduction
Hydropower is the world’s largest renewable energy source, comprising 16% of electricity
supply in 2008 (International Energy Agency, 2010). It is an increasingly favourable alternative
to fossil fuels power for several reasons. Hydropower reduces air pollution and greenhouse gas
emissions in comparison to fossil fuels; provides important ancillary benefits to electrical
networks, such as the ability to store energy in periods of low demand; and acts as a buffer to
fossil fuel price volatility (Oud, 2002). To take advantage of these benefits, Ontario Power
Generation (OPG) has commissioned a new water diversion tunnel at Niagara Falls, which
opened in March of 2013. The new intake tunnel is capable of diverting 25% additional flow
from Niagara Falls to power generation facilities.
Hydropower installations that divert flow from waterfalls can potentially detract from
their scenic beauty, thereby reducing revenue from tourism. In addition, changes to natural flow
rates alter riverine habitats with important ramifications for biodiversity and ecosystem services.
Water-based recreational activities that take place near waterfalls, such as fishing, hiking, and
white water rafting may also be impacted by flow diversion. Clearly, there is a need to balance
flow diversion for hydropower projects against other instream water uses. This implies weighing
the benefits of hydropower diversion against the benefits of leaving water instream.
The goal of this paper is to provide insights for the valuation of water flow benefits and
conflicting uses in the context of the most frequently visited waterfalls in the world: Niagara
Falls. In order to do so, the paper is laid out as follows. First we review the literature on the
valuation of instream water flows for waterfall viewing, biodiversity and ecological services, and
recreation. Second, a qualitative analysis identifies water use conflicts that may arise between
hydropower and other instream water uses, specifically focusing on Niagara Falls. The analysis
2
indicates tradeoffs that may need to be considered when balancing water flow needs. A reverse
analysis based on the opportunity cost of foregone power generation is conducted to estimate the
lower bound of marginal willingness to pay (WTP) for other services provides by instream flow
over Niagara Falls and in the Niagara River. Finally, we construct a travel cost demand model
for Canadian visitors form the Travel Survey of Canadian Residents (Statistics Canada (2009)).
We conclude with policy ramifications of these findings for Niagara Falls, and future research
directions.
2. Literature Review
The literature review is organized as follows. The first section presents a summary of the
methodologies employed by studies to assess the value of instream water flow. The following
three sections summarize the value of instream water flow found in literature for (1) waterfall
viewing, (2) biodiversity and ecosystem services, and (3) recreation. The final section examines
literature that simultaneously values viewing, biodiversity and ecosystem services, and recreation.
2.1
Methodology
The economic value of non-market goods is reflected in willingness to pay (WTP), the
amount that consumers would pay for a specific good or service, or willingness to accept
compensation (WTA), the amount that consumers would be willing to accept in order to forgo
the good or service (Wilson & Carpenter, 1999). According to Robinson and Hammitt (2011),
WTP and WTA often diverge in empirical studies for two main reasons. First, loss aversion
causes consumers to value a good more highly if it is lost instead of gained. Second, the
endowment effect shapes whether consumers view the current state or the state after the
proposed change as a reference point. Thus, a loss in one reference point would have a greater
3
absolute value than a gain in the other reference point. All reviewed studies that estimated the
instream value of water flow, with the exception of one article,1 evaluated WTP. This is
common practice in policy analysis, due to the fact that some WTA estimates are improbably
large (Ibid).
2.2.
Waterfall Viewing
Waterfall flow rate is an important aspect of the waterfall viewing experience.
Waterfalls with higher flow rates are generally considered to be more aesthetically pleasing;
however an overabundance of water may obscure waterfall beauty (Hudson, 2002; Plumb, 1993).
The negative effect of hydropower development on the beauty of waterfalls has been recognized
in Iceland’s Master Plan for Geothermal and Hydropower Development, which qualitatively
evaluates the impact of potential power plant projects on tourism and recreation. The Master
Plan rates waterfalls with natural flow rates more highly than waterfalls with reduced flow rates
due to hydropower developments (Sæþórsdóttir & Ólafsson, 2010).
Empirical evidence supports this conclusion. Tourists consistently have a higher WTP
for viewing waterfalls with larger flow rates. For example, Erlich and Reimann (2011) showed
two pictures of the same waterfall at low and high flow rates to elicit WTP for waterfall flows.
They found that the natural, larger flow rate was valued more highly than the smaller flow rate
which would have resulted from a proposed hydropower project. Similarly, Loomis and
Feldman (1995) showed four different pictures of a waterfall at various flow rates to consumers.
They found that greater flow rates were valued more highly than lower ones. Because they
elicited preferences for four different flow rates, they were able to determine that marginal utility
1
An alternative economic evaluation tool, called reverse analysis, was proposed by Ranasinghe (1997). In reverse
analysis, the net present value of the hydropower project is calculated to determine the minimum tourism and
intrinsic values of the waterfall that would be required to justify abandoning the hydropower project.
4
of flow decreases with increasing flow rate. It is likely that differences in waterfall flow rates are
more easily distinguished at lower flow rates. At Niagara Falls the Special International Niagara
Board determined in 1929 that “it was the impression of volume rather than the actual volume of
water that provided the scenic effects to the falls; this impression was not only dependent on the
water volume, but also on “the location of the observer and the extent of crest line covered”
(International Joint Commission, 1929). Niagara Falls is a special case of a waterfall where
scenic beauty has been defined by engineers and policymakers. The flow rates are regulated by
the 1950 Niagara River Water Diversion Treaty. At a given time Niagara Falls never has more
than half its natural flow, and outside of tourist season and at night, merely one quarter of its
natural flow.
Ranasinghe (1997) used an alternative approach to value the tourism and intrinsic values
of waterfall viewing. Instead of evaluating WTP, Ranasinghe conducted a cost-benefit analysis
of all attributes of the hydropower project, excluding tourism and intrinsic values. The analysis
found that the hydropower project had a net benefit of 77 million dollars. Any value of water
flow viewing would, therefore, need to be greater than this amount in order to justify the
discontinuation of the hydropower project.
2.3
Biodiversity and Ecological Services
Bunn and Arthington (2002) identify four key effects of flow rate on riverine biodiversity.
First, flow rate determines the physical properties of the river, which in turn dictate the animal
and plant life found in the stream. Second, aquatic species have evolved to be most suited to
natural flow conditions, so deviations from flow rate can have negative implications for the
survival of native species. Third, flow rates are important in maintaining stream and wetland
connectivity so that animals can move throughout their natural habitat range. Finally, altered
5
flow regimes may facilitate exotic species invasions. Thus, flow rates play a crucial role in
supporting ecosystem biodiversity. In addition, instream water flows provide important
ecosystem services such as the dilution of pollutants, natural purification of water through
wetlands, and erosion control (Loomis, Kent, Strange, Fausch & Covich, 2000).
According to Clarke, Pratt, Randall, Scruton, and Smokorowski (2008), hydropower dam
operations have a distinct set of impacts on river water quality. For example, water temperature
– one of the most significant factors in ecosystem health – is less stable in the presence of
hydropower operations. River discharge is inversely proportional to temperature, so sudden
changes in flow rate can cause large temperature fluctuations. This issue is especially pertinent
to the Niagara River. The 1950 Niagara River Water Diversion Treaty requires that the flow rate
over Niagara Falls is twice as high during the day than at night in the summer tourism season.
As a result, rapid changes in temperature in the lower Niagara River can be expected as Niagara
Falls transitions between daytime and night time flows. The lower Niagara River would also be
warmer than usual at night. Hydropower reservoirs also alter the nutritional quality of the water.
Dams do not allow sediments to pass through, which prevents nutrients from travelling
downstream. Due to the lack of sediment, water released from dams also has higher kinetic
energy which increases erosion of the river banks and beds. Finally, the high velocity of
tailraces can cause water to become supersaturated with oxygen, lethal levels to aquatic life.
One stream of the literature has focused on evaluating WTP to restore natural flows in
river ecosystems, in order to improve biodiversity and the provision of ecological services. For
example, Loomis et al. (2000) estimated the value of wastewater dilution, natural water
purification, erosion control, habitat for fish and wildlife, and recreation that could be provided
6
by partially restoring river flow, among other initiatives.2 Similarly, Ojeda, Mayer and Solomon
(2008) explore WTP for restoring instream flows to the Yaqui River. Benefits of restoration
include preserving riparian vegetation, wetlands, and estuaries; provision of fauna habitat;
maintenance of local fisheries; non-use values; water quality protection; and recreational uses.
Finally, Christie et al. (2006) estimated WTP for biodiversity from environmental and habitat
restoration, including flow rate restoration. They find that participants are concerned about
protecting biodiversity, but are indifferent to how biodiversity improvements are achieved.
These studies find that individuals have a positive WTP for restoring natural flow rates.
However, it is difficult to isolate the value of instream flow for biodiversity improvement from
other recreational benefits included in WTP estimates. Only Spash et al. (2009) estimate WTP
specifically for biodiversity. In their survey, electricity consumers were asked to value increases
in water flows, by diverting water from hydropower generation, in order to restore biodiversity.
On average, respondents were willing to pay £5.60.
2.4
Recreation
The reviewed literature examines the value of instream flow for fishing, hiking, and
boating. As bird watching is only indirectly related to instream flow of rivers through
biodiversity considerations, no studies were found on this topic. WTP for recreational activities
were evaluated in a variety of activity combinations. Sometimes, a single recreational activity
was valued independently. For example, Johnson and Adams (1998) evaluate angler’s WTP for
increased water flow to improve steelhead trout stocks. They find that the value of water
extraction for agricultural purposes exceeds the value of instream water flow for the steelhead
2
Other initiatives include reduced grazing, restoring natural vegetation, and creating conservation areas.
7
trout fishery, but acknowledge that evaluating other instream water uses may reverse this
conclusion.
Some studies estimated WTP for several recreational activities simultaneously. Duffield,
Neher and Brown (1992) estimated the value of fishing and recreation. They find that the
marginal value of an additional unit of flow to be between 10 and 25 USD per acre-foot. Up to
two thirds of this marginal value could be attributed to a higher WTP for the improved quality of
the river, with the other third attributed to increased visitation rates. Similarly, Loomis (2002)
evaluates the WTP of improved camping, fishing, and boating opportunities that would emerge if
hydropower dams were removed on the Snake River.
Finally, other studies estimated WTP for recreational activities in combination with
biodiversity and ecosystem service values. Willis and Garrod (1999) find that increased water
discharges to improve recreation, fisheries, conservation, and river water quality are valued
differently by anglers and recreation users. Anglers value the increased flow rate more than
recreation users by a factor of 10. This is opposite of the finding of Duffield et al. (1992), who
estimate that anglers have a slightly lower WTP than other recreation users. These conclusions
are not necessarily in conflict, however, as WTP depends partially on income. It may be that
recreation users and anglers have different levels of affluence in the areas surveyed.
2.5
Total Value of Instream Flow
The total value of instream water flow can be estimated from the summation of WTP for
recreation, biodiversity, and tourism. However, this approach can lead to upward bias because
the values for instream use are not independent of each other (Willis & Garrod, 1999). For
example, improvements to biodiversity would also improve recreational fishing. Therefore,
WTP for fishing and biodiversity improvements would have significant overlap.
8
Gonzolás-Cabán and Loomis (1999) use a holistic approach to determine WTP for the
value of all attributes of instream water use. They ask respondents to consider the importance of
instream water for recreation, ecosystem health, scenic beauty, tourism, and as a source of
employment. They find that the Puerto Rican population would pay $110 million USD (1995
prices) over five years to protect 10 million gallons of instream flow per day.
A summary of WTP estimates found in literature for waterfall viewing, recreation, and
biodiversity and ecosystem health is given in the table below.
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Table 1: Summary of Flow Valuations
Attribute of
concern
Biodiversity
Biodiversity,
ecosystem
services, and
recreation
Biodiversity,
ecosystem
services, and
recreation
Proposed change
Habitat creation through seasonal flood
plains, reed beds, and more natural river
flows in Cambridge; creation of wet
grassland in Northumberland.
Partially restore river flow, restore native
vegetation, reduce grazing, create
conservation area to provide wastewater
dilution, natural water purification,
erosion control, habitat for fish and
wildlife, and recreation
Restore river flow to preserve riparian
vegetation, wetlands, and estuaries;
provide of fauna habitat; maintain of local
fisheries; for non-use values; protect water
quality; and for recreational uses.
Mean WTP for Proposed Change
2013 CAD
Original Units
$122.93/capita
£54.97/capita /annum
/annum for
for Cambridgeshire;
Cambridgeshire;
£47.19/capita /annum
$111.42/capita
for Northumberland
/annum for
(2006 prices)
Northumberland
Location characteristics
Author
Northumberland and Cambridge,
U.K.
Christie et al.,
2006
$428.78/capita
/annum
USD 252/capita
/annum
(1998 prices)
South Platte River, running
through Colorado and Nebraska,
has 70% water withdrawal for
agriculture.
Loomis et al.,
2000
$105.66/capita
/annum
USD 72.90/capita
/annum
(2006 prices)
Yaqui River Delta, in Sonoro
Mexico, has reduced flows from
agriculture, urban demand, and
hydropower.
Ojeda et al.,
2008
£22,40/capita /annum
(2003 prices)
Tummel catchment draining into
the River Tay, in Scotland.
Includes eight reservoirs and preexisting lakes which are used for
hydro-power generation.
Spash et al.,
2009
Jägala Falls, in Estonia, is 8 m
high and 50 m wide.
Ehrlich &
Reimann,
2011
The waterfall is on a major
western river in the United
States.3
Loomis &
Feldman, 1995
Biodiversity
Restore river flow from hydropower
diversion to improve biodiversity.
$52.83/capita /annum
Tourism,
intrinsic
value
Maintaining natural flow rate instead of
diverting portion of waterfall for
hydropower
$16.82/capita /annum
Tourism
Flow rates of 50, 250, 790, and 2000 cfs
during visit to waterfall, with remainder of
flow diverted to hydropower
$1,866.25/first
100 cfs;
559.87/additional
550 cfs
€10,000,000
/Estonian population /
annum (2009 prices)
USD 1000/first 100
cfs;
USD 300/additional
550 cfs (1994 prices)
Attribute of
concern
Recreation
Proposed change
WTP for recreation activities elicited at
various river flow rates to determine WTP
at specific flow levels
Recreation
Increase river flow to increase
productivity of steelhead fishery
Recreation
Respondents asked to consider impact of
dam removal on recreational activities
such as camping, fishing, and boating.
Mean WTP for Proposed Change
2013 CAD
Original Units
$55.99/acre-foot
USD 25/acre-foot
additional flow at
additional flow at
100 cfs on Big Hole;
100 cfs on Big Hole;
$22.40/acre-foot
USD 10/ acre-foot
additional flow at
additional flow at
100 cfs for Bitterroot 100 cfs for Bitterroot
(1988 prices)
(1988 prices)
Location characteristics
Author
Big Hole and Bitterroot Rivers,
Montana. Big Hole River is a
premier trout fishery; Bitterroot
popular with anglers and
shoreline users.
Duffield et al.,
1992
$5.50/acre-foot of
additional water
during summer
USD 2.36/acre-foot
of additional water
during summer
(1987 prices)
John Day River in north central
Oregon has experienced
decreased summer flows due to
riparian damage, a semiarid
climate, and crop and livestock
production.
Johnson &
Adams, 1988
$358.35/capita/ day
consumer surplus
USD 160/capita/ day
of consumer surplus
(1998 prices)
Lower Snake River, Washington.
Loomis, 2002
Recreation,
ecological
services
Increase water flow rate to improve
beaches, river water quality, river flow
rate, fisheries, recreation, and
conservation.
$180.26/capita/
annum for anglers;
$16.83/capita/ annum
for recreationists
£68.03/capita/annum
for anglers;
£6.35/capita/annum
for recreationists
(1996 prices)
Recreation,
ecological
services,
tourism,
employment
Implement conservation program to
preserve water flow in order to improve
recreation, ecosystem health, scenic
beauty, tourism, and as a source of
employment
$37.45/household/
river over the next 5
years
$21/household/river
over the next fiver
years
(1995)
Seven rivers in south-west
England, identified as being most
seriously affected by low flow
due to water abstraction. One
river has hydropower facility that
reduces flow.
Mameyes River is the last
ecologically pristine river in
Puerto Rico. The Fajardo River is
ecologically important to the
Carribean National Forest.
Willis &
Garrod , 1999
GonzálezCabán &
Loomis, 1999
We will determine the minimum average WTP of additional water flow for recreational, viewing and ecosystem services based
on reverse analysis of the opportunity cost of hydropower generation per visitor by month. Before our analysis we will identify
potential conflicts of alternative water (flow) uses
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3 Water Use Conflicts in the Niagara River Watershed
This section qualitatively identifies water use conflicts that may arise between
hydropower and other instream water uses, specifically focusing on Niagara Falls. To contrast
potentially competing water uses, a brief description of the water needs of hydropower, waterfall
viewing, recreation, and biodiversity at Niagara Falls are given below. Then, water needs are
compared to anticipate possible conflicts between users.
3.1
Description of Water Needs
3.1.1
Hydropower
Hydropower production takes advantage of the gravitational potential energy stored in
water. The energy available in water is a function of its height and flow rate. At the fixed height
of the Niagara River escarpment, hydropower production can only be increased through
additional water flow. From an energy perspective alone, the Sir Adam Beck station should
divert the maximum technically feasible flow to obtain the greatest benefit.
3.1.2
Waterfall Viewing
The Niagara Falls Region draws 10.1 million tourists per year, generating 1.6 billion
dollars in revenue annually (Ontario Ministry of Tourism, Culture, and Sport, 2012). Viewing
Niagara Falls is consistently ranked as the primary reason for coming to the region, and is the
most enjoyed attraction in the area (Niagara Parks Commission, 2011). Maintaining the visual
beauty of Niagara Falls is paramount to its continued success as a tourist attraction.
As previously noted, waterfall viewing is more enjoyable with higher flow rates.
Waterfalls are consistently deemed to be more aesthetically pleasing with higher flow rates. In
addition, tourists have higher WTP for larger flow rates. It has been found that consumers’
12
marginal WTP declines with increasing flow rate. In other words, a unit increase in flow is
much more valuable at low flows than at high flows. Thus, while the overall preference is for
higher instream flow rates, the strength of this preference diminishes as flows increase. In
addition Niagara Falls is subject to intense erosion that is carving into the escarpment and causes
the Falls to significantly recede every year. A lower flow over the Falls is halting the erosion
problem. Also recently the Niagara Parks Commission has noticed a significant increase in the
amount of misty days that impairs visitor’s viewing experience. The Niagara Parks Commission
(NPC) recorded a total of 29 mist days in 1996. By 2003, the number had increased to 68 (Binns,
2006). In 2004, the NPC commissioned a study which found that the construction of high-rise
hotels on the Canadian side of the Horseshoe Falls has led to more mist days at the Horseshoe
Falls (Niagara Parks Commission, 2005, p. 7). A team of researchers later challenged the study
from the University of Buffalo led by Dr. Marcus Busik (Goldbaum, 2006).
3.1.3 Biodiversity and Ecosystem Services
According to an ecosystem inventory carried out by the Niagara Region Conservation
Authority (2009), Niagara Falls and its surrounding area have a variety of unique landforms that
contribute to its ecological diversity. The Niagara River has several regionally rare wetland
habitats, including mineral thicket swamps and prairie slough grass mineral meadow marshes. In
addition, it is home to a number of rare fauna such as the great horned owl and endangered
spotted turtle. Maintaining biodiversity is an important instream use of water in the Niagara
River.
Biodiversity was not a concept in 1879, when the world’s first hydropower installation was
constructed at Niagara Falls (National Geographic, 2013). Thus, baseline biodiversity
measurements for Niagara Falls do not exist. Furthermore, the strength of the rapids on the
13
lower Niagara Falls makes many sampling techniques commonly used by biologists unfeasible.
Knowledge of biodiversity on the lower Niagara is limited. In order to improve biodiversity at
Niagara Falls, flow rates should mimic natural conditions as much as possible, both in absolute
flow and variation of flow over the year (Clarke et al., 2008).
3.1.4 Recreation
Niagara Falls provides a unique setting for a number of recreational activities. The upper
Niagara River is used for boating by local residents, while the Lower Niagara River, a Class 5 set
of rapids, is navigated by a specially certified jet boat operator (Ontario Hydro, 1998). The
Niagara River is a popular fishing spot, especially at the whirlpool area. Fishing is mostly catchand-release, but some anglers do report that the fish form a substantial part of their diet (Ibid).
Hiking, walking, biking, and bird watching are also popular activities.
Recreational activities at Niagara Falls can be divided into two groups. In the first group
are activities where the quality of the experience is directly dependent on water flow rates.
Fishing and boating would fall into the first group, because these activities rely on the presence
of water. The second group is comprised of those activities where water flow rates are only
indirectly associated with the activity. Hiking, biking, walking, and bird watching are activities
included in this group. These activities could be undertaken in the absence of water flow,
although they are significantly enhanced by the visual beauty of Niagara Falls. This comparison
of water uses will focus on the first group, since the aesthetic instream value of water for
activities in the second group are considered in the category waterfall viewing.
There are various types of boating at Niagara Falls. Waterskiing and pleasure boating are
undertaken in the upper Niagara River, primarily by locals. These activities would only be
minimally affected by hydroelectric operations because they occur before flow diversion from
14
the Falls. At the base of the Falls, the Maid of the Mist conducts boat tours. The Maid of the
Mist likely exhibits a mild preference for larger flow rates to improve the beauty of the Falls.
Larger flow rates also deepen the Maid of the Mist pool and may improve dock access (shallow
waters may necessitate a dock extension to reach the Maid of the Mist). Jet boat operators also
tour on the Lower Niagara, thrilling visitors with a ride of the rapids. The Jet Boat operators tour
the whirlpool and Devil’s Hole Rapids. The existence of the whirlpool depends on flow rates
higher than 64,000 cubic feet per second. The Jet Boat operators prefer higher instream flow
rates required to keep the whirlpool and Devil’s Hole Rapids. This preference will diminish as
the river becomes too wild for navigation. The flow rate at which the river is not navigable is
unknown, because it has been many decades since the lower Niagara River has been at full flow.
It is difficult to distinguish the effect of water flow rate on fishing. As previously
mentioned, baseline biodiversity surveys of the Lower Niagara River do not exist. In addition,
other factors such as pollution and invasive species also have a significant impact on fish
populations. The isolated effect of water flow on fishing is not known with certainty.
4 An estimate of different values of water flow use and a rough
estimate of opportunity costs
The scenic flow restrictions of 100,000 cfs happen to coincide with peak electricity
demand, when Niagara power is most needed. The Ontario Independent Energy System Operator
(IESO) identified the 20 days when Ontario’s electricity demand was highest; each record setting
day, occurred between 2002 and 2011 and was either in July or August (Independent Energy
System Operator, 2012a). Similarly, the New York Independent System Operator (NYISO) has
reported that – between 1997 and 2008 – its highest annual peak loads for the state grid were on
15
a day in either July or August (New York Independent System Operator, 2008, p. 2). Niagara
scenic flow restrictions are in effect during both of these months.
Based on an analysis by Sedoff et al. (2013), Ontario and New York State are currently
losing 1,111 megawatts of hydropower capacity in tourist season during the day due to scenic
flow restrictions. This translates into an annual 3,227,529 megawatt hours of forgone electricity
generation when the scenic flow restrictions dictated by the treaty are taken into consideration.
This lost power is also extremely valuable, since electricity happens to be in greater demand
during scenic flow months. For the Province of Ontario, generating the share of electricity
currently lost to scenic flow requirements every year (1,613,764 MWh) would present significant
costs. Using the Levelized Cost of New Generation estimates published by the U.S. Energy
Information Administration (EIA), generating this amount of energy with a newly built natural
gas-fired plant (conventional combined cycle) would cost the province $106,904,476 CAD
(Sedoff et al. (2013)). New York State’s higher average prices for electricity make this lost
power even more valuable. Using the State’s monthly Location Based Marginal Price (LBMP),
they found the total electricity lost during scenic flow months to be worth $174,869,989 USD.
In this paper we will compute the value of additional power generation by month for additional
cfs diverted for power production. We will use LBMP figures from New York State and Ontario
average peak prices for 2011. At 90% efficiency (Fritz, 1984), assuming 50,000 cfs flow rate
and 89 metre head there is a constant ratio of 0.022228 of MW per cfs diverted (Sedoff et al.
(2013)). We can multiply this conversion factor by the LBMP for New York State (see table 2)
and Ontario average peak prices respectively for each month to calculate the marginal value of
one additional cfs diverted for power generation. We multiply this value by 30 days and 24
hours to calculate the monthly opportunity cost for power generation from one less cfs that is
16
diverted. Figure 1 shows the total opportunity cost by month, which multiplies the opportunity
cost of one foregone cfs with the average flow by month. Finally we determine the minimum
necessary average WTP per visitor by month by dividing the total value of untapped water flow
per month by the average visitors per month (based on 2009 figures (Statistics Canada)). In
summary: Minimum WTP per visitorMonth i= (Electr.Price*0.022228*24*30*AverageMonthlyFlow)/Visitors per
month.
The total value of untapped water flow clearly peaks in New York State in July (see
figure 1). According to Ontario prices in 2011 the total value peaks between June and August but
the differences to other months are not as extreme when compared to NY LBMP prices. The
minimum average WTP to justify the water flow for recreational and other environmental
purposes (e.g. for option values or non-use values) is highest from January to April, and clearly
the lowest during the tourist months. The reason is that visitation rates are lower in winter
months and the opportunity cost of electricity generation is still relatively high in winter months.
Judged by other waterfall viewing studies the marginal WTP should be higher at lower flow rates,
which seems consistent with the lower bounds for the minimum WTP derived from our reverse
analysis. The WTP to see Niagara Falls is, however, likely to be much higher in tourist months
with more pleasant temperatures and longer daytime hours. We will next turn our attention to the
estimation of WTP for viewing Niagara Falls based on existing travel studies conducted by
Statistics Canada.
Table 2: Price of Gained Electricity Using the 2011 New York State Location Based Marginal Price (LBMP) (2011)
17
Month
Price
74.90
55.60
46.90
46.44
48.91
60.32
75.75
56.04
46.86
42.48
38.97
39.73
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Total Value NY Prices Total Value OntarioPrices 120000000 100000000 80000000 60000000 40000000 20000000 0 1 2 3 4 5 6 7 Figure 1: The total value of untapped water flow over Niagara Falls
18
8 9 10 11 12 Minimum WTP (NY prices) Minimum WTP (Ontario Average Peak Prices) DayIme Flow Rates (1000 cfs) 140 120 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 10 11 12 Figure 2: Minimum Average WTP by month from reverse analysis for 2011
5 Willingness to Pay Estimates
The willingness to view Niagara Falls and engage in recreational activities can be
estimated in a travel cost demand model. Statistics Canada conducts annual surveys with
international, U.S. and Canadian visitors to Canada. Although each travel survey asks slightly
different questions, all require visitors to indicate if they are visiting the Niagara Falls tourism
region (see 3).
19
Figure 3: Map of Niagara Falls Tourism Region
We start our analysis by looking at Canadian residents’ willingness to pay for viewing
Niagara Falls in 2009. There are several reasons that data from the 2009 Travel Survey of
Residents of Canada trip file (Statistics Canada, 2010c) are the best starting point. The Travel
Survey of Residents of Canada (TRSC) reports income and distance travelled – variables
necessary to calculate travel cost – whereas the International Travel Survey (Statistics Canada,
2010a; Statistics Canada, 2010b) does not. In addition, the TRSC reports the level of education,
a potentially important control variable. The downside with the TSRC is that it only indicates
the main trip destination and not additional locations visited on the way. This may result in
overestimating total WTP for Niagara, because travel costs may not all be attributable to Niagara
Falls. On the other hand, the analysis includes only those visitors whose main destination is
20
Niagara Falls and excludes all other visitors. From this perspective, the analysis would
underestimate WTP. It is our hope that these two forces balance bias in the analysis. Note that
the year 2009 was selected because it is the most recent year with a large number of respondents
to the TRSC and the International Travel Survey, which will be included in later analyses.
Our WTP analysis uses similar variables as in Loomis (2002) for the estimation of travel cost
demand for the Lower Snake River. We use the number of trips reported in a given month as a
dependent variable. Our explanatory variables are the travel time to the destination, the selfreported trip cost, the size of the travel party, household income and the highest level of
education. The age of travelers, flow rates and average temperatures during the month of travel
were not significant variables. A negative binominal semilog count model regression generates
comparable results to Loomis (2002) (see table 4).
Table 4. Travel Cost Demand Estimation for Number of Trips to Niagara Falls
Variable
Coefficient
Standard Error
Significance
Constant
-0.705
0.558
0.205
Household income
-0.142
0.1194
0.235
Education level
0.323
0.1571
0.04
TripCostperpersona
-0.004
0.0016
0.019
Transit hours
-0.801
0.2366
0.001
a Trip cost per person equals Self reported cost of trip divided by size of travel party. The sample size is 350
observations, the LR ratio is 43.340 with 4df and a significance of 0.000.
Our regression results indicate the expected signs of the dependent variables. The number of
trips to Niagara Falls is negatively related to the per traveler cost of the trip and the hours spent
traveling. We can compute the average consumer surplus per trip form the inverse of the
coefficient on trip cost per person, which equals 1/0.004= $ 250 per trip. On average people
stayed 2.1 days so that the average surplus per day would be $ 250/2.1=$ 119.05.
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On average visitors chose 1.253 trips per month. We, therefore, can calculate the average WTP
to visit Niagara Falls per month as $ 250*1.253= $ 313.25. This value is clearly larger than the
minimum WTP for each month based on our reverse analysis. Our estimate I, however, only
based on observations for Canadian visitors.
6. Conclusion
Our WTP estimates have certain limitations. We are using an already existing data set that was
not designed to evaluate the WTP for recreational activities and tourist activities around Niagara
Falls. We, therefore, should design a specific survey that can elicit WTP for waterfall viewing
and other recreational activities and that distinguishes WTP for different flow rates. Our initial
approximation indicates that there is a significant WTP to come to Niagara Falls from our
Canadian visitors alone. It is likely that international visitors have an even larger WTP as they
travel larger distances and since they can less frequently come to Niagara Falls than Canadian
visitors (assuming diminishing marginal utility of visiting the Falls). Our estimations indicate
that there is a significant value of conserving the natural beauty of Niagara Falls and the Niagara
River. Now that we theoretically can run the Falls dry as of March 2013 it is definitely more
valuable to leave some flow over the Falls. What that exact flow is needs to be further examined
in more detailed studies of viewing, recreational, biodiversity and ecosystem services benefits of
the Niagara River watershed.
22
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