Economic Evaluation of
Water Supply &
Waste Water Projects –
Cost-Benefit Analysis
Methodology Paper
Final Report
DKM Economic Consultants Ltd.
Aquavarra Research Ltd.
ESRI
August 2004
DKM Economic Consultants Ltd.,
Davy House,
49 Dawson Street,
Dublin 2.
Telephone: 353 1 6797755
Fax: 353 1 6796379
E-mail: dkm@davy.ie
CONTENTS
1
Introduction
1
2
Literature Review
2
2.1
Background
2
2.2
Methodological Issues
3
2.3
CBA Manuals
6
3
Proposed Methodology
21
3.1
Introduction
21
3.2
General Principles
24
3.3
Stages in the CBA
25
3.4
Notes on Specific Investment Types
29
APPENDICES
A
Bibliography
37
B
Valuing Fossil Fuel-Related Externalities
39
C
The Importance of Pricing to Infrastructure Investment
Decisions
42
D
Benefits Transfer
43
D.1
D.2
D.3
Quality Assessment of Water
Valuing Water Quality
Method for valuing environmental effects of Irish schemes – Benefits
transfer using Environment Agency (England and Wales) Guidance
Water Quality Measurement
43
49
56
D.4
79
Section 1:
Introduction
A requirement of the Economic Evaluation of Water Supply & Waste Water Projects
assignment is to:
a)
Carry out a literature review of current approaches to economic appraisal of water
and wastewater projects, both nationally and internationally;
b)
Propose a Cost-Benefit Analysis (CBA) methodology(ies) to meet the requirements of
EU Council Regulation 1164/94.
Article 13.4 of the Regulation states:
“After their (the projects’) completion, the Commission and the beneficiary
Member State shall evaluate the manner in which they have been carried out
and the potential and actual impact of their implementation in order to assess
whether the original objectives can be, or have been, achieved. This evaluation
shall inter alia, address the environmental impacts of the projects, in compliance
with existing Community rules.”
The proposed methodology is to have regard to the findings of the literature review and to
national and EU guidelines on CBA of water projects 1, and should also address:










The developing framework for financing such projects in Ireland;
The values of benefits arising during the implementation of the projects;
The benefits of the projects to tourism, industry, commercial development, fishing, etc.;
The direct and indirect employment effects of the projects;
The environmental benefits and future impacts of the projects, having regard to national
and EU requirements;
The economic viability of the projects;
The economic and social benefits commensurate with the resources deployed on the
projects;
The contribution made to EU Community policies;
The contribution of the projects to balanced regional and rural development;
Establish the Internal Rate of Return of the projects.
This paper addresses this requirement. Section 2 summarises the Literature Review, while
Section 3 sets out the proposed methodology.
1
Notably:
‘Proposed Working Rules for cost-Benefit Analysis’ CSF Evaluation Unit, Dublin. June 1999.
‘Guidelines for the Appraisal and Management of Capital Expenditure Proposals in the Public Sector’
Department of Finance, July 1994.
‘Guide to Cost-Benefit Analysis of Investment Projects’ Evaluation Unit, DG Regional Policy, European
Commission, 2001 edition.
1
Section 2:
2.1
Literature Review
Background
Good public investment requires sound appraisal. Cost-Benefit Analysis (CBA) is a well
established and widely applied methodology for appraising public investment projects.
Appropriately in the current context, much development of the method took place on water
projects under the US Flood Control Act of 1936. This Act stated that projects should proceed
‘if the benefits to whosoever they accrue are in excess of the estimated costs’, in other
words, if the project would represent a net benefit to society.
Improving public sector efficiency has been the major stimulus to the development of CBA,
especially in the US. In Europe, CBAs are often required of projects funded by the EU
Commission, and many European Treasury Departments and Finance Ministries lay down
guidelines for the economic pre-appraisal of public investment projects using CBA techniques.
CBA tries to incorporate all social costs and benefits of an investment in monetary terms
(whether they have a market price or not), and in doing so determine whether benefits
exceed costs. Where market prices are not available, some other means of arriving at
monetary values must be used.
An important advantage of CBA is that by reducing everything (environmental and nonenvironmental, private and social) to monetary terms and assessing them with a consistent
methodology, Governments can effectively “compare apples and oranges”. That is, they can
compare projects within and across different fields of public policy (e.g. roads, hospitals,
water treatment plants) and prioritise public investment policy according to which projects
give the greatest return to society.
The systematic use of CBA appraisal is becoming more common in Ireland, but practical
problems and differences of view arise in its implementation. A few of the more important
methodological issues are discussed in Section 2.2, namely –

Valuation of Non-Market Costs & Benefits

Treatment of Future Costs & Benefits – Discount Rates

Timeframe

Calculation of Net Benefit

Benefits Transfer
2

Efficiency and Equity.
This is followed by a review of CBA manuals in Section 2.3.
2.2
Methodological Issues
2.2.1
Valuation of Non-Market Costs & Benefits
This is perhaps the most controversial aspect of CBA. Environmental characteristics that are
not normally bought and sold in the marketplace cannot readily be valued. Growing
recognition of the importance of these characteristics has been matched by increased
attempts to develop monetary valuations of them, however. This is particularly pertinent in
the economic evaluation of water supply and wastewater treatment projects.
A variety of approaches has been developed to address this. Two broad categories are
Stated Preference and Revealed Preference techniques. The former involve administering
carefully controlled questionnaires that ask people their monetary valuation of particular
attributes. A sample of the public are asked how much they are Willing To Pay (WTP) for an
environmental improvement, or how much they are Willing To Accept (WTA) in compensation
for environmental disimprovements. These responses can then be used to generate an
estimate of society’s valuation of the attribute. One point to note is that WTP cannot exceed
total income. There is no such limitation on WTA, of course, and it is often the case that WTA
studies generate higher valuations than WTP studies, though in theory they should not, and
study design is concerned among other things with ensuring that the two equate.
Revealed Preference techniques on the other hand try to elucidate values for environmental
attributes via actual markets related to the attribute in question, notably –
a) the Hedonic Price method, based on the fact that house prices can reflect differing local
environmental attributes. If we can isolate these price effects, we can estimate society’s
valuation of (the equivalent of WTP for) the environmental attribute in question.
b) The Travel Cost method, which measures how much people are willing to spend on travel
to enjoy a particular attribute. Again, isolating this can enable us to estimate society’s
valuation of the attribute (the equivalent of WTP).
One needs to be careful in defining the group of beneficiaries (or losers) from an
environmental change. While the people living in the vicinity are an obvious group, those who
occasionally visit the area will also be affected, as indeed will those who never visit it, but put
a value on its continued existence and quality. Indeed, the latter two groups often outnumber
the first, though their individual valuations may be less. Hedonic and Travel Cost methods
have limitations in measuring these “non-use” valuations.
3
2.2.2
Treatment of Future Costs & Benefits – Discount Rates
An important issue in CBA is the choice of discount rate. People generally prefer present
benefits to future benefits. Comparison of costs and benefits with different time-paths is
facilitated by discounting them to their “present day” values using a discount rate, which is
comparable to an interest rate. The further into the future the cost or benefit, the lower its
“present value”, and raising the discount rate will lower the present value. The rate
traditionally used in Ireland for public projects, as recommended by the Department of
Finance (1994), is 5% real (i.e. net of inflation). Controversy arises because many
environmental benefits and costs accrue long into the future, and discounting means that
their present values can be negligible.
It is usually the case also that future costs and benefits are estimated on the basis that there
is no inflation, so that everything is valued at the prices in a particular year, usually the year
the project is taken to commence or becomes operational.
2.2.3
Timeframe
An investment will have a certain lifespan, and in general this should determine the timeframe used in the CBA, although in many cases a standard timeframe such as 30 years is
used. Sometimes the lifespan will vary for different parts of the investment, e.g. a waste
water treatment plant will have longer-lived buildings and shorter-lived pumps and electronic
equipment. This can be accommodated in CBA as follows: incorporate the full capital cost of
the asset at the start of the project as normal, then

for assets that will last longer than the timeframe of the CBA, include estimated residual
values in the final year, as a receipt that year;

for shorter-lived assets, include replacement costs in the year the assets are replaced.
Replacement may happen more than once during the CBA timeframe.
2.2.4
Calculation of Net Benefit
CBA usually involves calculation of:
a)
Cost Benefit Ratio (CBR), the ratio of the PV of benefits to the PV of costs (one
sometimes sees the ratio of undiscounted benefits to costs, but this is a less useful
measure).
b)
The Internal Rate of Return (IRR), which estimates the actual return on the project,
expressed as a percentage or interest rate.
c)
The Net Present Value (NPV), which is the PV of benefits minus the PV of costs.
4
These enable projects to be compared and prioritised. The most widely used are NPV and
IRR, and they give slightly different information. NPV gives an indication of the size of the net
benefit, and will tend to be higher for larger projects (subject to passing the hurdle discount
rate). IRR on the other hand is independent of size: a project could be very small or very
large but have the same IRR.
This can be relevant if one is deciding between larger and smaller (more or less expensive)
projects which are aimed at substantially the same problem, and where choosing the smaller
project eliminates the possibility of undertaking the larger project. The task is to identify
whether the additional benefits of the larger project are worth the additional cost. In this
case another measure can be useful:
d)
The Incremental Benefit Cost Ratio (IBCR).
IBCR = (PV of Benefits of Project A – PV of Benefits of Project B)
(PV of Costs of Project A – PV of Costs of Project B)
Where Project A is larger (i.e. more expensive) than project B.
2.2.5
Benefits Transfer
Sometimes policy makers require cost-benefit analyses to be undertaken, without wishing to
commit the time and resources to analyse directly the benefits or costs arising on the specific
project. On these occasions, valuations are generally taken from studies undertaken
elsewhere, a technique known as “Benefits Transfer”.
Methodological issues with Benefits Transfer have provoked a lively debate and empirical
testing (Brower and Spaninks, 1999). A notable case in the UK was the 1998 Public Inquiry
into a proposal to extract borehole water from near the River Kennet in Wiltshire, located in
an Area of Outstanding Natural Beauty and a Site of Special Scientific Interest. The Inquiry
rejected the Environment Agency’s CBA on the proposal, which had based its valuations on a
Benefits Manual prepared by the Foundation for Water Research (1997). The lesson to
emerge from this is the need to calibrate values of benefits and costs that have been taken
from elsewhere.
The risks of poor practice in using Benefits Transfer in CBA are high. But with virtually no
valuations available for Ireland2, its use will be unavoidable in most cases. Among the various
approaches to Benefits Transfer, it is better where possible to avail of the function that
expresses the benefit in terms of characteristics of site and users. (Brouwer and Langford,
1997, Bateman et al., 2000). Notably, adjustment in values found in other countries may be
necessary for differences in average income levels and income distribution.
A more detailed discussion of Benefits Transfer is contained in Appendix D.
2
Studies by Clinch (1999) and Curtis (2003) being notable exceptions but in only remotely related
fields.
5
2.2.6
Efficiency and Equity
CBA implicitly accepts the existing distribution of income and wealth in society, and is
concerned simply with whether the benefits of an investment are greater than the costs,
regardless of who gains and loses. From a policy point of view, one might be more
concerned, for example, about benefits (or costs) that accrue to lower income groups or
groups in particular regions.
Another complication is that the valuation of environmental benefits by the public (particularly
with WTP methods) is generally highly related to income levels. Thus, all other things being
equal, an investment that brings environmental benefits to low income groups may be valued
at less than an investment that benefits higher income groups.
2.3
CBA Manuals
Many CBA manuals have been developed over time and in various jurisdictions. Here we
review in detail the most relevant and up-to-date, in the context of Cohesion-funded projects
in Ireland, namely:
1. The Economic Appraisal of Environmental Projects Supported by the EU Cohesion Fund,
by Fehily Timoney Weston in association with DKM, for the Department of the
Environment, November 1995.
2. Guide to Cost-Benefit Analysis of Investment Projects (Structural Fund-ERDF, Cohesion
Fund and Instrument for Structural Policies in Pre-Accession Countries [ISPA]), Prepared
for the Evaluation Unit of the Regional Policy DG of the EU Commission, 1999 Edition.
3. The UK Environmental Agency (EA) Assessment of Benefits for Water Quality and Water
Resources Schemes in the PR04 Environment Programme.
2.3.1: Fehily Timoney Weston Study
This study was commissioned in the context of the EU Commission’s requirement for CBA of
projects requesting Cohesion funding. It comprised two parts –
1)
assisting the Department in examining data submitted by the Local Authorities,
evaluating the projects and preparing reports on the projects for the EU Commission;
2)
formulating an agreed methodology, with the Department and the Commission, for
economic evaluation of environmental projects.
The methodology developed had three elements 
Quantify all identified costs
6

Quantify direct and indirect benefits

Ascribe values to project benefits
The valuation of scheme costs was considered to be relatively straightforward, and was to
include marginal operating costs (discounted at 5% real per annum) over the life of the
assets, which was assumed to be 20 years. However, the report highlighted the lack of Irish
data on the valuation of benefits, and recommended the use of Contingent Valuation Methods
(CVM) to generate these benefits. It acknowledged that this was not practicable within the
timeframe of the study.
Detailed methodologies were then set out for wastewater projects and water supply projects,
as follows:
(i) Wastewater Projects
To facilitate the quantification of costs and benefits in wastewater projects, a
questionnaire was designed, which also sought to identify the degree to which the
project was necessary for compliance with the UWWTD, and current compliance
levels.
Where operating costs could not be identified, standard levels were assumed to
apply. Standard operating costs were based on experience in a number of existing
schemes, set out in IR£ per Population Equivalent (pe). Benefits were quantified in
terms of standard reductions in Biological Oxygen Demand (BOD) and Phosphorous
(P) for primary, secondary and tertiary treatment.
In the absence of valuation of benefits, the effectiveness of the projects was to be
assessed in terms of total discounted cost per kg of BOD and P removed.
(ii) Water Supply Projects
Quantitative information to be collected comprised –

Pre- and post-project demand broken down into domestic, commercial,
industrial and agricultural,

Pre- and post-project population serviced,

Pre- and post-project design demand and population.
The degree to which the project was necessary for compliance with national
legislation under the EU Drinking Water Directive, as well as existing compliance
levels, was to be established. Existing water quality was taken from the EPA’s 1994
report on the Quality of Drinking Water in Ireland.
7
Marginal operating costs were to be calculated by applying a standard level of
IR£0.05 per m3.
Benefits were assumed under three headings –
1.
2.
3.
quality improvements
extension of supply to new customers
waste elimination and control.
Quality improvements were valued at IR£13 per household per annum (1989 prices,
for domestic demand only) based on a UK CVM study (Turner et al., 1992). Extension
of supply and leakage reduction were to be valued at IR£0.70/m 3, based on costs in
Wales and the South-West of England (OFWAT, 1994). Cost/benefit ratios were then
to be calculated, which was to allow ranking of projects.
The methodologies were then applied to a number of water supply and wastewater projects
and to the Integrated Suir Valley Catchment project.
2.3.2: EU Guide to Cost-Benefit Analysis of Investment Projects
This is a detailed CBA manual, covering projects in a very wide range of areas, including
water and wastewater, which are eligible for assistance under the Structural and Cohesion
Funds and the ISPA (Accession country fund) over the period 2000-2006.
It gives a set of steps for a project evaluator, from an ex ante standpoint:
a)
Objectives Definition
b)
Project Identification
c)
Feasibility & Options Analysis
d)
Financial Analysis
e)
Economic Analysis
These are discussed in terms of general principles, and then applied to a wide range of
investment types, from hospitals to telecommunications, including water projects. We set out
below a synopsis of the general principles and their application to water projects.
8
General Principles
a)
Objectives Definition
Projects should be defined in terms of the socio-economic benefits to flow from them,
as well as their contribution to EU Fund and sectoral objectives. Questions to be
addressed include –




b)
Are the objectives clearly defined in terms of socio-economic variables? Have
all the variables been considered, and the means of measuring them
indicated?
Are they attainable with the implementation of the project?
Are they logically connected?
Are the overall welfare gains worth the cost?
Project Identification
The project should be identifiable as a “self-sufficient unit of analysis”, where the
constituent parts are mutually dependent, regardless of whether one or more are
eligible for grant aid. Various elements should only be included, however, if they are
actually implemented. If say a water treatment plant is built in order to enable
another development, they should be considered together only if the other
development is actually built.
c)
Feasibility & Options Analysis
The feasibility of the project must be demonstrated, and alternative options
adequately considered. At least three options should be considered – Do Nothing, Do
minimum (e.g. up-grade the existing infrastructure), and Do something (usually using
a different technology to achieve the end, e.g. build a new road as opposed to a new
railway).
d)
Financial Analysis
This is concerned with financial inflows and outflows. The Guidelines give detailed
layouts of tables for this purpose, which will generate the financial NPV (“FNPV/K”)
and IRR (“FRR/K”) on Capital. The Guidelines note that these financial assessments
of environmental projects will generally turn out negative. The following points are
made regarding the financial analysis:

Operating costs – these should exclude anything that is not an actual cash
payment, specifically depreciation and amortisation, transfers to future
replacement cost reserves, and to contingency reserves.
9

Taxes and Subsidies – costs and benefits should exclude VAT. Subsidies (e.g.
from other authorities) should be excluded from revenues.

Residual Value – this is effectively the liquidation value. It may be calculated
in one of two ways (1) the residual market value of the investment, if it were
to be sold, or (2) the residual value of all assets and liabilities. Subsequent
net receipts should be included in the residual value.

In project analysis, constant prices (i.e. with inflation netted out) are
generally used. However, in the analysis of financial flows, current prices (i.e.
with inflation included) are recommended by the Guidelines. If constant
prices are to be used, corrections must be made for changes in relative prices
(i.e. different inflation rates applying to difference costs and benefits), if
significant.

The discount rate to be used should reflect the opportunity cost of capital.
The Guidelines suggest an indicative rate of 6% real.
An important issue is the lifespan of the project. The report highlights Cohesion Fund
guidelines, which indicate that - where different elements of the project have
differing lifespans, one should assess the project over the lifespan of the “principal
infrastructure”. Where other elements last for a shorter period, their replacement
costs (as well as their initial costs) should be included. Lifespan may also be
determined by some administrative or legal criterion such as the length of a
concession or licence. ISPA guidelines indicate that infrastructure would not normally
be evaluated beyond 30 years. If an investment lasts longer than that, its residual
value should be included as a receipt in the final year of the analysis. An ad hoc
survey of CF projects in the early Nineties indicated that the average lifespan used for
47 water and environmental projects was 29.1 years. The Guidelines recommend
using a lifespan of 30 years.
e)
Economic Analysis
This is the next step after the financial analysis, and converts from financial flows to
real resource flows, by correcting for distortions caused by market imperfections,
notably external costs and benefits. There are three stages:
(i)
Fiscal corrections. Notably, prices should be net of VAT, other indirect taxes
(unless their function is to correct for an externality) and transfer payments
(e.g. social security payments), and gross of direct taxes.
(ii)
Externalities corrections. Inclusion of environmental and other external costs
and benefits (unless already adequately dealt with by taxes); where these
cannot be valued they should be at least listed and physically quantified to
the degree possible.
10
(iii)
Conversion of market prices into “accounting” prices, which reflect social
costs and benefits. These correct for market imperfections that can be
caused by monopoly provision or regulatory restrictions, which mean that the
market price for particular goods and services is not equal to the marginal
social cost (i.e. shadow price). Examples cited include provision of electricity
at above or below long run social marginal cost, minimum wages set above
the market-clearing rate for unskilled labour, public sector wages above or
below the equivalent private rates, and subsidised land 3. In the case of
internationally traded goods, border prices are often a good indicator of
accounting price.
The appropriate “social discount rate” is used to generate the economic NPV
(“ENPV”) on investment, and the economic IRR (“ERR”) should be calculated. The
Guidelines suggest a 5% “European social discount rate”. The Guidelines note that
the expected ERR for 51 EU-funded water and environment projects was 15.8%.
Other points noted include:
f)

Existing publicly-owned assets (including land) used for the project should be
valued at their opportunity cost, i.e. the alternative use value.

The Guidelines discuss the issue of the benefits of additional employment.
They highlight that in the first place, employment is a cost of the project,
since it involves the usage of labour resources which are not then available
for use in the rest of the economy. The benefit of employment, the incomes
that flow from the project, are accounted for by the valuation of the outputs
of the project. They list two mutually exclusive ways of accounting for the
social benefits of increased employment – (1) using a shadow price of labour
lower than the market price and (2) applying an income multiplier to the
project output, thus increasing the value of the output. The latter “is best
applied at macro-economic level or for (a) very big investment program”.
Multi-Criteria Analysis
This can be useful where certain objectives are not amenable to valuation, such as social
equity, equal opportunities and environmental protection (though many individual
environmental benefits will be measurable). These can be listed, scored, and given weights,
which when summed can give a means of comparing alternative projects for these objectives.
g)
3
Sensitivity and Risk
It may be the case that land in Ireland is in some cases priced at more than the marginal social cost,
due to restrictive planning regulations.
11
This is important as different levels of uncertainty attach to forecasts of variables within and
between projects. The Guidelines define a risky project as one where there is a high
probability that the project will not overcome a certain IRR threshold, rather than one where
there is simply a high level of variability in the forecasts. They recommend a two-step
approach:
1)
Sensitivity Analysis, which measures the impact of changes in the forecast values of
variables on the financial and economic IRR and NPV, and identifies the “critical”
variables. As a general rule the Guidelines recommend that variables for which a 1%
change will cause a one percentage point change in IRR or 5% change in NPV be
considered critical.
2)
Risk Probability Analysis, which involves attaching a probability distribution to each of
the critical variables, and using these to build up a probability distribution of IRR or
NPV. This can be very complex where there are even a few critical variables, but
statistical techniques such as the Monte Carlo method can be used to generate the
distribution.
A shortcut (but not substitute) procedure is “Scenario Analysis”, which can be used to
generate optimistic and pessimistic outcomes, by taking the extreme positive and negative
values for the each of the critical variables.
Application to Water Projects
These general principles are then applied to a wide range of sectors, including water projects
(Guidelines Chapter 3, Section 2). The main points in this regard are:
a)
Objective Definition
Usually it will be in terms of improving the quality, effectiveness and efficiency of the service.
Significant parameters would include, for instance –

Extension of numbers of customers serviced

Volumes of water saved

Reductions in quantities taken from polluted sources

Improvements in continuity of service

Removal of polluting load

Reduction in operating costs

Improvement in environmental parameters.
12
b)
Project Identification
A definition of currently available services, or a territorial framework will often provide an
appropriate definition of the project. It should also address the project’s consistency with the
economic-financial planning for the sector, with national sectoral policies (e.g. industrial
policy), and with EU, national and regional policies.
c)
Feasibility and Options Analysis
Feasibility
The following need to be considered –

Analysis of demand – in terms of quantity and usages, leakages where relevant, and
price elasticity of demand (which may vary by user).

Forecast of actual and potential demand, and the relationship between the two.

The economic and environmental sustainability of the project, including capacity to
provide for demand, and capacity of receiving waters in the case of wastewater
treatment.

The institutional, administrative, managerial and technical capacity to deliver the project.
Options
Mainly the various physical and technical options for meeting the objectives of the project.
d)
Financial Analysis
The main point here is to incorporate the revenues that will flow from the infrastructure.
Where net revenues will be generated, it is appropriate that a significant amount of the
funding should come from the promoter’s own funds.
e)
Economic Analysis
The accounting price of water can be ascertained by means of the users’ Willingness to Pay
(WTP). One way of estimating WTP is by reference to the market price of alternative services.
In the case of water for industrial or agricultural purpose, the added value of the industrial or
agricultural outputs made possible by the water supply will give guidance for valuation.
Where the project will address problems of water sanitation and pollution, the reductions in
illnesses and deaths can be valued, via inter alia hospital costs, loss of earnings, and Value of
a Statistical Life (VOSL) techniques. Where flood control is involved, the damage avoided to
13
property and land can be considered. Where the specific costs and benefits of the project are
difficult to value, values from similar projects can be used.
Specific externalities that can be considered include –

the increase in the value of land as a result of providing the infrastructure

increased incomes from “collateral activities (tourism, fishing, coastal agriculture, etc.)”

negative impacts in terms of soil consumption, spoilage of scenery, etc.

negative impacts during construction, particularly in urban and sensitive contexts.
f)
Other Evaluation Criteria
Additional techniques such as Multi-Criteria Analysis may be appropriate where for example
the location for the project is environmentally sensitive, e.g. national parks, protected areas,
or where particular fauna are going to be affected.
g)
Sensitivity & Risk Analysis
Critical factors include –

unexpected occurrences during construction, which can affect cost of the investment.

Factors affecting demand forecasts, including population growth, migration and tourist
flows, etc.

Rate of change in tariffs (often dependent on decisions by regulatory bodies).

“Lack of capacity to respond to shock in the investment (which often requires excess
capacity in the (early) operating periods)”.

the influence of “collateral interventions” (for example, the effectiveness of water supply
is strictly related to the state of distribution networks).

Management efficiency.

Future costs of critical inputs, e.g. energy, chemicals, and sludge disposal.
A detailed case study of an Integrated Water Supply Service (IWS), which includes supply
and wastewater treatment, is then presented, which goes through the procedure outlined
above
14
2.3.3: UK Environmental Agency Guidance
Introduction
The UK Environmental Agency (EA) has recently produced very detailed updated guidance for
carrying out CBAs on a range of water infrastructure projects, entitled Assessment of Benefits
for Water Quality and Water Resources Schemes in the PR044 Environment Programme,
produced by Risk & Policy Analysts Ltd. (RPA). This builds on a number of earlier studies and
guidance from the EA and its predecessors. The main focus is on Benefits Transfer
techniques, based on a comprehensive review of (mainly) UK literature, and on developing a
methodology that can be applied to a large number and wide range of projects, with
relatively little time (no more than a few days) and resources to apply to each, to be used by
those who have little or no experience of economic evaluation.
The Guidance defines objectives or “Drivers”, which it is hoped to achieve in the scheme. The
EA divides these into “environmental” and “policy” drivers. Policy drivers refer to compliance
with particular regulations with respect to the water body in question.
There are separate sections in the Guidance on –

Water Quality and Flows in rivers and groundwater

Reservoirs, Lakes and Broads5,

Coastal Waters and estuaries

Impacts from scheme-related Construction works.
The CBA methodology is first described. A five-step approach to appraisal is recommended –
1. Identify which benefits or costs are likely to apply;
2. Describe the benefits or costs qualitatively;
4
At the moment we understand the Guidance has the status of a Working Document. PR04 is Ofwat’s
Periodic Review 2004 of planned investments in the Water Industry. “The periodic-review process
requires a five-year cycle of fixing the capital investment programme of the water industry. This
programme is the outcome of considerations of the legal requirements (typically defined by EU
directives), desirable environmental improvements and the willingness of consumers to pay. Defra has
the role of striking this balance in its guidance to the EA and Ofwat; the EA has the role of proposing
the requirements; and Ofwat has the duty to set the prices and hence determine the functions that are
to be financed.” (Economic Appraisal and Assessment of Benefits in the PR04 Environment Programme,
Findings of an Environment Agency seminar, January 2003, “Benefit Assessment: The Context”, Dieter
Helm.)
5
A Broad is defined as “an expansion of a river”.
15
3. Describe them quantitatively;
4. Where impacts are significant, apply monetary valuations, either directly or via Benefits
Transfer;
5. Undertake sensitivity analysis.
In general, the Guidance is in agreement with the other documents already discussed, but a
number of differences in emphasis are raised, including:
a) The environmental impact of an investment can relate to improving current conditions or
preventing future deterioration. This is incorporated in the CBA via the use of discount
rates, but various studies indicate that the public view maintenance of an existing
environmental asset differently from the “creation” of a new one; in many cases they
appear to be willing to pay more to preserve an existing asset.
b) Discount rate – for public sector projects, the UK Treasury recommended discount rate
should be used (3.5%), while for projects by privatised water companies, the “cost of
capital” rate set by Ofwat should be used. This highlights one of the differences between
the Irish and UK water industries, in that the latter is commercialised and largely
privatised.
c) The Guidance indicates that CBA be applied only to “non-statutory” schemes, or
improvements over and above statutory requirements. The UK Environmental Secretary
has indicated that any water improvements in excess of EU requirements over the period
2005-2010 will have to pass “rigorous CBA tests”6.
d) The Guidance draws attention to the fact that any positive discount rate will affect the
recorded impacts of schemes that have environmental benefits or costs a long time into
the future. Where such costs or benefits exist and are considered significant, they should
be highlighted in a qualitative manner.
e) Economic analysis implicitly accepts the current distribution of wealth and income. In
other words, questions of equity do not enter into the analysis. They can be incorporated
qualitatively. However, “a more sophisticated approach is to incorporate distributional
effects into estimates of NPV through the use of weights that reflect the additional gains
in wellbeing to lower income groups of an increase in income. Instead of treating each
unit of benefit or cost as being equal, these would place greater weight on those to low
income groups than those to higher income groups.” The identification of appropriate
weights is also controversial, however.
f)
6
The timeframe should be matched with the lifespan of the assets; alternatively, a default
period of 25 years should be used.
“Initial Guidance from the Secretary of State to the Director-General of Water Services, 2004 Periodic
Review of Water Price Limits”, reported in The ENDS Report January 2003, issue No. 336.
16
g) Future benefits and costs should be measured in constant prices. “In general, inflation
can be assumed to affect all prices equally and does not need to be considered.”
h) The main concerns with the use of Benefits Transfer are –

"the reliability of the original estimate – a difficulty, given the lack of relevant studies.

the similarity of the environmental change being valued in terms of end outcome and
its significance and magnitude; and

the similarity of the environmental characteristics of the target site to which the value
is to be applied.”
i) Biodiversity and Non-Use Values
These are difficult to measure quantitatively, and biodiversity impacts should also be
discussed in qualitative and descriptive terms. Issues involved in considering non-use
values include –
j)

“problems in defining what is the relevant population for aggregating non-use values,
where this includes the potential need to separate users from non-users to avoid
double counting; and

ensuring that the inclusion of non-use values in individual scheme assessments does
not result in total household budgets for non-use being exceeded. There are few
studies which have estimated total budgets for non-use values. It is obviously hard to
take account of such a budget at the individual scheme level, but as schemes are
pulled together at the catchment level, these budgets should be given more detailed
consideration.

There are suggestions in the economic literature that non-use values should only be
significant when a resource (environmental attribute, site or habitat) is scarce or
unique. This follows the principle that if there are a number of close alternatives,
then the value attached to a resource will be less.

The population over which a non-use value should be aggregated is another area of
uncertainty. Varying assumptions have been made in the past, ranging from
applying a value to the whole … population to applying the value to a local population
beyond which the willingness to pay is believed to reduce to zero, known as distancedecay. ” Uniqueness is an important factor here.
Use Values and Relevant Population
The relevant population will vary with type and relative importance of the site, and
settlement patterns in the surrounding area. Seasonal patterns of usage are also
17
important. Annualisation of visitor numbers observed on a particular day or time of year
must be undertaken with caution. Various annualisation factors are given in the Guidance
for this purpose. For example the coastal bathing season is taken to last 150 days, i.e.
roughly 5 months. A different (possibly shorter) period might be appropriate in Ireland.
“It is recommended that reality checks be undertaken to determine:
(i) whether the site could support the estimated number of visitors;
(ii) if the number of visitors estimated fits in with what would seem to be realistic; and
(iii) if the number of estimated visitors is comparable with known visitor numbers to other
similar sites.”
“It (is) important .. to carry out sensitivity analysis on these assumptions. … assuming
only 50% of the rates predicted are realised (particularly where common sense and the
reality checks say that the predicted rates are too high). Or, the number of visitor days
required for a project to break even.”
k) Avoid Double Counting
“There are three potential sources of double counting in an economic assessment:
(i) overlap between categories;
(ii) using the same population for different impacts (particularly use and non-use); and
(iii) use of Benefits Transfer values that include more than just the specific impact being
valued.”
“There is a significant risk that double counting could be introduced, in particular where
impacts may be experienced in more than one environmental compartment (rivers and
groundwater, reservoirs, lakes and broads, coastal waters and estuaries).”
l)
Uncertainty
“Failure to take uncertainty into account can result in an option being chosen which
appears ‘best’, but which has a high likelihood of providing a lower level of net benefits
than predicted. A range of different uncertainties may surround different aspects of a CBA.
Those of most relevance … (include):

scientific uncertainty, for example, on the effectiveness of a particular control
measure, or on the period over which an environmental impact will occur;

uncertainty over populations (users and non-users) for use in aggregation; and
18

uncertainty on the robustness and applicability of the transfer values being used to
estimate costs and benefits.”
One approach to sensitivity testing is to “calculate the degree of variation in a particular
variable which would by itself reduce the net benefits of an action to zero, or result in a
change in preference between competing options.”
m) Energy Usage
Where investments will lead to substantial energy usage, either in construction or
operation, the environmental (including global warming) implications will need to be
considered. However, where environmental taxes including the climate change levy are in
place and are taken into account in the costs, this may obviate the need to include further
costs.
The Guidance gives detailed instructions on how to put together the CBA, and discusses
benefits under categories. Benefits categories are listed for each broad type of impact in
Table 2.1 overleaf.
The Guidance shows how to assess each of these benefit types, either directly or using
default values from appropriate studies, and suggests valuation, based on relevant studies.
For instance, it sets out likely attraction levels for types of improvements, taking into account
the importance of the waterway, the availability of alternatives, visitor seasonal patterns and
part of the country (which impacts on population densities and hence likely visitor levels).
These indicators are likely to be very valuable in the Irish context, but the following provisos
are necessary if they are to be used –
1. population densities are in general much higher in the UK than in Ireland, and this needs
to be kept in mind in terms of likely visitor numbers and affected populations;
2. Relative popularity of different pastimes (e.g. angling) needs to be considered.
3. Valuations need to take into account average income levels, income distribution and
purchasing power parity in the year and country of the original study compared with
those in Ireland in the current context.
19
Table 2.1: Benefit Categories Included in each Part of the Guidance
Part 2: Rivers and Groundwater
Part 3: Reservoirs, Lakes and Broads
Part 4: Coastal Waters and Estuaries
Part 5: Works Related Impacts
Informal recreation
Angling
Informal recreation
Recreation (informal and water sports),
Land take
Commercial fisheries
Coastal bathing
Heritage, archaeology and landscape
Landscape impacts
In-stream recreation
Water sports
Amenity
Property-based disamenity effects
Heritage, archaeology and landscape
Recreational fishing
Land take (for new reservoirs)
Traffic related impacts
Amenity
Shellfisheries
Biodiversity and non-use
Energy and global warming
Abstractions
Biodiversity and non-use
Biodiversity and non-use
Notes:
1.
Informal Recreation incorporates activities such as walking/hiking, photography, bird-watching, etc.
2.
Bathing is a separate heading under coastal waters because of its relative importance; care is needed not to double-count benefits covered under informal recreation.
20
Section 3:
3.1
Proposed Methodology
Introduction
In the current context we are concerned with ex post analysis of investments where ex ante
CBAs have already been (or were supposed to have been) carried out. In a number of cases,
notably water conservation investments, ex ante studies were not carried out, so they fit into
a somewhat different category for this study.
This arises out of the following requirement in the Terms of Reference for the Study:
“The consultants are required to ….. propose a Cost-Benefit Analysis (CBA) methodology(ies)
to meet the requirements of EU Council Regulation 1164/94. Article 13.4 of the Regulation
states:
‘After their (the projects’) completion, the Commission and the beneficiary
Member State shall evaluate the manner in which they have been carried out
and the potential and actual impact of their implementation in order to assess
whether the original objectives can be, or have been achieved. This evaluation
shall inter alia, address the environmental impacts of the projects, in compliance
with existing Community rules.’”
CBA in its essence is a decision tool designed to help in determining whether an investment
should go ahead or not. Since in the current case all the projects have already gone ahead,
this particular function of CBA is redundant; however, the technique can be used to review
the rationale for a particular investment, and perhaps generate lessons for assessment of
future investments.
For studies where ex ante CBAs have been undertaken, our function is to review the position,
to see how the forecast costs and benefits have turned out. These CBAs were carried out at
various points in time (usually the mid-1990s), by a range of individuals/firms and for various
investment types around the country. This leads to a number of issues, notably:
a) The “Celtic Tiger" boom has intervened, leading to greater population growth and
economic activity than was perhaps anticipated (some parts of the country will have been
affected more than others). What have been the consequences for the investments and
their costs and benefits?
b) CBA techniques are evolving. Do these developments have implications for the
methodology and/or valuations used in the ex ante study?
Two questions will thus need to be addressed: (i) how accurate and valid was the ex ante
CBA, and ii) with the benefit of hindsight, was this project worth undertaking? As stated,
21
some investments were not subject to ex ante CBAs (notably on water conservation
investments). Hence there is no analysis to review. In these cases only the second question
will be addressed.
The Terms of Reference for this study also require that the following be specifically
addressed:
1. The developing framework for financing such projects in Ireland;
2. The values of benefits arising during the implementation of the projects;
3. The benefits of the projects to tourism, industry, commercial development, fishing, etc.;
4. The direct and indirect employment effects of the projects;
5. The environmental benefits and future impacts of the projects, having regard to national
and EU requirements;
6. The economic viability of the projects;
7. The economic and social benefits commensurate with the resources deployed on the
projects.
8. The contribution made to EU Community policies;
9. The contribution of the projects to balanced regional and rural development;
10. Establish the Internal Rate of Return of the projects.
Some of these points fit easily into economic CBA methodology, while others do not. Two
that require additional consideration are attainment of EU/national regulations and
employment impacts:
Benefits from Meeting EU/National Requirements
There is clearly a political benefit in meeting regulations, and at some level a financial
benefit may exist if fines are avoided. However, meeting regulations per se is not
amenable to inclusion in CBA as a benefit. Only the actual physical benefits
generated, converted to a monetary valuation in an appropriate manner, can be
included.
Where water investments help to meet EU or national regulations, this should be
noted as one of the qualitative results of investment, but it does not obviate the need
for a full CBA to be carried out7.
7
It is worth noting that in the UK, CBA is not used where projects are necessary to meet EU
requirements. The following quotation (Helm, 2003) in a UK context raises the point that the regulations
themselves should have been subject to CBA before implementation:
22
Direct and Indirect Employment Effects, and Regional Development
Direct employment effects are those generated in the construction of or manufacture
of materials for the project in question, while indirect effects relate to employment
generated or sustained by the benefits that flow from the project.
Employment generation - direct or indirect - is not amenable to inclusion in CBA as a
benefit. In CBA, labour is a resource and its usage is a cost, which may be less (or
more) than the actual wages paid.
Policymakers who remember the days of high unemployment may look upon the
generation of employment as a benefit. But where it is done via public investment
(which must be paid for by taxation) the likelihood is that one is merely displacing
private sector employment with public sector employment. In any event, where the
economy has full or near full employment, the issue is of less importance. The
presumption, endorsed in the CSF Evaluation Unit's guidelines, is that in current Irish
circumstances, the market price (i.e. wages) and shadow price (i.e. resource cost) of
labour coincide.
If identifiable employment impacts are sizeable, however, they should be noted as
one of the non-valued results of the investment.
Measuring indirect employment impacts can be problematic. To what degree is the
water project critical to the generation of economic activity in the wider economy, or
could alternative investment have equivalent results? Are we simply moving activity
from one part of the country to another, or is there a net gain for the economy as a
whole? What is the net benefit where the economy is at or near full employment?
The same points can be made about regional development effects.
“… the EA (Environmental Agency) argues that much of the capital programme is statutory: that there is
no option but to carry out the necessary works, because they are mandated by EU Directives. In many
respects, this is correct, although in most cases there are important issues in timing and the forms of
compliance. But, of perhaps greater concern, is whether these Directives themselves pass the cost–
benefit test. Often environmental quality requirements are laid down with regard to problems of
countries with inland waterways and geographical and climate conditions very different from the UK—
with its short, fast-flowing rivers and extensive coasts. It is a serious issue that many of these Directives
have not been tested against proper cost–benefit assessments; but it is perhaps more serious that there
is little account taken of the different locations. Common European standards of environmental
outcomes do not necessitate common approaches to environmental inputs.”
23
3.2
General Principles
While each CBA will be somewhat different, we would list the following as general principles
that should apply in most cases. Where deviations from these principles are made, they
should be explicitly justified.
1. The lifespan of the investment should be taken as 30 years from the time the
infrastructure is commissioned, i.e. becomes operational. Residual values should be used
where assets last longer. It may be appropriate to consider each major element of the
investment separately. In the absence of better information, the following formula could
be used:
Residual Value = (Capital Cost as defined in Year Zero) x (Useful Life-30)/(Useful Life)
This implies a straight-line depreciation of the asset over its life. A reducing balance
approach could alternatively be used, where appropriate. Replacement costs can be
incorporated where some assets last less than 30 years, though care is required not to
double count this if it is also included in O&M contracts.
2. All costs and benefits incurred since the decision was taken to go ahead with the project
(which will usually be a number of years before commissioning) should be included.
3. Year Zero should be the year the infrastructure is commissioned 8. All monetised costs and
benefits should be stated in Year Zero prices, using the appropriate deflator (i.e. inflation
index). Capital costs already incurred should be deflated using the Water & Sanitary
Services Output Price Deflator9. All other costs and benefits (internal and external) should
be deflated using the CPI. The prices of costs and benefits due to occur in the future can
be converted to Year Zero by taking their current year price levels and then deflating
them back to Year Zero using the appropriate deflator.
4. The discount rate to be used is 5% real, i.e. net of inflation (CSF Evaluation Unit, 1999).
Once the costs and benefits arising in each year are deflated to Year Zero prices, they
can be discounted to year Zero at 5% per annum.
5. All monetary values used should be net of VAT.
6. Financing costs (i.e. interest charges) should be excluded. As we are applying a social
discount rate to all costs and benefits, to include interest charges as well would be
double-counting.
7. Operating costs should be included on a cashflow basis. Thus, accounting entries such as
depreciation and amortisation of grants should be excluded. As stated, unrecovered VAT
paid and interest charges should also be excluded. Where O&M contracts are in place,
8
When carrying out an ex ante CBA, Year Zero is generally taken to be the year the decision is taken to
go ahead with the project. However, with an ex post CBA it is easier to use year of commissioning. The
results will be the same in any event.
9
As published in the annual “Review and Outlook for the Construction Industry”, by the Department of
the Environment, Heritage & Local Government. (See Table A2.7, p.119, in the 2003 edition).
24
the payments under these can be used, though care is needed in the treatment of VAT,
capital replacement, amortisation of grants, interest, etc.
8. The value of extra land used should be included at its alternative use value. This might
be less than was actually paid (e.g. possibly under compulsory purchase, or where the
value includes capitalised agricultural subsidies) or more than was paid (e.g. if the local
authority used land it already owned).
3.3
Stages in the CBA
The following should be the stages undertaken in the CBA process:
3.3.1: Define the Objectives, the Project and the Counterfactual
Most of the schemes we are required to review contain a number of sub-projects.
Aggregating the projects before working out the costs and benefits runs the risk of hiding
elements that are more or less worthwhile. On the other hand projects should not be
disaggregated below the level at which they can stand as independent entities. Engineering
assessment will play a part here. The ability to identify benefits separately may be a factor in
how the project is defined, from a practical point of view.
The counterfactual represents the alternative course of action against which to test the
project. There can be a whole range of counterfactuals, and the definition of some of them
might be quite complex. They generally fall under the following headings –

“do nothing”, i.e. continue with the existing situation, which may generate increasing
costs in the future.

“do minimum”, in many cases similar to the “do nothing”, where the minimum that can
be gotten away with is done. Again there can be increasing cost implications in the
future.

“do something”, perhaps an alternative technology. This itself might be tested against a
“do nothing” or “do minimum” scenario.
In the current circumstances, given the limitations on time and resources, and the fact that
we are looking at these investments from an ex post viewpoint, the counterfactual should be
“do nothing” or “do minimum”, unless there is an obvious alternative.
3.3.2: Identify and evaluate internal (i.e. monetary) Costs and Benefits
Internal Costs
These are the capital and operating costs of the scheme. They should be relatively
straightforward to value, particularly when looked at from an ex post viewpoint. Future costs
will have some uncertainties attached, as discussed already.
25
Internal Benefits
Internal benefits as those that accrue to customers of the water industry, and which are
charged for or should be charged for. We include residential water services in the latter.
The flow of benefits over the lifetime of the investment will need to be quantified. This will
involve making forecasts about number of customers and consumption rates over 30 years,
which is of course highly speculative. Demographics and economic growth rates are likely to
be important variables. The CSO produces long term population forecasts for Ireland as a
whole and for the regions, and the ESRI produces medium-term economic growth forecasts10,
but these are unlikely to sufficiently detailed information for specific projects. The local
authorities are likely to have some indications of medium-term trends from their planning
function. Beyond that we would recommend a conservative approach of low annual growth
rates unless there is specific information to suggest otherwise.
Benefits would also include avoided costs related to the counterfactual. For example, if sludge
disposal at sea has been replaced by treatment and disposal on land, then the avoided cost
of sea disposal should be treated as a benefit. Likewise, if basic treatment has been replaced
by more advanced treatment, the avoided cost of continued basic treatment should be
included as a benefit11.
An important consideration in measuring internal benefits is that project definition cannot be
separated from the pricing policy relating to its output. This is because demand for a product
or service is a function of (among other things) its price. Where a product or service is underpriced (or free), as much of the output of the Irish water industry is, consumption is likely to
be excessive, and the marginal value of an extra unit of output may be very low. Unless a
change in pricing policy is explicitly part of the project, as is the case with some waste water
treatment plants, the implication is that current pricing policy will continue.
Particular care is needed when using values from other countries in these circumstances. It is
not appropriate to value the benefits of under-priced output in Ireland at the price/marginal
benefit level of fully priced water in other jurisdictions. The marginal benefits in Ireland are
likely to be lower, all other things being equal. See Appendix C for further discussion.
What falls out of this analysis is that proper pricing of water services should be the first
response to capacity constraints, and only then should extra investment be undertaken, if
there remains a demand for it. This is a counter-argument to the “predict and provide”
approach to public infrastructure.
10
The latest versions are CSO, Population and Labour force Projections 2001-2031, July 1999, and
Regional Population Projections 2001-2003 June 2001; it needs to be kept in mind that these forecasts
have been superseded by the results of the 2002 Census of Population. ESRI, Medium Term Review
2003-2010, July 2003.
11
An alternative approach is to net avoided costs off against the internal costs of the new investment,
but it may be preferable to allow the two to remain separately identifiable.
26
3.3.3: Identify external (i.e. non-monetary or non-market) costs and benefits and
quantify them to the degree possible
External Costs
These could come under a number of headings, such as noise, odour, visual intrusion, traffic
congestion and increased accidents during the construction and operation of new plant. The
extent of the impact will be determined by the number of people affected, which in turn is
dependent on location (urban or rural, amenity value of the area). They should be expressed
net of the counterfactual position.
In most cases, planning conditions may have taken account of most of these effects.
However, there may be some cases (such as large plants in urban locations) where significant
costs exist.
Some modern plants are energy intensive, and the environmental externalities from the net
increase in energy usage should be considered. The main pollutants from combustion,
whether on site or from electricity generation, are SO 2, NOx, N2O and CO2. There are
standardised emission factors which can be gleaned from ExternE, (EC 2003) as well as EPA
and ESRI publications for estimating pollution quantities from fuel usage (Appendix B).
External Benefits
These will mainly relate to benefits to the environment as a result of the investment. It is
important to note that they relate to the actual improvements to the environment, e.g.
receiving waters, rather than output of the investment, e.g. the condition of output from a
waste water treatment plant.
3.3.4: Put monetary valuations on the significant external costs and benefits
This is probably the most controversial and uncertain part of the process. We are not in a
position to put valuations on the actual external costs and benefits generated in the schemes
in question, and very few valuations have been generated in Irish studies. Hence we are
forced to use valuations generated elsewhere, and the obvious source, as discussed in the
Literature Review, is the UK. A wide range of valuations exists, and it is not possible to
compile a list that will apply in all cases. Appendix D contains a more detailed discussion.
3.3.5: Calculate NPV, IRR, BCR and where appropriate IBCR
Having generated the flow of internal and external costs and benefits over the 30 years, the
data can be discounted and the various measures of return on investment can be generated.
27
3.3.6: Undertake risk/sensitivity analysis
This will be a less substantial exercise than would have arisen from an ex ante viewpoint, as
many of the uncertainties (notably with capital costs) will have been resolved. Our main
concern is, what are the chances that the hurdle rate of return (i.e. 5%) will not be achieved.
Given that we know the capital cost and we also should have a good indication of the current
improvement in water quality as a result of the investment, and of likely operating costs, the
main sources of uncertainty should have been eliminated. Remaining possibilities include 1.
Operating costs might increase by significantly more than the general inflation rate in
the economy. Energy, chemicals and monitoring are some of the possibilities. Price
increases of (say) 50% could be tested. Some of these price increases might
represent the internalisation of environmental costs, and so should already have been
included in our calculations.
2.
Plant might not continue to operate as designed, and may require greater expense to
maintain or replace parts.
3.
The predicted increase in population or industrial load may not materialise, meaning
that the improvement in water quality might have been achieved at lower cost.
These are difficult to predict. Conservative predictions in the first place should minimise the
scope for “surprises” in the future. The nature of O&M contracts may give protection against
increased operating costs. Given the population increases in recent years, the scope for oversizing plants has been reduced. Unless there are specific reasons to suspect that these or
other eventualities might arise, there is probably limited benefit in undertaking a detailed risk
or sensitivity analysis.
Where undertaken, risk analysis (where probabilities are attached to various forecasts) is
preferable to sensitivity analysis, as it allows us to assess the likelihood of the various
outcomes, and even to generate a spectrum of probabilities. Where there are more than a
few critical factors, however, risk analysis can become very complex. Sensitivity analysis is
simpler, testing for changes in the critical factors without attaching probabilities in a
systematic way.
3.3.7: Compare Results with ex ante CBA
As stated, in some cases ex ante CBAs will have been undertaken, while in others none will
exist. Reviewing some of those that have been done highlights a wide range of approaches
and levels of detail. We have also highlighted that there has been a number of developments
both in the Irish economy and CBA methodology in the interim. In view of this, we feel there
may be limited value in trying to assess these CBAs “line by line”, with the benefit of
hindsight. It would be better if in all cases new CBAs were drawn up using a standardised
methodology for each main type of investment (wastewater treatment, supply, conservation,
etc.). The results could be compared with the NPV, IRR or BCR generated in the original
study, and a general commentary made on reasons for differences. One issue worthy of
28
specific comment is the comparison of actual demand with that predicted in the ex ante
analysis, and its implications for rate of return on the investment.
3.3.8: Non-CBA Notes
The following, though not included in the CBA calculations as such, should be specified and
details given as appropriate 
Engineering assessment. Assessment of technology used. Capacity planned and
delivered, actual throughput (e.g. population served) planned and delivered, now and
over the lifetime of the investment. Reasons for differences between actual and planned
values. Assessment of Costs per unit of output.

Means of procurement - traditional, DB, DBO, etc. O&M contracts where used. Notes on
the implications (e.g. for costs), should be included.

Contribution to Irish/EU environmental regulations, both actual and planned.

Direct employment generated.

Industries affected. This would include significant industrial customers of the water
infrastructure, and industries such as tourism for whom water supply, quality, etc. is
important. Measures of the significance of the industries, for example Population
Equivalent (PE), Value Added and employment should be stated.

Sources of finance, divided between EU fund, Central Government, Local Authorities own
resources, capital contributions from local industry, private investment, etc.
3.4
Notes on Specific Investment Types
The schemes and projects to be considered come under the following categories:
a)
Wastewater Treatment Works
b)
Water Treatment Works
c)
Water Distribution
d)
Water Conservation
e)
Sewerage Infrastructure
f)
Water Resources Management.
Each will have specific issues that are peculiar to them, some of which are discussed below.
29
3.4.1: Wastewater Treatment Works
Define the Objectives, the Project and the Counterfactual
Objectives could include meeting the requirements of the UWWTD, and/or improving the
quality of receiving waters.
Wastewater treatment works will generally be well defined, but a complication arises when
sewerage works are also being undertaken. Are the latter an essential part of the former?
This might be the case where areas that previously had other means of disposal become
connected to the treatment plant, and without which the plant would be unviable. Renewal of
existing sewerage on the other hand might be considered a separate project, as might
additional connections above and beyond connection of the most important urban areas.
Common sense should provide the answer in most cases. The relative investment cost of the
sewerage compared to the treatment works might also give an indication.
The counterfactual should in general be the continuation of the position pre-investment, with
the minimum expenditure needed to maintain the pre-existing infrastructure.
External Benefits
The most important benefit of a wastewater treatment plant will usually be improvements in
the quality of receiving waters. This does not equate to improvements in the outflow of the
plant, or elimination of (say) sludge disposal at sea, though these should be included in the
non-CBA notes.
Actual water quality improvements achieved should be quantified. The EPA has a database of
water quality at a large number of points going back over the last decade or so, and the local
authorities themselves monitor water quality. Thus, in most cases it should be possible to
identify “before” and “after” data. Care is needed in identifying locations of water testing. As
a general rule, a location as near as possible to the outfall should be used. More than one
location might be worth investigating, for example if there were water abstraction
downstream of a wastewater treatment plant, or if there were a number of different amenity
areas affected. Where this is not possible, experience from similar investments elsewhere
may be useful.
Benefits can be expressed in terms of the usual water quality measures – BOD, Suspended
solids, N and P content where appropriate. Colour and odour should also be considered if
possible, though these will be difficult to measure objectively. Care is needed to avoid
double-counting benefits. The flow of net benefits over the lifetime of the investment,
compared to the counterfactual, will need to be quantified.
30
3.4.2: Water Treatment Works
Define the Objectives, the Project and the Counterfactual
Objectives could include meeting the requirements of the Drinking Water Directive, and/or
specific improvements in the quality of water to be supplied to customers.
These plants will often form part of a larger scheme, which might include new abstractions,
possibly reservoirs, pumping stations and supply networks. The degree to which the projects
can stand as independent entities or that their objectives can be achieved independently
should inform the degree of aggregation/disaggregation. A treatment plant per se is no use
without a network bringing water to it, and from it to customers. This network may or may
not pre-exist. If it does, one might consider the treatment plant on its own as a separate
project; if not, it is probably appropriate to include it in a larger project.
The counterfactual should in general be the continuation of the position pre-investment.
Internal Benefits
The output of the plant, i.e. improved water quality, will have customers, for whom that
improvement has a value. Care needs to be taken to distinguish between the supply of water
and the quality of the water. In general, treatment plants are concerned with quality, while
networks are concerned with supply. This needs to be considered if we are treating the two
investments as separate projects.
Some customers pay for water and some (i.e. the residential sector) do not; often those who
do pay are not paying the full economic price. As discussed earlier, where this is the case, the
benefit of an extra unit of water (or water quality) to the customer is likely to be low. Care
must thus be taken in valuing the extra output from the investment.
External Benefits
Most of the benefits of a water treatment plant should be internalised, or be capable of
internalisation, via customer charging. There may be some health benefits due to the
improved water quality, but these are likely to be difficult to quantify.
3.4.3: Water Distribution
Define the Objectives, the Project and the Counterfactual
The objective will usually be to provide (or improve the provision of) water to customers. The
water distribution network, pumping stations, etc. may or may not sit logically with a
treatment plant or other investment as part of the same project. The counterfactual should in
general be the continuation of the position pre-investment.
31
Capital costs
Where we are considering piping only, and it is clear that the network will have a life well in
excess of 30 years, it may be simpler to use the actual useful life as the timeframe for the
CBA, leaving no residual value at the end.
Internal Benefits
The most important benefits of a network investment will usually be improvements in water
supply to existing customers, supply of water to new customers, or both. Improvements can
be in terms of flow and/or reliability. The Local Authorities’ data on these should be adequate
for quantification purposes.
Care needs to be taken to distinguish between the supply of water and the quality of the
water. New networks are unlikely to have an impact on water quality, unless they reduce
contamination. In general, water quality is a function of the source and treatment rather than
networks. If we are treating the network as a separate project, we need to be able to
separate the benefits also.
External Benefits
It is likely that most benefits will be internalised or be capable of internalisation. Some health
benefits may arise where network supplies replace private supplies such as wells.
External Costs
Since networks are for the most part underground, ongoing external costs are likely to be
limited. Noise, visual intrusion, traffic congestion and increased accidents during construction
may arise to some extent, mainly in urban areas. In most cases, the planning process should
take account of most of these effects.
A major potential external cost relates to the impacts of abstraction. This impact will need to
be measured. Again, the planning process may have accounted for this to some degree.
3.4.4: Water Conservation
Define the Objectives, the Project and the Counterfactual
Water conservation projects generally attempt to cut leakages by a certain percentage, with
one or more of the following objectives:

To provide a more reliable service to customers;

To cut maintenance costs;
32

To avoid or postpone the need to increase abstractions;

To reduce contamination, thus improving water quality.
The project generally consists of –
a. replacing supply networks;
b. installation of a network of meters (often with telemetry) to enable improved control of
the network;
c.
development or purchase of computer systems to map the network and process the data
from the meters;
d. possibly hiring additional IT and maintenance personnel;
e. Pumping stations may possibly be included.
The counterfactual might be the continuation of the position pre-investment, or investment in
new water abstraction. The condition of the network pre-investment and likely demand
conditions will inform this.
Capital costs
Where we are considering piping only, and it is clear that the network will have a life well in
excess of 30 years, it may be simpler to use the actual useful life as the timeframe for the
CBA, leaving no residual value at the end.
IT assets will generally have a much shorter life, and their replacement should be accounted
for, though by their nature it is very difficult to predict future IT costs. The replacement cost
of assets with a life of less than 30 years should be included (e.g. meters and telemetry
stations), though care is required not to double count this if it is also included in O&M
contracts.
Operating Costs
Care is needed in defining the operating costs of the project, as there may be an overlap
between ongoing work on conservation and ongoing maintenance.
Internal Benefits
Reduced leakage can lead to improved water supply (better reliability and/or pressure). The
Local Authorities’ should be in a position to supply data on this. Where water quality is
improved, this also needs to be taken into account.
33
There could also be avoided costs related to the counterfactual. For example, if an old
network has been replaced, the avoided cost of operating and maintaining the old network
should be included as a benefit.
External Benefits
It is likely that most benefits will be internalised or be capable of internalisation. The
exception is where new abstractions are avoided. The level of avoided abstraction may
increase significantly over time.
External Costs
As with water distribution, since networks are for the most part underground, ongoing
external costs are likely to be limited. Noise, visual intrusion, traffic congestion and increased
accidents during pipe and meter laying may arise to some extent, mainly in urban areas. In
most cases, the planning process takes account of most of these effects, however.
3.4.5: Sewerage Infrastructure
Define the Objectives, the Project and the Counterfactual
Sewerage infrastructure investment will generally be concerned with the removal of
wastewater from a location, to a new or existing treatment plant, or indeed to an untreated
outfall (though this would be rare in the context of new investment). The objective may be to
enable the development of the location, or to reduce pollution from existing infrastructure
such as septic tanks.
The project may be stand-alone, may include pumping stations, or be part of a larger
investment including a wastewater treatment plant.
The counterfactual should in general be the continuation of the position pre-investment, or
the minimum required to maintain existing infrastructure.
Capital costs
Where we are considering sewerage only, and it is clear that the network will have a life well
in excess of 30 years, it may be simpler to use the actual useful life as the timeframe for the
CBA, leaving no residual value at the end.
34
Internal Benefits
The main internal benefit will be the removal of wastewater from those customers connected
to the sewerage. The flow of net benefits over the lifetime of the investment will need to be
quantified, by reference to forecasts of residential and other developments.
There may also be costs avoided due to the removal of the need for septic tanks
(maintenance of the tanks and disposal of waste from them). These are market services that
should be readily amenable to pricing, and should be added to the benefits of the new
infrastructure.
External Benefits
There might be some reduction in pollution due to the removal of septic tanks, or redirecting
of untreated outfalls. However, if the septic tanks are properly maintained, and the cost of
this is incorporated above, the scope for pollution would be limited.
External Costs
As with water networks, since sewerage networks are for the most part underground,
ongoing external costs are likely to be limited.
3.4.6: Water Resources Management
Two water resource management sub-projects are included in those to be reviewed:
1. The Lough Derg/Lough Ree is part of the Lough Derg Water Quality Improvement and
Lough Ree Catchment schemes, mainly covering sewerage investments.
2. The Three Rivers Monitoring and Management System report deals with the Rivers Boyne,
Liffey and Suir schemes (the River Suir scheme is not covered by the Cohesion Fund).
These will not be amenable to standard CBA, since they will not have physical outputs as
such. It may be appropriate to allocate the costs of these reports to the CBAs of the various
physical investments included in the relevant schemes. In any event, we will undertake an
assessment of the reports, covering the following headings:

Technical assessment of report findings

Potential benefits

Where practicable, implementation costs
35
For future reference, where water resources management projects are set up, which also
involve capital investment, CBA should be used in line with the methodology described above
for the various elements of the scheme.
36
Appendix A:
Bibliography
Bateman I. J., A. P. Jones, N. Nishikawa, R. Brouwer, 2000. Benefits transfer in theory and
practice: a review and some new studies. CSERGE and School of Environmental Sciences,
University of East Anglia.
Brouwer, R. and I. Langford, 1997. “The validity of transferring environmental benefits:
further empirical testing”, WP 97-07, CSERGE, University of East Anglia.
Brouwer, R. and F. A. Spaninks, 1999. “The validity of environmental benefits transfer:
further empirical testing” Environmental and Resource Economics. Vol 14 No. 1.
Clinch, J. P., 1999. Economics of Irish Forestry, Coford.
CSF Evaluation Unit, 1999. Proposed Working Rules for Cost-Benefit Analysis, Dublin.
CSO, 1999a. Population and Labour force Projections 2001-2031, July 1999.
CSO, 1999b. Regional Population Projections 2001-2003 June 2001.
CSO, 2002 et seq. Census of Population, various volumes.
Curtis, J., 2003. “Demand for leisure based water activity”, Journal of Environmental Planning
and Management, Vol 46, No. 1, Jan, Carfax.
Department of the Environment, Heritage & Local Government, various years. Review and
Outlook for the Construction Industry. Dublin.
Department of Finance, 1994. Guidelines for the Appraisal and Management of Capital
Expenditure Proposals in the Public Sector, Dublin.
Environmental Agency (UK), 2003. Assessment of Benefits for Water Quality and Water
Resources Schemes in the PR04 Environment Programme. Working Document (due for
finalisation in 2004).
http://www.environmentagency.gov.uk/business/444304/444643/425378/425401/425411/507669/?lang=_e
EPA (Bowman et al.), 1996. Water Quality in Ireland 1991-1994. Dublin.
EPA (Lucey et al.), 1999. Water Quality in Ireland 1995-1997. Dublin.
EPA (McGarrigle et al.), 2002a. Water Quality in Ireland 1998-2000. Second (revised) edition.
Dublin.
EPA, (Page et al.) 2002b. The Quality of Drinking Water in Ireland – A Report for the Year
2001. Dublin.
37
EPA, (Mahony et al.) 2002c. Feasibility study for centralised anaerobic digestion for treatment
of various wastes and wastewaters in sensitive catchment areas . Dublin.
ESRI, 2003. Medium Term Review 2003-2010, July 2003, Dublin.
European Commission, 2003. External Costs, Research results on socio-environmental
damages due to electricity and transport, DG for Research, Directorate J-Energy. Available at:
http://europa.eu.int/comm/research/energy/gp/gp_pubs_en.html
Evaluation Unit of the Regional Policy DG of the EU Commission 1999. Guide to Cost-Benefit
Analysis of Investment Projects (Structural Fund-ERDF, Cohesion Fund and ISPA), 1999
Edition.
Fehily Timoney Weston in association with DKM, 1995. The Economic Appraisal of
Environmental Projects Supported by the EU Cohesion Fund, for the Department of the
Environment, November 1995.
Foundation for Water Research, 1997. Assessing the benefits of surface water quality
improvements, FR/CL0005, Marlow, Foundation for Water Research.
Helm, D, 2003. “Benefit Assessment: Concluding Remarks”, from Economic Appraisal and Assessment of
Benefits in the PR04 Environment Programme, Findings of an Environment Agency seminar, January
2003, New College, Oxford.
Moran, D., 1999. “Benefits transfer and low flow alleviation: what lessons for environmental
valuation in the UK?” Journal of Environmental Planning and Management, Vol 42, No. 3,
May, Carfax.
OFWAT (Office of Water Services) 1994. 1993-1994 Report on the Cost of Water Delivered and
Sewerage Collected.
Pearce, D, 1998. “Cost-benefit analysis and environmental policy”, Oxford Review of
Economic Policy, Vol 14 No. 4, Winter, Oxford University Press.
RCEP (Royal Commission on Environmental Pollution), 1994. Nineteenth Report: Sustainable
Use of Soil., CM 3165, London, HMSO.
Scott, S, 2001. "Discharges to water and use of water services", chap 2 in S. Scott, J. Curtis,
J Eakins, J. Fitz Gerald and J. Hore, Environmental Accounts: Time Series + Eco-Taxes.
Project for EC DG XI and Eurostat B1, ref. no. KITZ99/274, Sub 99/39963.
Turner, RK, Batement, IJ & Pearce DW, 1992, Valuing Environmental Performance: the UK
Experience, CSERGE Working Paper GEC 92-04.
38
Appendix B:
Valuing Fossil Fuel-Related Externalities
Most external costs and benefits arise locally, and hence are location-specific. Ideally, in each
case research should be carried out to identify, quantify and value the externalities that arise.
This is not practicable in the current circumstances, so Benefit Transfer, using valuations
calculated elsewhere, must be used.
A large body of literature exists, with values for a wide range of circumstances. The most
comprehensive collection of these values that we are aware of is the Environmental Agency
(UK) 2003 document Assessment of Benefits for Water Quality and Water Resources Schemes
in the PR04 Environment Programme. Even within this, a range of valuations exists, and it is
not possible to identify valuations that will be appropriate in all circumstances. Appendix D
discusses this in more detail.
While most externalities are location-specific, some have significant elements that are
invariant within Ireland, internationally and even globally. Examples include accident costs
(fatalities, serious injuries, minor injuries) and externalities related to fossil fuel usage, related
to acid rain or global warming (emissions of SO2, NOx and CO2).
At the time of writing, the Department of Transport is about to commence a study that will
update values to be used in transport CBAs, accident externalities included. The study is due
to be completed by the end of March 2004.
As for fossil fuel usage, we must first convert from energy usage to emission quantities, and
thence to valuations of damage. Table B1 sets out the level of emissions from burning
various fuel types. Emission factors are shown per unit of the original fuel burnt, and
converted to Tonnes of Oil Equivalent (TOE), which is a standardised way of comparing the
energy content of various fuels.
Table B1: Emissions for Various Fossil Fuels
TOE/Unit
Tonnes of Emissions/TOE
Tonnes of Emission/Unit
of Fuel
Natural Gas (kilotherms)
Oil (tonnes)
of Original Fuel
CO2
SO2
NOx
CO2
SO2
NOx
2.440
2.07
0
0.0021
5.050
0.000
0.005
1
3.01
0.0059
0.0021
3.010
0.006
0.002
Coal (tonnes)
0.655
3.7
0.0241
0.0021
2.424
0.016
0.001
Peat (tonnes)
0.313
4.34
0.0126
0.0042
1.358
0.004
0.001
Note: Conversion factor ktherms of gas to TOE: 0.409871 (Kinsale gas). The oil is 0.3% sulphur. The
peat is milled peat.
Sources: Fitz Gerald & McCoy, 1992; Barrett, Lawlor & Scott, 1997.
Electricity is of course a major means by which energy is consumed, and is generated mainly
from fossil fuels. We can calculate the average emissions for electricity, based on fuels used
39
to generate it in Ireland in 2001. In future years the fuel mix, efficiency levels and load
factors may differ; it is generally believed that natural gas will increase its share, but there
are countervailing concerns that Ireland may be come too dependent on this fuel.
Table B2: Calculation of Emissions from Electricity Generation in Ireland, 2001
Natural Gas
Oil
Coal
Peat
Hydro
Renewables
Total
Gross Output Fuel Used
MWh
TOE'000
9,478,977
1,855
5,119,213
1,171
6,893,244
1,527
1,929,390
583
732,511
78
722,700
53
24,876,035
5,267
Emissions per MWh
Implied Emissions Tonnes
CO2
SO2
NOx
3,839,850
3,896
3,524,710
6,909
2,459
5,649,900
36,801
3,207
2,530,220
7,346
2,449
15,544,680
51,055
12,010
0.62
0.0021
0.0005
Note: Conversion factor ktherms of gas to TOE: 0.409871 (Kinsale gas). The oil is 0.3% sulphur. The peat is
milled peat.
Source: DKM estimates.
The next and more controversial step is to put valuations on these emissions. The valuation
should represent the lower of the damage caused by the emission and the cost of avoiding
the emissions. Many attempts have been made to value the emissions, and a wide range of
estimates exist (e.g. EPA 2002c), mostly related to damage caused. We are fortunate in that
emissions trading systems exist in the USA for both SO2 and NOx, and these should give us an
indication of the marginal cost of avoiding emissions 12. The average monthly price of SO2
allowances in 2001 was US$185/ton. Prices for NOx have been significantly more volatile, but
in the first half of 2001 prices were in the region of US$1,600/ton, having been significantly
lower in 2000 and significantly higher prior to that 13. These prices convert to €227 and
€1,964/ tonne respectively, in 2003 prices.
As for CO2, The EU plans to have a trading system in place for 2005. “Practise trades” by
large European companies were indicating prices of €12 – 13.20/tonne in late 200314, an
average of €12.60/tonne. However, large changes are possible post March 2004, when each
county’s National Allocation Plan (NAP) must be in place, and subsequently when the new EU
members join, as many of them will be net sellers of emissions allowances.
12
The system in the US is “cap and trade”, i.e. a national cap is set on emissions, and there is trading
within that cap. The requirement to stay within the cap could mean that the trading price overestimates the true marginal cost of emission reduction.
13
14
see US EPA website http://www.epa.gov/airmarkets/index.html
See Dow Jones Newswires, November 19, 2003. “European Companies Gearing Up For Emissions
Trading : CO2 Price Rising”. http://www.ieta.org/Library_Links/IETAEnvNews/Nov19_EU.htm
40
Based on the foregoing, we can make an estimate of the cost of emissions per unit of fuel
burned. Given the level of uncertainty involved and the likelihood of significant changes in the
future, this should be used with caution.
Table B3: Estimate of Emissions Cost per Unit of Fuel Burned
CO2
SO2
12.60
227
Tonnes of emissions per Unit of Fuel Burned
Natural Gas (kilotherms)
5.050
Oil (tonnes)
3.010
Coal (tonnes)
2.424
Peat (tonnes)
0.807
Electricity (2002, MWh)
0.62
0.0000
0.0059
0.0158
0.0023
0.0021
Cost per tonne of emissions (2003 €)
NOx Costs per Unit of
Fuel Burned (€)
1,964
0.0051
0.0021
0.0014
0.0008
0.0005
73.70
43.39
36.82
12.24
9.29
Note: On the face of it, the above numbers may appear to indicate that natural gas is a
heavier polluter than the other fuels, but one has to take into account the energy content of
the fuels in question. For instance, one kilotherm of natural gas is the energy equivalent of
13 tonnes of milled peat.
For future reference, a number of expected developments in the energy sector over the
coming years need to be kept in mind when carrying out CBAs, including:
1. If emissions trading is established in Ireland, energy from sources subject to the regime
(including electricity generation stations, but probably not water or wastewater treatment
plants) will automatically have their emission costs internalised, and it will no longer be
necessary to include additional costs for these in CBAs.
2. Concomitant with the emissions system, it is probably that smaller energy users
(including water schemes) will either have to participate in “voluntary agreements” to
reduce emissions, or pay a carbon tax. In either case, subject to uncertainty regarding
the efficacy of voluntary agreements and setting the tax at an appropriate rate, the
external costs of CO2 emissions should be automatically taken care of in the price of fossil
fuels, and no further addition will be required in CBAs.
3. Apart from a possible SO2 and NOx emissions trading system, EU Directives require
significant investment to reduce SO2 and NOx emissions over the coming years. The cost
of this will be incorporated in energy prices, and to that degree the further addition of
costs for emissions in CBAs will be unnecessary.
4. Regardless of future developments, however, In the current context it is necessary to
incorporate externalities from energy usage by the water schemes. Current internal prices
plus an estimate of external costs should be used, and the fact that these energy users
may at some point in the future be subject to emissions trading or energy taxes should
be ignored.
41
Appendix C:
The Importance of Pricing to Infrastructure
Investment Decisions
In commercial markets, price and quantity consumed are determined by the interaction of
supply and demand. This can be expressed graphically as follows:
P
p0
Supply
p*
Demand
q*
q0
Q
Price (P) is on the vertical axis and quantity (Q) on the horizontal. The demand curve, slopes
downwards from left to right, while the supply curve slopes upwards. Intuitively, less
demanded as the price rises, and more is supplied as the price rises. It can be shown that the
demand curve also represents the marginal benefit from consumption of the good, while the
supply curve represents the marginal cost.
In a normal market, the intersection of the curves gives the “equilibrium” price and quantity
(p* and q*). In the absence of external costs and benefits, this represents the optimal
position, as societal benefits are maximised at this point.
In a situation of under-pricing, however, we get a sub-optimal position, with marginal benefit
lower than marginal cost, and excessive consumption. In the extreme case where the good is
supplied for free, consumers keep consuming the good until their marginal benefit reaches
zero (q0 in the chart). Supplying this level of output is very expensive at the margin (p0 in
the chart).
It can thus be seen that the marginal benefit of extra capacity without proper pricing can be
very low, and the cost very high. The slope of the demand and supply curves will determine
the extent of this, but it is almost inevitable that without proper pricing the cost of extra
supply will exceed the benefit.
42
Appendix D:
D.1
Benefits Transfer
Quality Assessment of Water
Classifying Water Quality
In order to assess the change in water quality that may result from a water scheme, there
needs to be a means of classifying water quality. The classification task needs to be
undertaken before and after the scheme is put into operation so that the change in water
quality can be described. Classification schemes have been developed to record the quality of
water in rivers, lakes and estuaries/coastal waters. This sub-section briefly describes them in
turn.
Rivers
There is a classification system in use known as the biological river quality classification
system. It classifies river water quality into five levels, Q1 to Q5, with Q1 and Q5 respectively
indicating bad and good water quality. The classification system is outlined in the following
table:
Quality:
Q value
Diversity of the macroinvertebrate community
Water
quality
Condition (with respect
to potential uses)
Q5
High
Good
Satisfactory
Q4
Reduced
Fair
Satisfactory
Q3
Much reduced
Doubtful
Unsatisfactory
Q2
Low
Poor
Unsatisfactory
Q1
Very low
Bad
Unsatisfactory
Source: Water Quality in Ireland 1998-2000, p. 3, EPA 2002.
Notes: Macro-invertebrates, some at immature stages, include aerial insects, crustacea,
molluscs, worms, etc.
In addition to the five Q values entered in the table above, intermediate Q values such as Q12, Q4-5, are also used. It needs to be stressed that assessment of river water quality is
inexact owing to changing circumstances, such as the weather and so forth. While it is the Q
values outlined above that this report uses in general, there are other ratings with which
readers may be more familiar. These are the quality classes “unpolluted”, also called class A,
down to “seriously polluted”, class D, that appear as coloured points on the maps
accompanying the EPA’s reports on water quality. These relate directly to the Q values just
described, in the following manner:
43
Q value
Pollution status
Quality class
Q5 Q4-5 Q4
Q3-4
Q3 Q2-3
Q2 Q1-2 Q1
Unpolluted
Slightly polluted
Moderately polluted
Seriously polluted
Class
Class
Class
Class
A
B
C
D
Class A waters are unlikely to present water quality problems that would impinge on existing
or potential uses. The main characteristic of classes B, C and D is eutrophication, defined
below, which may interfere with amenity, abstraction or fisheries use of such waters. Roughly
translated from the Greek ‘eu’ means ‘well’ and ‘trophic’ means ‘nourished’. In the worst class
of waters, class D, excessive organic loading leads to deoxygenating and may produce
‘sewage fungus’, with most beneficial uses curtailed or eliminated.
Eutrophication is defined in the Urban Waste Water Treatment Directive (91/271/EEC) and
Nitrates Directive (91 676/EEC). Water that is defined as eutrophic is described as exhibiting
all the following three characteristics:

enrichment by nutrients, especially compounds of nitrogen and/or phosphorus

accelerated growth of algae and higher forms of plants, and

undesirable disturbance to the balance of organisms present and to the quality of the
water concerned.
How these features are translated into detailed criteria that then translate into the final Q
values is described in Section D.4 at the end of this Appendix. The description in the
Appendix is given by reference to estuaries and coastal waters.
Given that we have seen that there are several classifications of water quality, the reason
that Q values are used for this study is that they are recorded at each sampling point
reported in the EPA’s water quality datasets. They are important for this study because, as
described above, they indicate the condition of waters with respect to beneficial uses. The
main uses in question broadly include the potential for water abstraction, the fishery potential
and amenity use. The manner in which the Q values affect these uses has been spelt out by
the EPA and is shown in the table below (Water Quality in Ireland 1998-2000, App I Table
I.1).
In addition to showing the three main uses in the last three rows, that is, abstraction
potential, fishery potential and amenity value, the table specifies in the higher rows the
meanings of the different terms in common usage namely ‘pollution status’, ‘water quality’,
and ‘condition’. At Q2 for example the water is only useful for low grade abstractions. At Q3
coarse fishing is a possibility, though the amenity value is reduced and abstraction for normal
use requires advanced treatment. By contrast at Q4 and Q5 the water is suitable for
abstraction for all usual purposes, there is good game fishery potential and amenity value can
be high.
44
Water quality (Q values) and beneficial uses of water
Quality Classes
Class A
Class B
Class C
Class D
Quality Ratings (Q)
Q5
Q4
Q3-4
Q3
Q2
Q1
Pollution Status
Pristine, Unpolluted
Unpolluted
Slight Pollution
Moderate Pollution
Heavy Pollution
Gross Pollution
Water Quality
Highest quality
Fair quality
Variable quality
Doubtful quality
Poor quality
Bad quality
Condition
Satisfactory
Satisfactory
Transitional
Unsatisfactory
Unsatisfactory
Unsatisfactory
Beneficial uses:
Abstraction
Potential
Suitable for all
Suitable for all
Potential problems
Advanced treatment
Low grade
abstractions
Extremely limited
Fishery Potential
Game fisheries
Game fish at risk
Coarse fisheries
Fish usually absent
Fish absent
Amenity value
Very high
Good game
fisheries
High
Considerable
Reduced
Low
Zero
Source: Water Quality in Ireland 1998-2000, App I Table I.1, EPA ( 2002)
45
The Environmental Protection Agency’s summary of this information is:
Q4 Q4-5 Q5
Satisfactory condition: problems relating to existing or potential uses
are unlikely to arise
Q3-4
Unsatisfactory because of potential risk to wild game fish populations of
nocturnal dissolved oxygen (DO) depletion, particularly in times of low
flow and elevated temperature.
Q2-3 Q3
Unsatisfactory. The main characteristic is eutrophication which may
interfere with the amenity, abstraction or fisheries uses.
Q1 Q1-2 Q2
Excessive organic loading leads to deoxygenation and may produce
‘sewage fungus’ growths, severely curtailing most beneficial uses.
The Environmental Protection Agency’s reports are the major source of information on the
water quality assessments relating to the periods before and after the schemes have been
commissioned. In order to obtain local information of a sometimes more discursive nature,
and to update information where the EPA has not yet received recent measurements, the
regional fisheries boards were consulted. In all instances, the local authorities, which
undertake the primary measurements and are also in a position to assess current conditions,
were asked for any results that they had recorded or observed.
Lakes
Up to this point we have dealt with the assessment of water quality in rivers. Where lakes are
concerned, eutrophication or nutrient enrichment, principally by phosphorus and to a lesser
extent by nitrogen, is again the principal threat to their quality.
Lake water is most commonly assessed by reference to a different classification scheme
proposed by the OECD and which has several criteria. In Ireland a modified version of this
scheme is used in which assessments are based solely on the annual maximum concentration
of chlorophyll a, with sub-divisions according to the maximum levels of planktonic algae
measured during the period. Details of the criteria used here for lakes are given below.
As can be seen from the next table the categories for lakes range from Oligotrophic,
indicating very low level of pollution and probably no impairment of use, to Hypertrophic with
very high level of pollution and impairment of use. These are the classifications that will be
used in this study for the assessment of the effects of the water schemes on lakes.
46
Water Quality of Lakes and Impairment of Use
Classification:
Description
Algal growth
Lake Trophic Category
Criterion:
Annual
Maximum
Chlorophyll mg/m3
O
Oligotrophic
<8
M
Mesotrophic
m-E
Low
Degree of Deoxygenation
in Hypolimnion
Low
Level
of
Pollution
Very low
Impairment of Use
of Lake
Probably none
8 – 25
Moderate
Moderate
Low
Very little
Moderately eutrophic
25 – 35
Substantial
May be high
Significant
May be appreciable
s-E
Strongly eutrophic
35 – 55
High
High
Strong
Appreciable
h-E
Highly eutrophic
55 – 75
High
Probably total
High
High
H
Hypertrophic
> 75
Very high
Probably total
Very high
Very high
Source: Water Quality in Ireland 1998-2000, Table 3.2 p. 37, EPA (2002)
Note: This is the “Modified version of the OECD scheme”, based on values of annual maximum chlorophyll concentration, with indicators related to water
quality and probable level of pollution.
47
Estuaries and coastal waters
A detailed examination was undertaken by the EPA in its report entitled An Assessment of the
Trophic Status of Estuaries and Bays in Ireland for the then Department of the Environment
and Local Government (EPA, 2001). Eutrophication is again the condition to be investigated
and the detailed criteria for eutrophication are spelt out and described in Section D.4 at the
end of this Appendix.
References:
EPA, 2001. An Assessment of the Trophic Status of Estuaries and Bays in Ireland, Report
prepared for the Department of the Environment and Local Government. Johnstown Castle
Estate, Wexford.
EPA 2002. Water Quality in Ireland 1998-2000. Also Statistical Compendium on CD.
Johnstown Castle Estate, Wexford.
EPA, 2003. River Water Quality Report 2002: The Biological Survey of River Quality – Results
of the 2001 Investigations. www.epa.ie/Water/Quality/RiverReport.htm . Johnstown Castle
Estate, Wexford. (Coverage is partially complete)
48
D.2
Valuing Water Quality
Water Quality valuation
In order to estimate the value of changes in water quality brought about as a result of
investment in water schemes, there needs to be a means of placing values on attributes such
as cleaner rivers or rivers with fish. The total benefit of a scheme that improves water quality
would then include the value of this improvement. To estimate this one has to overcome the
problem that such values are not readily available, and secondly those that are available have
not been estimated for Ireland.
In this sub-section a brief description of valuing non-marketed goods is given, followed by a
discussion of transferring values calculated elsewhere, a procedure called “benefits transfer”.
A short description of the principles of benefits transfer is given. The next sub-section
summarises the procedures recommended in the Guidance manual of the Environment
Agency of England and Wales, with a view to applying those procedures to the schemes
under review here.
Introduction to valuing ‘goods’ that are not marketed
A major challenge in cost-benefit analyses is the measurement of the value of the things that
have been considered to be ‘unmeasurable’. Prominent among these are items such as
resource quality, species loss, visual intrusion or merely having the option to enjoy an
amenity or to know that it exists. There can be ‘option’, ‘non-use’ or ‘existence value’ as well
as ‘use value’. The items in question are largely environmental in type that are not directly
bought and sold in the ordinary sense and cannot readily be incorporated in the calculations
of costs and benefits. Rapidly growing recognition of the importance of these items is being
matched by the growth in developments in means to place a monetary valuation on them.
The issue of valuation and the techniques employed received particular attention as a result
of the claims for damages arising from the Exxon Valdes oil spill close to the Alaskan coast, in
1989.
Procedures for finding the money values of non-marketed goods, such as cleaner rivers,
started with techniques that used indirect markets that were related to the good in question.
House prices can reflect the value of local environmental attributes, enabling the ‘hedonic’
price method to be used. Or the cost of travel can reflect the amount that people are willing
to pay to enjoy a recreational asset - the Travel Cost Method (TCM). These are ‘revealed
preference’ methods.
Another method comes under the category of ‘stated preference’ techniques. These involve
administering carefully controlled questionnaires that ask people their monetary valuations.
People may be asked how much they are willing to pay (WTP) for an environmental
improvement, or the amount they are willing to accept (WTA) in compensation to forgo that
improvement. Values of losses in environmental quality, alternatively called negative benefits
or disbenefits, can be estimated in a similar manner to values of improvements.
49
In the UK, transport projects in the sixties, such as the M1 motorway and the Third London
Airport, were subjected to CBA in which the non-marketed time saved was given estimated
monetary values. Valuation of environmental aspects, rather than time saved, came to the
fore in recent assessments of, for example, the conservation of the Norfolk Broads. Here the
non-use benefits of the Broads were shown to be a prominent part of the benefits. Despite
such findings of significant real, though non-marketed, costs and benefits, some analysts
might still not consider the costs that are not directly marketed. For example, a report of the
Royal Commission on Environmental Pollution (1996) on soil erosion omitted any mention of
the economic cost of soil erosion. Omission of important external effects means the analysis
is incomplete.
With the demands of the sustainable development agenda, project-based and policy-based
studies and manuals have been produced which cover air quality, agricultural externalities,
solid waste and minerals, energy pricing, chemical pollution, forestry, wildlife, habitat and
landscape and cultural heritage (Pearce, 1998). In particular there is a literature on economic
evaluation of water supply and wastewater treatment projects that considers evaluation
techniques designed to value many of the ‘outputs’ of such schemes. Major authors include
the Environment Agency (2004) in the UK, the US Environmental Protection Agency (2000),
the World Bank (1996) and Resources for the Future (1996).
Benefits transfer
Policy makers often require cost-benefit analysis to evaluate a project without having
committed the time and resources to estimate the benefits or costs of the specific project. In
these circumstances, resort is often had to valuations from studies undertaken elsewhere. In
an exercise called ‘benefits transfer’ these values are then ‘transferred’ to the project under
review. A definition of benefits transfer is quoted by Bateman et al (2000), on whose work
this sub-section draws, as
“the transfer of existing estimates of non-market values to a new study which is
different from the study for which the values were originally intended”
Boyle and Bergstrom, 1992.
Questions as to the validity of approaches used to date have provoked a lively debate and
empirical testing (Brower and Spaninks, 1999). Application of benefits transfer suffered a setback in 1998 with a public inquiry, commonly known as ‘the Axford case’, into a proposal to
extract borehole water from near the River Kennet in Wiltshire. This is located in an Area of
Outstanding Natural Beauty and a Site of Special Scientific Interest, and the Environment
Agency had conducted a cost-benefit analysis15 in which they concluded that reduced
abstraction should be required. The study was based on valuations relating to the River
Darent in Kent. The decision in the public inquiry went against the Environment Agency and
its cost-benefit appraisal. A key issue was the use of benefits transfer to estimate the non-use
value of maintaining the flow and, in particular, the number of people who should be deemed
willing to pay to maintain the flow.
15
Based on the benefits manual prepared by the Foundation for Water Research (1996).
50
A lesson to emerge from the disagreement is the need to calibrate very carefully values of
benefits that have been taken from elsewhere. Allowance should be made for differences
between sites in the key variables that explain willingness to pay, for both use and non-use.
Other considerations include whether to use mean or median willingness to pay, how wide a
geographic spread of population should be used or what assumption to make about fall-off in
WTP with distance (so-called distance decay), and how to deal with marginal differences in
the quality, or water flow in that case (Moran, 1999).
The risks of misrepresentation are high when benefits transfer is used and it is strongly
advised that site specific surveys of WTP be undertaken in order to make results firmer. But
with virtually no valuations available for Ireland,16 valuations have to be borrowed from
elsewhere and applied with due regard for the lessons learned.
Principles of Benefits Transfer
There are three broad approaches to benefit transfer which will be outlined in turn:
(i)
(ii)
(iii)
(i)
Transferring unadjusted unit values
Transferring adjusted unit values
Transferring benefit functions
Unadjusted unit values
The unit value estimate of WTP from some original study site can simply be transferred for
use in the ‘target’ or ‘policy’ site for which benefits estimates are required. The estimation of
recreational and other non-market benefits from the River Darent to analyse the River
Kennet, is an example. A variety of unit values may be transferred, the most typical being
mean or median measures. The problem is that the unit values may not apply to other sites
where circumstances are likely to be different. Reasons may include the following:
a.
b.
c.
d.
(ii)
Differences in the socio-economic characteristics
Difference in physical characteristics of the study and site
Differences in the policy or change being analysed
Differences in market conditions, such as availability of substitutes.
Adjusted unit values
Since all these differences are likely to be present, a way to try to overcome them is to adjust
the unit values. In the UK for example the valuation of noise called on the opinions of estate
agents on house values, and this present study of water schemes could do likewise with
16
Studies by Clinch (1999) and by Curtis (2003) being notable exceptions. Only the last is in a field that
relates to the subject of this study. Other studies by Indecon (2003) and by a series of authors in the
ESRI have looked at expenditures on water-based leisure including salmon angling.
51
respect to nearby waters that are polluted or otherwise. In some cases sub-samples of the
original study data might be amenable to re-analysis if they replicate, say, the income group
or conditions at the site in question. Given that the initial sample size is likely to be too small
to yield reliable results, another approach is to use the findings of a number of prior studies
and analyse them statistically. It is possible to integrate all the findings to derive useful
generalisations. This is called meta-analysis.
An example of a meta-analysis is the study by Bateman et al. (op. cit.) who gathered some
77 estimates from various studies of the value per person per visit to woodland. These values
were formulated into an equation by regression analysis. That is the valuations were
expressed as a function of the elicitation method,17 on whether or not ‘option value’ rather
than merely use value is included in the willingness to pay, on evaluation method 18 and on
estimation method.19
Another meta-analysis of 200 travel cost studies was undertaken by Smith and Kaoru (1990)
of recreation sites in general, be they for water-based activities, hunting or enjoyment of
wilderness and be they lake, river, forest, State Park or National Park. A notable finding in
that instance is the significance of the modelling assumptions adopted by researchers. Of
most significance is the fraction of the wage rate used to estimate the opportunity cost of
time. Meta-analyses of hedonic pricing studies of noise and of air quality also highlight the
part played by method in the results derived. A meta-analysis by Brouwer et al (1999), also
described in Bateman et al, of Contingent Valuation studies of use value and non-use value of
wetlands showed that average willingness to pay was substantially higher in North America
than in Europe.
A further finding was that higher response rates, a rough indicator of overall study quality,
appear to result in significantly lower average WTP than low response rates.
In addition, non-use function such as biodiversity, in the case of wetlands, did not rate such a
high value as the ‘use’ value of flood control. This may reflect the fact that the ultimate use
of biodiversity is not clearly understood.
(iii)
Benefit function transfers
Thirdly, instead of using the unit value, be it unadjusted or adjusted, the researcher can
apply an entire function (if one has been estimated) from the study site to the new policy
site. This enables the assumptions about value and its determinants made for the original site
to be carried over to the new or ‘policy’ site and relationships between the characteristics and
the estimate of benefit can be exploited.
Many tests of this procedure have been undertaken. These tests compare the coefficients
produced in the regression exercises. Coefficients from studies of similar benefits are
17
This would be represented by dummy variables, for example whether or not the elicitation method
was open-ended: “how much are you willing to pay” - it would be expected to yield lower estimates.
18
Contingent valuation, travel cost and so forth.
19
Ordinary least squares, maximum likelihood, etc..
52
compared using a mixture of tests.20 “Transfer errors” have been calculated in terms of the
difference between the observed unit values at the original study site and at the policy site.
Another measure of this error is the difference between the predicted value at the policy site
derived from transferring the benefit function from the original study site, on the one hand,
and the observed average value at the policy site on the other.
An example of testing benefit transfer errors is the analysis undertaken by Loomis (1992) of
the functions valuing ocean fishing trips in different states of the US. These tests rejected
equality of the coefficients. In another test within the state of Oregon, an analysis of results
from ten freshwater fishing sites was used to calculate an average value for each site and
then a grand average from the full ten-site model. This study showed that transferring
functions based on the remaining nine sites produces figures that are closer to the valuations
at the tenth site than use of the simple grand average.
As a result of work to date recommendations for valuations research have been made to help
benefit transfer in the future. In an ideal world, of the various approaches to benefits
transfer, a preferred option is to avail of the function that expresses the benefit as a function
of the characteristics of the site and users (Bateman et al., 2000). It would also be desirable
that benefit functions would have been routinely drawn up in valuation studies according to a
code of practice. This would include accurate definition of users and non-users, with a clear
view to aggregating numbers in an appropriate way. A minimum set of common variables
should be used such as age, household income, composition and membership of
environmental associations. Bandwidths and scales ought to be consistent with those used in
other studies or with national data, such as the Household Budget Inquiries of the Central
Statistics Office.
Practical lessons to be drawn
For this study it is well to be aware of the pitfalls of benefits transfer. The study for the River
Kennet can be usefully drawn upon for practical lessons. It involved simple unit-value transfer
applying the results of a study of the River Darent to evaluate the case for restricting
abstraction on the river Kennet. The restriction of abstraction on the Kennet would have
entailed expenditure by the water company of £6.2 million on developing alternative sources
of water. Against this the ‘benefit’ for the Kennet was evaluated at £13.9 million and it was
the uncertain nature of this benefit estimate that was one of the causes of objection by the
water company, Thames Water Utilities Ltd to the restriction.
The benefits had been transferred from the mean willingness to pay for the recreation value,
on the part of residents and of visitors (£16.44 and £12.01 per household per year,
respectively), for maintenance and improvement of the river Darent. These values were
aggregated up to the relevant populations around the Kennet. Turning to non-use value, the
‘general public’ mean WTP was taken from a module of the Darent study that investigated
improvement of 40 low-flow rivers, divided by forty. This gave a conservative WTP of £0.32
per household per year. However, it is the aggregation of this figure that appears to have
been the contentious issue. The study was actually required to aggregate over the water
20
These include Chow, Likelihood Ratio (LR), Lagrange Multiplier (LM) and Wald tests.
53
company’s entire customer base, which is some 3 million households, and apparently had no
choice but to do that. Bateman et al (page 90) point out that, given use of an arguably low
figure of WTP and high population figures, there is no way of knowing whether the benefits
estimate was in fact too low or too high.
Having outlined both the academic discussion and recent events, there are some pointers on
how to proceed.

In the absence of site-specific studies of willingness-to-pay (WTP), relevant valuation
studies from elsewhere can be availed of in what is called benefits transfer.

Two classes of data are required, namely, the valuation of the benefit and the
population to be used to aggregate up to a total value.

Figures for the population of users, such as visitors and fishermen, have to be
obtained, and potential users need to be estimated in some manner.

The definition of the non-user population over which to aggregate is crucial. The
‘non-user’ population are the people who value the existence of an environmental
asset.

WTP is likely to be differentiated by distance from the site and by site-specific
aspects such as access.

Given the uncertainties it is advised that analysts undertake sensitivity analyses,
using upper and lower bound assumptions.
These lessons have been taken in to account by the Environment Agency in their guidance
manual for assessing environmental benefits of water schemes. The next sub-section outlines
their recommendations that could be applied in Ireland for estimating the population and
finding the valuation to be applied.
References
Bateman, I. J., A. P. Jones, N. Nishikawa and R. Brouwer, 2000. Benefits Transfer in Theory
and Practice: A Review and Some New Studies, available from http://www.uea.ac.uk/~e089/,
CSERGE and School of Environmental Sciences, University of East Anglia.
Boyle, K. L. & Bergstrom, J. C., 1992. “Benefit transfer studies: myths, pragmatism and
idealism”, Water Resources Research, 28 (3), p. 657-663.
Bingham, Tayler H., Bondelid, T. R., Depro, B. M., Figueroa, R. C., Hauber, A. B., Unger, S.
J., Van Houtven, G. L., 2000. A Benefits Assessment of Water Pollution Control Programs
Since 1972: Part 1, The Benefits of Point Source Controls for Conventional Pollutants in Rivers
and Streams, U.S. Environmental Protection Agency.
54
Brouwer, R., I. H. Langford, I. J. Bateman and R. K. Turner, 1999. “A meta-analysis of
wetland contingent valuation studies, Regional Environmental Change, 1(1) p. 47-57.
Brouwer, R. and F. A. Spaninks, 1999. “The validity of environmental benefits transfer:
further empirical testing”, Environmental and Resource Economics, 14(1), p. 95-117.
Clinch, J. P., 1999. The Economics of Irish Forestry, Coford, Dublin.
Curtis, J. A., 2002. “Estimating the demand for salmon angling in Ireland”, The Economic and
Social Review, vol. 33 no. 3, winter, p. 319-332. Dublin.
Environment Agency (England and Wales), 2004. Benefits Assessment Guidance for Water
Quality and Water Resources Schemes . Eight volumes.
Foundation for Water Research (FWR), 1996. Assessing the benefits of surface water quality
improvements, FWR, Marlow.
Frederick, Kenneth et al., 1996. Economic Values of Freshwater in the United States ,
Resources for the Future.
Indecon, 2003. An economic/socio-economic evaluation of wild salmon in Ireland, report
prepared for the Central Fisheries Board, Dublin
Moran, D., 1999. “Benefits transfer and low flow alleviation: What lessons for environmental
valuation in the UK?”, Journal of Environmental Planning and Management, 42(3), p. 425436.
Young, Robert A., 1996. Measuring Economic Benefits for Water Investments and Policies ,
World Bank.
55
D.3
Method for valuing environmental effects of Irish schemes –
Benefits transfer using Environment Agency (England and Wales)
Guidance
There are several manuals that provide a shortcut for use by practitioners who require
estimates of environmental benefits for their cost-benefit analyses. One manual that relates
relatively well to conditions in Ireland is the document in eight volumes released by the
Environment Agency of England and Wales (2004). Entitled Benefits assessment guidance for
water quality and water resources schemes, henceforth referred to as the Guidance, it was
prepared by consultants Risk & Policy Analysts (RPA) and will form the main source of
information for this exercise.
The 14 schemes that form the subject of this review can be broadly categorised into the
following types of projects:
Table 1: Categorisation of projects
Project Category
Wastewater Treatment Works
Water Conservation
Water Resources Management
Sewerage Infrastructure
Water Distribution
Water Treatment Works
Number
27
10
2
3
5
11
Total
58
In this list the project category that could have strongest environmental benefits is
Wastewater Treatment works. The other categories having environmental benefits are,
depending on the initial pressure on the water resource, Water Conservation and Water
Resources Management. Water Treatment Works that entail increased water abstraction
could also have an effect. In so far as Sewerage Infrastructure prevents pollution and Water
Distribution diverts abstraction, these could also have an effect.
Guidance by the Environment Agency of England and Wales
The Guidance deals with rivers, lakes, coastal waters and impacts of scheme-related
construction works, and is designed to cover both water quality improvements and water
resource management issues. It provides a means of evaluating the environmental and social
costs and benefits of schemes proposed under the water regulator’s Periodic Review, in a
manner that can be applied at a desk-top level using benefits transfer, a method described in
the previous sub-section.
It is not possible within the confines of this project to describe the Guidance in more than a
summary fashion. Many detailed instructions are contained that call on the use of a
considerable corpus of data and analysis that do not exist in Ireland, such as numbers of
56
visitors, anglers and days fishing on specific stretches of river. It will therefore only be
possible to apply the Guidance in a notional manner, for to do otherwise would be to impart a
spurious air of accuracy to a procedure that, in any event, is likely to produce indicative
rather than definitive values.
As already outlined, valuation of an environmental benefit requires two broad types of figures
to be provided. These are firstly a figure that represents the value, such as willingness to
pay for the environmental benefit and, secondly, the number of persons to whom this
value applies, that is, the numbers who would be willing to pay.
Categorisation of benefits is given in Part 1 of the Guidance and is reproduced here. The
Guidance advises on the need to avoid double counting of benefits, which could arise if, for
example, anglers had already been included in the estimates of the numbers enjoying
informal recreation and were then added as an additional category under angling without
adjustment.
Table 2: Categorisation of benefits included in each part of the
Categories of benefits
Part 2:
Part 3:
Part 4:
Rivers and
Reservoirs, lakes Coastal waters
groundwater
and broads
and estuaries
Informal recreation.
Angling.
Recreation.
Informal
Commercial fisheries.
Heritage,
recreation.
In-stream recreation
archaeology and
Coastal bathing.
Heritage, archaeology
landscape.
Water sports.
and landscape.
Amenity.
Recreational
Amenity.
Biodiversity and
fishing.
Abstractions.
non-use.
Shellfisheries.
Biodiversity and non-use.
Biodiversity and
non-use.
Source: Guidance Part 1, Table 2.1.
Note: Benefits can be negative, often termed ‘disbenefits’.
Guidance
Part 5:
Works related
impacts
Land take
Landscape
improvements
Property-based
disamenity effects
Traffic-related
impacts
Energy and global
warming
The projects or ‘drivers’ covered in the Guidance are numerous and detailed and fall under
the headings of projects involving groundwater, dangerous substances, the Directives on
freshwater fish, bathing waters, shellfish waters, and on surface water abstraction, River
Quality Objectives, the UK’s Biodiversity Action Plan, and local priorities.
A summary of how to estimate the main benefits is discussed here, in terms of their values
and recommendations are made as to how to estimate the numbers or ‘populations’ for
aggregation. This summary covers the benefits of projects in terms of their effects on (1)
rivers, (2) estuaries and coastal waters and (3) lakes. Estimation of the benefits for each of
these is now discussed in turn.
57
RIVERS
The first task is to identify which uses apply to the stretch of river in question. All the
potential uses, their ‘users’ and possible valuations will now be discussed in turn. It is helpful
if there exist data sets, as in the UK, that can aid estimation of the various populations of
users.
Informal recreation
Informal recreation includes walking, hiking, picnicking, dog-walking and nature appreciation
including bird-watching and photography. The Guidance recommends using monetary
valuation only if the changes in water quality or in river flow/levels have a discernible
impact on sites and if users are significant in number (over 1,000 visits per year), or if
these could be significant if access were improved. Of the many values given in the Guidance,
only those that might be relevant to the projects in this study are described here. The values
for the UK, expressed in £ sterling at 2001 prices, for changes in water quality in respect of
informal recreation are shown in Table 3.
Before looking at this, the correspondence between the Irish and UK water classification
schemes needs to be noted. Comparing the UK 90 percentile limits for BOD and ammonia
concentrations with the Irish classification, the following is a rough correspondence between
the two systems.
UK system
RE1
RE2
RE3
RE4
RE5
=
=
=
=
=
Irish system
Q4 and above – the Irish 'satisfactory' category
Q3-4 - slightly polluted
Q3 - moderately polluted
Q2 - seriously polluted
Q1 - seriously polluted
There are a number of different ways for making the correspondence, however, and in the
absence of a rigorous comparison of the two systems this should be taken with a
fair bit of caution (McGarrigle, 2004). What it shows is that the highest quality category for
Ireland has more stringent conditions than that in the UK. The EPA’s starting position for all
waters in Ireland is that all rivers and lakes should be salmonid by nature and Ireland has a
higher class still, Q5, than the highest UK class.
58
Table 3: Benefits of changes in the quality of water used for informal recreation
(2001 UK prices)
Quality change from
To
Transfer value
Q2 or Q 1
Q3
£0.65 per visit, by day tripper
Not capable of
Good enough for water birds
or holiday maker
supporting water birds
Q2 (top) or Q3
Q3 (top) or Q3-4
£0.13 ditto
Good enough for water birds
Good enough to support fish
Q3-4 (bottom of)
Q3-4 (top) or Q4
£0.09 ditto
Good coarse fishery
Able to support trout
*The conversion of classifications from the UK system to the Irish system has applied the
approximate correspondence shown above.
Source: Environment Agency Guidance, Part 2 Table 2.9, from Green and Tunstall (1991)
who undertook surveys at 12 different sites in Southeast England.
The transfer values, ranging from £0.09 to £0.65 expressed in 2001 UK prices, are the values
to be applied per visit, for the various improvements to water quality that are specified.
Changes in river flows or levels are also relevant for informal recreation. In so far as the
National Water Conservation scheme might alleviate pressure on water levels in Irish rivers,
this could reduce harmful impacts of increased abstraction, in the rivers Liffey or Boyne for
example. The most relevant values in the Guidance for the purposes of this study are those
representing stated willingness to pay for a 5 cm increase and to avoid a 5 cm decrease in
the water level of the River Ouse. In the survey, respondents were given descriptions and
computer-enhanced photographs were used to describe the visual and environmental effects
of the water levels. While conditions in Ireland could be very different it is informative to look
at the willingness to pay, which is shown in Table 4.
Table 4: Benefits of changes in river flow or water levels for informal recreation
(2001 UK prices)
Quality change from
To
Transfer value
Current level of abstraction
5 cm increase in water £5.78 per visitor household
levels
per year
Current level of abstraction
5 cm decrease in water £5.61 ditto
levels
Source: Environment Agency Guidance, Part 1 (Table 2.10, from Corrigenda), from Eftec and
CSERGE (1998).
The visitor numbers might be obtained from visitor surveys, car park officers, club officials
and tourist offices. While these sources may provide estimates of current use for informal
recreation they do not predict future use on foot of quality changes, so that the results are
possibly conservative. The Guidance recommends that reality checks be undertaken.
59
Angling
With angling one should ask: what are the effects on angling if, in comparison to the
baseline, a change in quality or quantity of water has occurred as a result of the scheme?
The answer will depend on whether there is access or potential access to the river and on the
type and quality of existing or potential angling.
The number of anglers, potential or otherwise, that may be affected by quality change is
obviously a key variable and the Guidance lays out various ways in which to obtain or
estimate this or the number of angling trips to the site. This information would appear not to
be available in Ireland in a centralised form. The information base assembled for 1986 by
Whelan and Marsh appears not to have been maintained and local angling clubs or other
bodies would need to be contacted. Failing local information, the Guidance gives a Table of
default numbers. It also suggests reality checks be made. For example if the implication of
the numbers chosen is a higher density of anglers along the bank than the likely maximum
possible density on the stretch then this indicates that the estimate might be too high.
Having discussed the estimation of numbers, attention now turns on estimates of willingness
to pay. The scheme is first categorised as either a change in water quality or, alternatively, a
change in water quantity in terms of flows and levels. A further aspect is whether a new
fishery is being created.
Starting with quality change and considering coarse fishing, the benefits per angling trip
derived in a UK survey carried out in 1996 for the Foundation of Water Research were as
shown in Table 5.
60
Table 5: Benefits from Improvements in a Coarse Fishery, Per Angling Trip (2001 UK
prices)
Marginal value of
Willingness to Pay
improvement in
Quality of Fishery to be Created*
per person per trip
fishery quality
‘Poor ‘
(Q1, Q2 or Q3)
assumed average fish biomass <600g/100m2
‘Moderate’
(Q2, Q3, Q3-4 or Q4)
assumed average fish biomass 6002000g/100m2
£4.30
No fishery to Poor
fishery = £4.30
£4.53
Poor fishery to
Moderate fishery =
£0.23
‘Good’
Moderate fishery to
(Q3, Q3-4 or Q4 or above)
£6.87
Good fishery = £2.34
assumed average fish biomass >2000g/100m 2
Source: Guidance Part 2 Table 3.14. Green and Willis (1996) in FWR (1996)
*The conversion of classifications from the UK system to the Irish system has applied the
approximate correspondence shown above.
From the table it can be seen, for example, that the incremental value of improving a fishery
from a moderate to a good quality fishery is £2.34 per angler per trip in 2001 UK prices. The
values found on canals were lower (not shown here, Guidance page 2-58).
Where a quality change for trout fishing is being considered the following values shown in
Table 6 were estimated for the UK.
Table 6: Benefit of Improvements in a Trout Fishery, Per Angling Trip (2001UK prices)
Quality of Fishery to be Created
‘Poor’
Assumed average density of fish >20 cm
of <0.8 fish per 100m2
‘Moderate’
Assumed average density of fish >20 cm
of 0.8 - 2 fish per 100m2
‘Good’
Assumed average density of fish >20 cm
of >2 fish per 100m2
Willingness to Pay
per person per trip
Marginal Value of
Improvement in Fishery
Quality
£9.81
Coarse fishery to Poor Trout
fishery =£1.94
£11.43
Poor fishery to Moderate
fishery = £1.62
£17.91
Moderate fishery to Good
fishery = £6.48
Source: Guidance Part 2 Table 3.15. Green and Willis (1996) in FWR Manual.
For salmon angling, two estimates for England and Wales are mentioned in the Guidance
and there is also an estimate for Ireland by Curtis (2002).
61
The Guidance recommends that the figure of £28.20 per person trip be taken as the benefits
transfer value of creating new, good quality sites or of achieving significant improvements in
the quality of existing salmon fisheries.
The analysis by Curtis is relevant owing to the fact that it relates to Ireland and is
consequently more appropriate than values transferred from elsewhere. It provides the first
estimate of a salmon angling demand function. It was not based on elicitation of willingnessto-pay but on travel cost and it used the data from an on-site survey of 118 salmon anglers
visiting Co. Donegal whose primary reason for visiting Donegal was to fish.
Studies based on travel costs are sometimes found to give higher values according to
Bateman et al. (2000). But in addition to enabling one to calculate a demand function they
provide information on the contribution of the activity to the economy, including multiplier
effects (Whelan and Marsh, 1988). The study by Curtis gave an estimated travel cost per
angler day of IR£68 including meals and accommodation and a consumer surplus (that is,
extra unpaid-for benefit to the angler) of IR£138 per angler day. Figures for specifically Irish
anglers, which are the relevant figures for this project, were IR£49 for travel cost and IR£146
for consumer surplus, giving total willingness-to-pay of IR£195. The 90 per cent confidence
interval gives a range for willingness-to-pay per angler day from IR£100 to IR£290. As these
are at 1992 prices, even when adjusted to sterling they are considerably higher than the
figures given in the Guidance. The comparable value when expressed in 2001 prices is a total
willingness-to-pay of IR£246 or £153 sterling on the part of Irish anglers. Being based on
revealed preference and referring to the high quality type of fishing amenity that Ireland has
to offer these values should be taken into consideration in the valuation of the effects of
schemes on similar fisheries.
Another result suggested by the study that is worth mentioning is that anglers who gave a
positive rating to the quality of the fishery are likely to demand a higher number of fishing
days in subsequent trips, with the marginal effect estimated at an extension of 1.5 days. This
means that improvements to a fishery can rightfully be assumed to result in more fishing
days per trip thereafter. Figures of total value, rather than improvement value, may be
applicable to schemes that result in the creation of a new fishery.
Advice by the Guidance, when a scheme results in the creation of a new fishery, is that more
general total WTP values can be used, given in Table 7 below. As can be seen, the figure for
game fishing in England and Wales is again way below the Irish figure, by more than a factor
of five. This clearly illustrates the need for specific WTP values to be estimated for Ireland so
that the game fishery resource and its potential can be reliably assessed, which it evidently
cannot be at present.
Table 7: Total WTP per Trip by Type of Fishery and Water body (UK 2001 prices)
Water body
Coarse
Game
River
£22.15
£31.80
Canal
£16.50
-
Source: Guidance Part 2 Table 3.17. Spurgeon et al (2001), page 2-61 of Guidance
62
Up to this point changes in water quality or creation of new fisheries have been discussed.
Two UK studies of improvements in flow levels in relation to angling have been undertaken.
A willingness-to-pay to reinstate a day’s fishing ranged from a mean of about £6.20 for the
coarse fishery at the River Ver, in Middlesex, to £11 per visit for the game fishery on the
Misbourne. For the South West region willingness-to-pay by club and syndicate anglers for an
increase in the numbers of days in June, July and August amounted to approximately £2.38
to £2.70 per additional angler day.
To conclude on the valuation of benefits for the use of angling, the final annual benefits
estimate is given by:
Benefits = annual number of angling trips x transfer value (per visit per year)
Aquaculture and commercial fisheries
Aquaculture and commercial fisheries in rivers in Ireland would be dominated by salmon and
trout farming. (Lakes and estuaries are dealt with separately. A list of marine fish farms and
their addresses, but not quantities, has been obtained. ) It is first necessary to ascertain
whether there are or could be commercial fisheries. Only where a significant change is
expected is it worth trying to quantify the impacts of a scheme.
The main ways that schemes could impact on aquaculture are through:
-
reduction in the costs of using and operating aeration equipment;
increase in the carrying capacity of a fishery
reduction in the number of fish mortalities.
Since typically 17 per cent mortality is expected in a commercial fishery, only mass mortality
as caused by a pollution incident should be considered. Costs of restocking, denominated in
amounts to grow one tonne of fish, are given in the Guidance (on page 2-73). Should the
scheme reduce the likelihood of a fish kill from, say, once every 2 years (probability = 0.5) to
once every 20 years (probability = 0.05), and supposing 100 tonnes of salmon are to be
replaced (£220,000 using the Guidance costs), then the expected benefits per annum would
be:
£220,000 x (0.5 – 0.05) = £99,000.
In-stream recreation
Boating, canoeing and rowing are the main types of in-stream activity. The last two in
particular could involve some degree of water contact and/or immersion. Note that swimming
is considered under lakes and coastal waters. Activities and access, present or potential, are
important issues. Type of impact are tabulated in the Guidance as shown in Table 8.
63
Table 8: Type of impact
Type of impact
Water quality*
Significant
Improvement to Q4 or Q5
Description
Increase in number of trips
enjoyment
Moderate
Improvement to Q3
Some increase in number of trips
moderate increase in enjoyment
Fair
From Q1 to Q2
Slight increase in number of trips
enjoyment
Poor
Q1
No change in number of trips
enjoyment
*The conversion of classifications from the UK system to the Irish system has applied the
approximate correspondence shown above.
Source: Guidance Part 2 Table 5.3.
In determining whether any changes in the microbiological quality of a river would have
benefits for activities that might entail water contact, the standards under the Bathing Water
Directive and the proposed revised standard are given in Table 9.
Table 9: Bathing Water Directive standards (per 100 ml water)
Total coliforms
Faecal coliforms
Mandatory
10,000 (95% of samples)
2,000 (95% of samples)
Guideline
500 (80% of samples)
100 (80% of samples)
Proposed revision
200 (95% of samples)
Source: Guidance Part 2 Table 5.4
The estimation of relevant population requires site-specific information on participation rates
and trip numbers. These may be available from local clubs and the local authorities. In the
UK there is a Day Visits Survey, published by the Countryside Agency et al in 1998, which
gives a means of estimating possible default values for number of visits. For example, for a
river with limited access and few or no facilities that is used by local residents only, the
population within an 8-mile radius can be assumed to undertake 0.18 trips per year.
There have been no studies that estimate the WTP of boaters and canoeists for
improvements in water quality or river flow /levels. However, provided that double counting is
avoided, the study by Green and Tunstall (1991), mentioned under informal recreation above,
could be called upon ‘for illustrative purposes’.
Amenity, property prices and regeneration
The question should be asked: how many and what type of properties are located alongside
the affected river and to what extent is the river visible or a focus of the property or of any
proposed development or regeneration? If the answers indicate that significant impacts could
result from the scheme then quantitative investigation is warranted.
For schemes that affect water quality, local information should first be investigated. A Flood
Water Research (FWM) Manual enables one to consider five factors that affect the aesthetic
quality of the river: colour, debris, clearness, algae and odour. Each of these factors in turn is
64
or
or
or
or
broken down into levels (e.g. severely discoloured, slightly discoloured). By means of five
tables that can be consulted, the changes in levels of each factor can be given a number that
represents the predicted percentage change in property value.
The effects of changes in flows or levels should also be investigated locally. Failing this,
house price premiums, derived from previous studies, can give indicative values of water
resource attributes. Three in particular merit noting here, as shown in Table 10.
Table 10: Studies valuing the price premium on properties.
Study
Method
Environmental good
Willis
and
Garrod, 1993
Garrod
and
Willis, 1993
RPA, 1995
ERM, 1997
Premium as
% of price
18.6 %
Survey of estate agents
Waterfront properties
Hedonic pricing model
Properties within 1 km of
navigable waterways
Properties
fronting
clean
rather than polluted or
discoloured river and estuary
Properties by a river
4.9 %
Properties by normal rather
than low-flow rivers
10 %
Survey of estate agents
(Devoran R. and Fal
Estuary)
Survey of estate agents
(South West England)
10 %
15 %
Source: Guidance Part 2 Table 6.13.
On the basis of this information the Guidance suggests lower, mid and upper bound
estimates for the premium of 2%, 10% and 15%, respectively. For commercial property the
Guidance suggests a premium of 2 %.
Different low-flow incidence can also have different implications for property values and the
Guidance gives a means and an example of calculating adjustments for different low-flow
‘return periods’ (pages 2-107 and 2-109).
Abstractions
It is worth investigating effects on abstraction if the scheme is likely to cause a noticeable
change for abstractors. Is the scheme expected to deliver a large change in flows or water
quality and how many and which types of abstractors are expected to experience this? Flows
could have an effect on abstracting fish farms, especially if they are subject to cessation
orders before or after the scheme. Quality changes could affect the abstractor’s need to treat
the water.
The Environmental Protection Agency is in the process of establishing an abstraction
database, which should help answer the question as to the numbers affected. At present one
would need to contact each local authority.
65
The valuation of the benefits to abstractors needs to be estimated by consultation with the
licence holders, owing to the site-specific nature of the impact. It is the effects on profit or
net margins that should be estimated.
Heritage use
Changes brought about by water schemes could have an impact on natural and man-made
landscape, buildings and other aspects of heritage and archaeological interest. The higher
the interest in the heritage asset the higher the potential effect. An example quoted in the
Guidance is of a mill that was recorded in the Domesday Book and is a Grade 2 listed
building. An Irish analogue might be a castle moat or the waters at Glendalough or
Clonmacnoise. The argument for including heritage as a separate category of use is that an
impact resulting from a scheme would amount to more than just a water-related impact.
Information about the site should be obtained from the heritage bodies and qualitative
impacts described. The qualitative description might benefit from the approach given in the
manual The New Approach to Appraisal from the UK department and reproduced as Table 8.4
in Part 2 of the Guidance (DETR, 1998).
If a quantitative analysis is deemed worth undertaking, then the relevant population needs to
be estimated who would be willing to pay for the improvements (or to avoid
disimprovements). The Guidance suggests the following table for England and Wales as a
means of calculating the relevant population.
Table 11: Appropriate Populations for Heritage, Archaeology and Landscape Sites,
England and Wales
Distance from Site
Site Type
Relevant Population
or Households
Scheduled Ancient Monument
Area of Outstanding Natural Beauty
Those living within 150
Environmentally Sensitive Area (ESA)
National population
km
sites/owned
cared
for
by
English
Heritage/National Trust
Those living within 120
Landscape of ‘local distinctiveness’
km maximum or 60 km
Landscape or site with strong local, cultural Regional population
for
more
locally
associations
important sites
Those living within 30
to 60 km maximum for
significant changes or
Other sites
Local population only
those living within, say,
3 km for smaller works
related impacts
Source: Guidance Part 2 Table 8.6
66
As for the valuations, willingness-to-pay values derived through contingent valuation or other
survey methods can be used to place a value on protecting or preventing damage to a given
site. The Guidance gives numerous studies (in Tables 8.7 and 8.8 of Part 2), expressed per
adult per year or per household per year, from which one could select those that are closest
to the scheme in question.
Biodiversity and Non-use
Water supports a vast variety of life which plays a crucial role in the biological chain. Whether
or not this is understood and realised is an important issue and levels of awareness can
probably change as a result of media focus. The study that estimates willingness-to-pay
would usually explain the implications of a scheme for biodiversity in an objective way. The
value given can then be considered to be an informed one. It could be higher perhaps than
the ‘less informed’ value obtained without an explanation. This is mentioned as an issue.
The importance of the site for biodiversity needs to be assessed first and it helps if, as in the
UK, there has been widespread designation of sites with a description of what they contain.
Only when impacts are neutral does the Guidance suggest that quantitative assessment
should be foregone.
The relevant population for non-use values could include visitors as well as non-visitors. If a
site is of international or national importance, one might argue that people a greater distance
away from the site will be willing to pay for its conservation. Conversely, if a site is only of
‘local conservation importance’, willingness to pay will trail off closer to the site. As found in
the study of the Norfolk Broads, those living further away are more likely to hold a low or
zero WTP for protection (Bateman and Langford, 1997). This is termed ‘distance decay’ and
the Guidance provides a table, reproduced in Table 12 below, to help determine the relevant
non-use population to be used in the UK in multiplying up the figure of willingness-to-pay.
Table 12: Distance decay assumptions for determining numbers WTP in the nonuse population
Distance
(radius)
Conservation
Degree of Environmental
Assumed Relevant for
Importance
Quality Change
Aggregation
Local only
Regional
International/National
Small
30 km
Moderate
40 km
Large to very large
60 km
Small to Moderate
60 km
Large to very large
120 km
Small to very large
60 km to 150 km
Source: Guidance Part 2 Table 9.8 Corrigenda page C-11.
Non-use values have been estimated that relate to changes in river water quality and to
water resources. Starting with water quality, two studies in particular form the basis of the
67
Guidance’s suggested estimates of willingness to pay for non-use benefits. They are
summarised in the table below. In the first study, values are provided in terms of changes in
key water quality parameters, namely, total ammonia, dissolved oxygen (DO) and biological
oxygen demand (BOD). (Only one parameter should be used because the benefits from a
change in total ammonia, for example, are assumed to include any additional benefits that
may occur to DO or BOD.) Transfer values are expressed in amount per km per household
per year. In the second study the parameters of water quality improvement are in terms of
the UK’s water quality values, converted to the Irish Q values here. The values have been
aggregated over the national population of England and Wales and are proposed for use for
sensitivity analyses.
Table 13: Suggested Transfer Values for Non-Use Benefits: improvements in water
quality (2001 UK prices)
Transfer Value per
Required
Study
From
To
km of Improved
Adjustments
River
£0.06 to £0.16 per
Small
km per household
improvement – per year
to Q2
Survey undertaken in
Water quality of
Improvement – £0.09 to £0.31 per the Midlands.
Lower
total ammonia
to Q3
km per household values
relate
to
Georgiou
(mg
N/litre),
per year
contingent
valuation
et
al dissolved oxygen
Improvement –
exercise and higher
(2000)
(% saturation) or
to Q3-4
£0.14 to £0.50 per values
relate
to
BOD
(mg/l)
km per household contingent
ranking
equivalent to Q1
Large
per year
exercise
improvement to Q4 or higher £0.17 to £0.60 per
km per household
per year
Willis and
Medium water £139,000
to Note that the survey
Poor
water
Garrod
quality –
£140,000 per km per was undertaken in three
quality – Q1
(1996)
Q2 to Q3
year
locations across England
and
as
&
Wales
and
is
reported
considered
to
be
Medium
water Good
water
in
the
applicable.
£54,000 to £55,000 generally
quality –
quality – Q3-4
FWR
Values
can
be
per km per year
Q2 to Q3
to Q4 or higher
Manual
aggregated across users
(1996)
and non-users
Source: Guidance Part 2 Table 9.9, Corrigenda page C-15
Presentation in a different format is given in the Table 9.10 of the Guidance (note that this is
on page C-16 of the Corrigenda). This shows the WTP for a marginal change in water quality
class expressed in terms of the water quality parameter of interest. For example, if there is a
68
scheme that will reduce total ammonia from 2.5 mg N/litre to 1.3 mg N/litre, the WTP value
is £0.03 to £0.14 per household per km per year.
Turning to water quantity and changes in river flows and levels in particular, the studies
estimate WTP to protect the river environment against low flows. Estimates vary, reflecting
factors such as the river in question, the respondents’ location relative to the site, and the
flow or environmental change being valued. The Guidance summarises the results of studies
of non-use WTP in the following table.
Table 14: Suggested Transfer Values for Non-Use Benefits of water quantity changes:
(2001 UK prices)
Study
Willis
and
Garrod
(1996)
From
Low flow
conditions
To
Environmentally
acceptable flow
regime
Transfer Value
General public: £0.15 per
km per household per year
Required Adjustments
Figures
were
not
developed
for
the
purposes
of
benefits
transfer
and
those
specific to the Darent may
not
be
readily
transferable
to
other
rivers or regions.
Values given in terms of
‘per km per year and need
to be applied to the number
of households within each
band
Jacobs
Gibb
(2002)
Low flows
every 4 to
5
years
out of 20
in Mimram
Low flows once
every 20 years
Distance
<0.5km
0.5 – 3 km
3 – 12 km
12 – 60 km
Users
£0.16
£0.12
£0.03
£0.01
Non-Users
<0.5 km
£0.22
0.05 – 3 km
£0.22
3 – 12 km
£0.04
12 – 60 km
£0.03
Figures already adjusted
for income effects and
thus considered to be
readily
transferable,
although the study notes
that the values are
specific to the Mimram.
Source: Guidance Part 2 Table 9.10, Corrigenda page C-16.
The Jacobs Gibb figures are recommended in the first instance. If they are already applied to
estimate use-related benefits, one should also apply their figures to estimate non-use benefits.
Their breakdown between numbers user and non-user households, shown below, is recommended
when their figures are being applied.
69
User Households




0-0.5 km:
0.51-3 km:
3.01-12 km:
12.01-60km:
98%
70%
26%
2%
Non-User Households
2%
30%
74%
98%
The ‘fisheries existence’ values may be more relevant in some sites, and in those
circumstances they should be used instead of water resources values. Results of the study by
Spurgeon et al (2001), depicting an 80 per cent decline in salmon caught on the river Wye,
give values for WTP to restore the salmon population to its original level. This is a dramatic
change such as the reinstatement of a historic game fishery. Non-visiting respondents gave
an average WTP of £3.75 per household per year. Further breakdown by likelihood of visiting
the site in the future enables one to single out those who reckoned they were ‘definitely not’
likely to visit the site. Hence their willingness to pay, at £1.35 per household per year, could
be viewed as pure existence value.
Impacts on wetlands and willingness-to-pay have been the subject of many studies many of
which have in turn been subjected to meta-analyses that provide generalisations and
summary values. By consequence there is a good selection of transfer values for non-use
values for impacts on wetlands and these are given in the Guidance Part 2 Table 9.14 (in
Corrigenda pages C-20 and 21).
ESTUARIES and COASTAL WATERS
As with rivers above, it is first necessary to check all the potential uses of the estuary and
coastal waters in question to see if they apply. Commercial fisheries or amenity are not
included in the Guidance’s list, for reasons that are not clear.
In its revised version the Guidance simplifies the benefits transfer for estuaries and coastal
waters by basing it on two studies, namely, by Eftec (2002) and Georgiou et al (2000). The
studies have been adjusted to present values ‘per beach’. The Eftec value has been derived
by estimating the total value of improvements to the whole of the nation (England and
Wales) and dividing by the number of beaches that need to be improved (151). The values
from Georgiou et al relate to East Anglia and have been adjusted by taking the number of
beaches into account. It is recommended that the values be used as a sensitivity check, and
they require additional information as to the number of alternative sites.
The relevant populations and valuations will now be discussed for each use in turn.
Informal recreation, coastal bathing, water sports
In its revised version the Guidance combines these uses and uses values of bathing water for
all of them. This is perhaps because it is assumed that all of bathing and water sports entail
70
some contact with the water, though informal recreation to a lesser extent. The Guidance
requires the following questions to be asked of the scheme being assessed.

Will the scheme:
(a) reduce sewage litter, such that the beach could enter the next quality band or reduce
complaints;
(b) Reduce organic nitrogen concentrations in the effluent to an extent that the dissolved
oxygen will increase by twenty per cent; OR
(c) Reduce nutrient concentrations such that algal levels will decline significantly;
(d) Reduce faecal bacteria and sewage-borne pathogens to levels within EC minimum
standards.

Are there data on visitor numbers to the shoreline or to particular sites? If not, is the
site likely to be one that attracts considerable numbers of visitors?
The value of benefits can be selected from the following Table 15 which gives the values
from the Eftec and Georgiou studies.
71
Table 15: Suggested values for bathing waters (2001 prices)
Study
Quality change Transfer value
Range
being valued
Achieve
the Large
resort: £280,000
to
Eftec
Bathing
Water £646,000 per beach £510,000 per beach
(2002)
Directive ‘Guide’ per year.
per year
values or better
(achieve a 2.3 Small
resort: £42,000 to £76,000
percentage point £96,000 per beach per beach per year*
reduction in risk per year.
of
contracting
gastro-enteritis at [Small
beach:
a given beach)
assume
£48,000
per
beach
per
year.]
Georgio
u et al
(2000)
Achieve
guide
values or better
(mean expected
reduction of 67%
in the number of
illnesses)
ENGLAND:
Large resort:
£13,000,000
per
year.
Small
resort:
£1,900,000
per
year.
Small
beach:
£680,000 per year
WALES:
Large
resort: £2,400,000
per year. Small
resort:
£360,000
per year. Small
beach:
£130,000
per year.
ENGLAND:
large resort:
£9,600,000
to
£17,000,000
per
year.
Small
resort:
£1,400,000
to
£2,500,000 per year.
Small
beach
£510,000
to
£900,000 per year.
WALES: Large resort:
£1,800,000
to
£3,200,000 per year.
Small
resort:
£270,000
to
£480,000 per year.
Small beach £99,000
to £170,000 per year
Required
adjustments
Relates
to
surveys
carried out nationally.
These are holiday and
local beaches in East
Anglia. Assumes there
are
no
alternative
beaches;
corrections
may
be
necessary
where
there
are
alternatives (by dividing
by the number plus
one):
England: within 130km
for large resorts, within
50 km for small resorts
and within 30km for
small beaches.
Wales:
Within 65 km, 25km
and 15km respectively.
Source: Guidance Part 4, Corrigendum page C - 33
* This is for a 1 percentage point reduction in risk, depending on starting and end level of risk.
Recreational fishing
Improvements in estuarial water can help recreational fisheries in estuaries as well as in
inland fisheries, where impaired water quality acts as a barrier to fish migration (i.e. salmon
and sea trout returning to spawn). Improvements to inland fisheries are best valued under
the ‘Rivers’ section above.
72
The location of recreational fishing should be established as the area where angling takes
place may be physically distinct from the area identified as benefiting from water quality
improvement. The type of fish caught needs to be determined and the number of sea
anglers. As already mentioned, valuations are not given for fishing along the coast and in
estuaries.
Shellfisheries
Shellfisheries relate to those waters that are used for the rearing and harvesting of bivalve
molluscs that are placed on the market live, including:
Oysters
Mussels
Cockles
Scallops
Winkles, whelks, crabs, lobsters, prawns and shrimps are not included. Impacts on
employment are not included because it is assumed that employment is not affected at a
national level. Instead it reflects local shifts and hence is not relevant to an assessment that
is based on national benefits and disbenefits.
Standards apply to shellfish hygiene and to the quality of shellfish waters. Benefits of a water
quality change will arise if a new shellfishery is being created or will become feasible to
harvest. Benefits could also come through reduced treatment costs (heat treatment or
relaying for a while in water of a better quality).
In the case of a new fishery, expected yields per year and the value need to be estimated.
The net margin is taken which relates to the amount of profit that can be expected once
capital and operating costs have been removed. Information such as the catch and value
given in the UK Sea Fisheries Statistics can provide data from which to estimate the margin.
Improvements in water quality could remove the need for treatment. Shellfish that are found
in beds that are classified as Category C need to be treated or relayed so that they can be
sold for human consumption. The categories of waters and treatment required (under UK
legislation) are shown in the following table.
Table 15: Food safety regulations on shellfish hygiene
Category
E coli *
Faecal coliform *
Requirements
A
< 230
< 300
May go direct for human consumption
B
< 4,600
< 6,000
Must be depurated, heat treated or
relayed to meet category A
C
< 60,000
Must be relayed for 2 months to meet
category A or B. May also be heat
treated by approved method.
Prohibited
> 60,000
Prohibited
Source: Guidance Part 4 Table 6.3
* per 100 g shellfish flesh and fluid in 90 per cent of samples
73
The costs of treating to go from Class B to Class A in the case of oysters and mussels are put
at £310 and £174 per tonne, respectively (FWR, 1996). Scallops are considered not to
require treatment.
Biodiversity and non-use value
There are likely to be valuation linkages to fisheries and shellfisheries, and also to informal
recreation benefits. However other eco-system benefits are possible such as quality and
diversity of marine habitat, food supply for higher order species, and indirect eco-system
benefits including diversity of shoreline vegetation and aquatic life.
It must be asked if there are marine conservation areas that are affected by the scheme and
are there any sites of importance such as fish nursery grounds. Are there likely to be changes
in parameters that feature in the various classification systems and Directives. Will species
that are listed in the Biodiversity Plan be affected and are the designations of international,
national or regional/local importance?
A key issue in assessing coastal biodiversity-related non-use values is how to determine the
numbers who may hold such values. Users and non-users can hold these values. However
owing to the absence of any study of WTP for coastal biodiversity on which to base non-use
values, the Guidance offers the options of merely using qualitative descriptions instead of
quantitative analysis, or alternatively of availing of the study of the Norfolk Broads (discussed
above, by Bateman and Langford, 1997). The distances that can be assumed for determining
the non-use population are given in Table 17.
Table 17: Distance decay assumptions for determining non-use population
Conservation importance
Degree of environmental Distance
(radius)
quality change
assumed
relevant
for
aggregation
Small
30 km
Local only
Moderate
40 km
Large to very large
60 km
Regional
Small to moderate
60 km
Large to very large
120 km
International/national
Small to very large
60 km to 150 km
Source: Guidance Part 4 Table 7.8
While people who live further away than the distances marked in the right-hand-side of the
table are likely to hold positive non-use values, multiplying the mean WTP by the population
within this distance provides the appropriate approximation of total WTP across the entire
population.
The paucity of studies that have evaluated the benefits of changes in water quality in coastal
waters and estuaries means that there are few transfer values. The values derived in a study
by the Institute of Offshore Engineering (1995) have the disadvantage that they include an
74
element of use value and therefore double-counting must be guarded against. The study by
Le Goffe of the natural harbour of Brest also included use value. These values are shown in
Table 18.
Table 18: Suggested transfer values for non-use benefits (2001 UK prices)*
Study
Quality change
Transfer value
Required
adjustments
Elimination
of
direct £4.66 per person per Adjustments
for
discharges and reduction of trip to the estuary relative wealth may
sewage
related
litter. shoreline, or £45.78 be appropriate - the
Institute
of Achieve Guide values or per household per studies were carried
Offshore
better (reduction of risk by year. (It is not clear out
in
Northeast
Engineering
3 percentage points of which
households England
(1995)
contracting gastro-enteritis were surveyed)
at a given beach)
Le
Goffe Prevention of asphyxiation £21 to £23 per WTP
figures
are
(1995)
of harbour waters due to household per year already adjusted for
eutrophication.
(they appear to be purchasing
power
visiting households, parity and income
including for informal differences between
visits)
UK and France.
* Values also include use values
Source: Guidance Part 4, Table 7.10
The Guidance recommends that these values be used in conjunction with estimates of the
population derived from the previous table of distance decay. Subtract from the resulting
population the numbers of users for whom separate calculations have been made. This may
err on the cautious side by understating value, since users also hold non-use values.
LAKES AND BROADS
Part 3 of the Guidance dealing with lakes and broads also includes reservoirs and new
reservoirs though we will ignore these as they are not affected by the water schemes under
review. Only one sort of valuation will be considered, namely, for recreation uses. For the
most part of the values for other uses the Guidance refers to the values already given above
under rivers and estuaries and coastal waters.
Recreation
The questions to be asked under recreation are first: Is there or will there be access to the
site? Is there recreational use at present? And, would the scheme result in significant
changes that users could perceive? An answer of ‘no’ to any of these means that recreation
can be passed over. The Guidance gives the minimum size of water body that is appropriate
to different activities (Part 3 Table 2.3). For example, angling requires 2 to 7 hectares, water
skiing requires 11 and windsurfing 3 hectares.
75
Recreation includes bankside activities such as walking, cycling picnicking etc; angling;
boating activities, including sailing, cruising, canoeing, rowing, etc; and immersion activities,
including water sports and bathing. Estimation of participation by activity may be possible, or
else total visits to the lake can be estimated where many activities take place. Sources of
advice on numbers, including site car park usage, angling trips, visitors and the rest can be
obtained from local authorities, angling clubs and licensing authorities, tourist offices,
ramblers, birdwatchers, boating clubs and boat hire companies. The Guidance provides in
Part 3 Table 2.7 a means for using default data on annual visitor numbers, showing eleven
examples of lakes in England and Wales, and for undertaking reality checks.
The Guidance advises against proceeding to monetary valuation of recreation benefits unless
there are at least 1000 visitors per year. On valuations for informal recreation it is suggested
that the values already seen in the case of rivers, above, be used.
Two studies relating specifically to lakes do not refer to changes in water quality or quantity
but rather to the total value of a day’s angling. For angling on Rutland Water, a WTP figure of
£24.80 per angler per day is given that covers both consumer surplus and fees, from a travel
cost study by Gaterell et al, (1995). A study by Spurgeon et al. (2001) commissioned by the
Environment Agency assessed anglers’ total willingness to pay, through a contingent
valuation survey. Respondents were drawn from the Agency’s database of rod licence holders
in six regions within England and Wales. The total willingness to pay per trip for lakes was
found to be £19.40 per coarse angler, and £30.10 for game anglers. Of this, consumers’
surplus was £2.40 and £3.10 respectively. These figures would be more relevant to valuation
of the creation of a new fishery because, as mentioned they do not refer to changes in
quality or quantity of water.
In addition to the value enjoyed by anglers, fishery owners that charge would also stand to
benefit from improved quality, in terms of changes in ‘economic rent’ or profit. Estimates of
the change in economic rent following a change in coarse fishery quality are shown in Table
19.
Table 19: Change in economic rent due to improved quality of still water coarse
fisheries (2001 UK prices, £ per ha per year)
Change in quality of Value ‘before’ and ‘after’
Marginal value
fishery
From
To
None to poor
£0
£9,200
£9,200
Poor to moderate
£9,200
£16,600
£7,400
Moderate to good
£16,600
£34,500
£17,900
Based on 2.3 million coarse anglers and 33,352 ha of coarse still water fisheries, and fees of
£2.00, £3.60 and £7.50 per rod per day for poor, moderate and good quality of fishery,
respectively (Spurgeon et al., 2001; Radford et al., 2001.
The corresponding figures for change in economic rent enjoyed by trout fishery owners that
charge are given in Table 20.
76
Table 20: Change in economic rent due to improved quality of still water trout
fisheries (2001 UK prices, £ per ha per year)
Change in quality of Value ‘before’ and ‘after’
Marginal value
fishery
From
To
None to poor
£0
£9,200
£9,200
Poor to moderate
£9,200
£16,600
£7,400
Moderate to good
£16,600
£34,500
£17,900
Based on 0.8 million game anglers and 12,335 ha of fishable still waters in England and
Wales, and fees of £8.00, £10.60 and £20 per day for poor, moderate and good quality of
fishery, respectively (Spurgeon et al., 2001; Radford et al., 2001.
For valuing the benefits of changes in water quality for bathing and water sports in lakes, the
Guidance recommends using the values already given for estuaries and coastal waters and
for rivers, above. There was a study that relates specifically to still water by Pearson (1992)
who assessed the value of maintaining the recreational and amenity values of Rutland
Reservoir in an episode of cyanobacteria. From an open-ended questionnaire administered to
641 visitors, the mean WTP for preventing the outbreak was £19.67 per household per year
(2001 UK prices).
The Guidance alerts the reader to a lack of relevant valuation studies under the heading of
heritage, archaeology and landscape sites. Where Irish lakes are concerned, the landscape
value and non-use value could be significant and affected by the quality of the waters. The
shortage of relevant valuation studies means that one must rely heavily on qualitative
descriptions.
CONCLUSION
In conclusion, having summarised the method, the selection of benefits values and the
estimation of populations, as advised in the Guidance manual of the Environment Agency of
England Wales, these can now be applied to the schemes investigated in this study. Because
of the uncertainty that must attach to the values yielded, the resulting estimates should be
described as ‘illustrative’ and the source of the values used needs to be clearly stated.
References
Bateman, I. J., A. P. Jones, N. Nishikawa and R. Brouwer, 2000. Benefits Transfer in Theory
and Practice: A Review and Some New Studies, available from http://www.uea.ac.uk/~e089/,
CSERGE and School of Environmental Sciences, University of East Anglia.
Bateman and Langford, 1997. “Non-users' willingness to pay for a National Park: an
application and critique of the contingent valuation method”, Regional Studies, 31(6) p. 571582.
Boyle, K. L. & Bergstrom, J. C., 1992. “Benefit transfer studies: myths, pragmatism and
idealism”, Water Resources Research, 28 (3), p. 657-663.
Clinch, P. and F. J. Convery, 1999. “Evaluation and the Environment” in M. Mulreany (ed.)
Economic and Financial Evaluation, Institute of Public Administration, Dublin.
77
Eftec and CSERGE, 1998. Framework to Assess Environmental Costs and Benefits for a Range
of Total Water Management Options, prepared for the Environment Agency.
Environment Agency (England and Wales), 2003. Benefits Assessment Guidance for Water
Quality
and
Water
Resources
Schemes.
http://www.environmentagency.gov.uk/business/444304/444643/425378/425401/425411/507669/?lang=_e
Risk and Policy Analysis (RPA) consultants.
ERM 1997. Economic evaluation of the environmental costs and benefits of potential solutions
to alleviate low flows in rivers Phase 2 study. Prepared for the Environment Agency, South
West Region, March 1997.
Garrod G. D. and K. G. Willis, 1991. "The Hedonic Price Method and the Valuation of
Countryside Characteristics", Countryside Change Unit Working Paper 14, University of
Newcastle upon Tyne.
Gaterell et al., 1995. “A valuation of Rutland Water Using Environmental Economics”,
Environmental Technology, vol. 16, p. 1073-1082.
Green and Tunstall, 1991. “The Evaluation of River Water Quality Improvements by the
Contingent Valuation Method”, Applied Economics, vol. 23 p. 1135-1146.
Institute of Offshore Engineering, 1995. The use and appropriateness of valuation in the Firth
of Forth project, in the FWR Manual, FWR, 1996.
Le Goffe, P., 1995. "The Benefits of Improvements in Coastal Water Quality: A Contingent
Approach", Ingénieries - E A T, n° spécial Rade de Brest, p. 125-133
McGarrigle, M., 2004. Personal communication 20.May.
Ozdemiroglu, E. and C. Bullock, 2002. Environmental Impacts and Parameters for Inclusion in
the Economic Valuation of Road Schemes (2000-DS-1-M2), Prepared by Eftec for EPA,
Johnstown Castle Estate, Wexford.
RPA 1995. Economic benefits of improvements in water quality, in Wheal Jane Minewater
Study: Environmental Appraisal and Treatment Strategy, edited by KPP for South West
Region NRA.
Spurgeon et al., 2001. Economic Valuation of Inland Fisheries, Module B: Indirect Economic
Values Associated with Fisheries, R&D Project Record, W2-039/PR/2, report prepared for the
Environment Agency.
Whelan, B. J. and G. Marsh, 1988. An Economic Evaluation of Irish Angling, A report prepared
for the Central Fisheries Board by the Economic and Social Research Institute, Dublin.
Willis, K. G. and G. D. Garrod, 1993. The value of waterside properties, Working Paper 44,
Countryside.
78
D.4:
Water Quality Measurement
The three criteria for Eutrophication
defined by reference to estuaries and coastal waters
The EPA initiated the estuarine and coastal water monitoring project in 1992/3, which initially
operated on a pilot basis and was intensified in the second half of the nineties. The objective
was to provide information on the quality of these waters and their sensitivity to
eutrophication.
Eutrophication can be defined as water exhibiting each of the following three features:
(a)
enrichment by nutrients, especially compounds of nitrogen and/or phosphorus
(b)
accelerated growth of algae and higher forms of plants, and
(c)
undesirable disturbance to the balance of organisms present and to the quality of the
water concerned.
This definition is based on the EU Directive on urban waste water treatment (91/271/EEC)
and on the Directive on nitrates from agricultural sources (91/676/EEC).
In assessing trophic status, the report An Assessment of the Trophic Status of
Estuaries and Bays in Ireland (EPA, 2001) states that a water body is classified as
eutrophic if:
(a)
(b)
(c)
the criteria for nutrient enrichment in terms of either DIN or MRP are exceeded, and
the criteria indicating excessive growth in terms of chlorophyll are exceeded,
and
the criteria for undesirable disturbance in terms of dissolved oxygen are breached.
Water quality parameters
Parameters used in the above criteria are described in detail in the report Water Quality in
Ireland 1995-1997 (EPA, 1999) (p. IV-3, p. IV-25) and the criteria for eutrophication are
summarised in An Assessment of the Trophic Status of Estuaries and Bays in Ireland (op. cit.,
p. 5) and in Water Quality in Ireland 1998-2000 (EPA, 2002, p. 60-61, Table 4.1). The
description given here draws on these sources. Where intermediate waters are being
assessed, that is waters between fresh and fully saline waters, an important point to be noted
is that the criteria vary with the level of salinity. In the listing of criteria below, median
salinity of 17 psu is assumed. (For more detail, see footnotes to Table 4.1 in EPA 2002).
79
Criterion (a)
Nutrient enrichment
DIN
This is Dissolved Inorganic Nitrogen which is quantified as the sum of oxidised
nitrogen (nitrate and nitrite) and ammonium. It is considered to be the readily available
nitrogen for uptake by plants. The criteria for eutrophication due to nutrient enrichment by
DIN are:
Criterion A:
Nutrient enrichment
Dissolved Inorganic Nitrogen (DIN) mg/l N
Tidal Fresh Waters
Intermediate waters**
Full salinity waters
Numeric
Criterion
Statistic
Period criterion applies
>2.6
>1.4
>0.25*
median
median
median
winter or summer
winter or summer
winter or summer
*Because of natural variations, for high salinity waters these values are to be regarded as
thresholds above which the issue of possible eutrophication should be considered.
** at 17 psu median salinity. See page A-1 of Annex 1 of the trophic status report (EPA 2001)
The alternative nutrient criterion is enrichment by MRP (Molybdate Reactive Phosphorus).
MRP is measured in μg/l P and is considered to represent the biologically available
phosphorus supply in waters; it is also called Orthophosphate. Phosphate is the primary
agent of eutrophication in most freshwaters, as it is the least abundant essential nutrient in
relation to plant growth requirements. This is because of the relatively larger quantities of
nitrogen available via runoff from the catchment. Phosphate is particularly abundant in
organic wastes such as sewage, in which artificial phosphorus-containing detergents are also
present. Clean marine waters normally contain around 0.025 mg/l MRP or less, which is the
background P concentration in the Northeast Atlantic. Criteria for eutrophication due to
nutrient enrichment by MRP are:
Criterion A: Nutrient enrichment (cont’d)
Orthophosphate (MRP) (μg/l P)
Tidal Fresh Waters
Intermediate waters**
Full salinity waters
Numeric
Criterion
Statistic
Period criterion applies
>60
>60
>40*
median
median
median
winter or summer
winter or summer
winter or summer
* See note on first table above
** at 17 psu median salinity. See page A-1 of Annex 1 of the trophic status report (EPA 2001)
For eutrophication criterion A to be breached, either DIN or MRP exceed the value under
‘numeric criterion’ in the two tables above.
80
Criterion (b) Accelerated growth
This is indicated by Chlorophyll (μg/l). Algal cell biomass may be quantified by the
concentration of the photosynthetic pigment chlorophyll, which gives a reasonable indication
of the biomass of phytoplankton present in waters. Unenriched coastal waters normally
exhibit summertime chlorophyll concentrations below 10 μg/l; within estuaries concentrations
may naturally exceed this level because of elevated temperatures, restricted mixing and the
generally greater supply of nutrients available for algal growth. Criteria for eutrophication due
to excessively accelerated growth are:
Criterion B:
Accelerated Growth
Chlorophyll a μg/l
Numeric
Criterion
Statistic
Period criterion
or
>15
>30
median
90 percentile
summer
summer
or
>15
>30
median
90 percentile
summer
summer
or
>10*
>20*
median
90 percentile
summer
summer
applies
Tidal Fresh Waters
Intermediate waters**
Full salinity waters
* See note on first table above
** at 17 psu median salinity. See page A-1 of Annex 1 of the trophic status report (EPA 2001)
Criterion (c)
Undesirable disturbance
DO % Saturation: Dissolved Oxygen Saturation relative to Normal for ambient temperature
and pressure. Well oxygenated conditions are required by most fish and other aquatic
organisms. Saturation levels in unenriched waters are generally close to 100%, though they
may vary over short periods depending on physical conditions such as the weather and so
forth. Values significantly lower than 80% of saturation indicate increased microbial
respiration in the presence of large quantities of organic matter. Saturation values greater
than 110% mostly result from photosynthesis by aquatic plants, 120% being excessive and
certain to be accompanied by oxygen depletion during the hours of darkness. Consequently
both low and super saturation can harm fish and other aquatic organisms. Criteria for
eutrophication due to undesirable disturbance are:
81
Criterion C: Undesirable disturbance
Dissolved Oxygen (D.O.) % saturation
These criteria for D.O. are in respect of both deoxygenation and supersaturation
Numeric
Criterion
Statistic
Period criterion
or
<70
>130
5 percentile
95 percentile
summer
summer
or
<70
>130
5 percentile
95 percentile
summer
summer
<80*
>120*
5 percentile
95 percentile
summer
summer
applies
Tidal Fresh Waters
Intermediate waters**
Full salinity waters
or
* See note on first table above
** at 17 psu median salinity. See page A-1 of Annex 1 of the trophic status report (EPA 2001)
Other parameters reported
While the above are the criteria used in assessing eutrophication, other parameters that are
reported include:

BOD5 (mg/l): 5-day Biochemical Oxygen Demand. Biochemical Oxygen Demand
reflects the quantity of biodegradable organic matter present. The BOD 5 test is based
on the loss of dissolved oxygen from a sample incubated for 5 days at 20 oC, and
gives a comparative measure of the degree of contamination by biodegradable waste
matter. Natural sea waters are likely to have BOD values in the range >0 to 2 mg/l,
and freshwaters between >0 and 3 mg/l. Values significantly above 4 to 5 mg/l
indicate probable pollution by organic wastes. Raw sewages have BODs in the range
200 to 400 mg/l; primary treatment usually reduces the BOD concentrations to
between 130 and 180 mg/l, while effluents from secondary treatment plants would
be expected to have BOD concentrations less than 30 mg/l (Toner, 1991).

TON (mg/l N): Total Oxidised Nitrogen (= sum of nitrate [NO3-] and nitrite [NO2-]).
Nitrate plays a major role in eutrophication, particularly in marine waters and
originates both from the microbial conversion of ammonia present in wastes and
from runoff and leaching from agricultural land, especially where artificial fertilisers
are applied. Nitrite is an intermediary between nitrate and ammonia and is usually
found in substantial quantities only in the immediate vicinity of effluent outfalls. In
unenriched freshwaters, oxidised nitrogen concentrations are not likely to exceed 1 to
2 mg/l N. Concentrations in unenriched coastal and marine waters generally do not
exceed 0.2 mg/l N in winter. In summer N tends to be depleted to negligible levels by
plant growth, thus N is effectively the limiting nutrient in marine waters.
82

NH3/NH4 (mg l/N): Total Ammonia Nitrogen (sum of Un-ionised Ammonia [NH3] and
Ammonium [NH4+]). Ammonia arises from the breakdown of protein and other
nitrogenous substances in waste, and originates primarily from sewage and other
organic inputs. It is gradually converted to nitrite and then to nitrate by microbial
action, and it is the preferred form of nitrogen for uptake by many aquatic plants. In
water, ammonia takes two forms, free ammonia gas (NH 3) and the ammonium ion
NH4+. Dissolved free ammonia gas is regarded as the form which is directly toxic to
aquatic life in elevated concentrations, >0.02 mg/l N. Clean freshwaters are likely to
have total ammonia concentrations less than 0.05 mg/l N; levels in excess of 0.1 mg/l
N are indicative of organic contamination.
Monitoring sites have been selected to represent as far as possible the transition from fully
freshwater to fully marine conditions:




Freshwater (above the limit of tidal action)
Estuarine zone (from freshwater limit to the estuarine-coastal boundary)
Remainder of the bay outside the estuarine-coastal boundary
Adjacent coastal waters outside the bay.
In the early to mid nineties the majority of industrial waste water, 80 per cent according to
Bowman et al. (1996), was discharged directly to estuaries and coastal waters. In 2000 85
per cent went to tidal waters (Millennium Report, chap 5, EPA 2000). In addition these waters
receive inputs of river-borne materials that originate upstream and inputs from agricultural
runoff from land. These various inputs are predominantly composed of sewage effluent and
other biodegradable wastes and their main potential effects are organic enrichment and
oxygen depletion in the receiving waters. The associated release of nitrogen and phosphorus
compounds has the potential to cause eutrophication of receiving waters.
References
EPA, 1999. Water Quality in Ireland 1995-1999, Johnstown Castle Estate.
EPA, 2001. An Assessment of the Trophic Status of Estuaries and Bays in Ireland . Report
prepared for the DELG, Johnstown Castle Estate.
EPA, 2002. Water Quality in Ireland 1998-2000, Johnstown Castle Estate.
83