Module 4:

Cost-effectiveness analysis

Example of a twinnng project in Malta

Yannick Pochon

Istanbul, 2015

The case of Malta

Review of risk-assessment Co

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Identification of significant water management issues

Identification of potential measures

Building the measure database – information on costs, effectiveness,

Cost-effectiveness analysis and selection measures for restoring good water status

Financing – and link to cost-recovery and obligations of the WFD

1st workshop with

stakeholders

Initial meeting with

stakeholders

2nd workshop with

stakeholders

Final workshop Draft Programme of measures

Draft document submitted to consultation, presented and discussed during workshops and updated.

Six main issues for groundwater management were identified for Malta groundwater resources.

Over abstraction is problematic for the majority of groundwater bodies in Malta. Tackling over-abstraction requires reducing groundwater abstraction for existing water users.

High nitrate concentrations above drinking water quality standards are recorded. Values 5 times higher than the permitted threshold of 50 mg of nitrate per liter are recorded in some cases.

More significant engagement in groundwater regulation and control is required to meet the environmental objectives of the WFD and to avoid infringement procedure at the European level.

Financing of the water sector is a significant issue. Current high subsidy rates are unlikely to be sustainable over the long term with forthcoming high investments in the water sector. And they are not complying with cost-recovery obligations promoted by the WFD and attached to the use of European funds.

There is limited awareness on groundwater issues at all levels of society in Malta. This hides responsibility while constraining implementation of innovative solutions.

More knowledge is required for supporting effective management of groundwater resources in Malta.

Overview of measures (Quantitative)

Promote water saving practices for households, industries, and farmers

Use economic instruments (meters +environmental tax) to reduce groundwater abstraction by private borehole owners (farmers, industries, households)

Increase rain water harvesting (households, industry, farmers)

Increase available water resources: desalination (WSC, hotels) and waste water reuse (households, agriculture, industry)

Promote water saving practices

Households IndustriesLivestock farms

Distribution of watersaving devices (aerators…)15% reduction water use (flushes, taps)Cost : 1LM/householdAdopted by 50% household

Tax rebate on water saving appliances (25%)40% reduction water use (taps/flush/wash.mach)Ad. Cost = 250 Lm/householdAdopted by 25% households

Water saving contracts: subsidy for equipment, best practices, meter and volume ceilingLarge/medium farms (60% =540)Investment 3500 Lm/farm (blisters…)1800 m3/year/farm saved

Best available technologies (changes in industrialprocesses)

+ awareness raising and information campaigns

Increase rain water harvesting

Households IndustriesFarms Hotels

Rehabilitate ancient cisterns6000 householdsInvest: 700 LmWater saved: 60m3/household

Construct new cisternsTarget: 35% householdsUptake: 20%= 5000 householdsInvest: 3600 LmWater saved: 60 m3

RWH systems for livestock farmsTarget: 60% largest farms= 540 Invest. 6600 Lm/farmWater saved: 120 m3

Develop run-off storage for crop farms Installation of meters on wells + subsidy for tankconstruction (10%)Target: 10% farmers withregistered well (= 529)Invest. 12,000 Lm/farmWater saved: 500 m3

RWH systems for livestock farmsTarget: 90% industriessubject to GBR + permits Invest. 12,000 Lm/farmWater saved: 150 m3

RWH systems for hotels. Target: 50% 3 stars (4&5 stars already equipped)= 27 hotelsInvest. 8600 Lm/hotelWater saved: 120 m3

Increase available water resourcesDesalination (RO) Wastewater reuse

Increase RO at WSC plantsno investment0,225 Lm/m315 M m3/year

Installation ofsmall RO plants in hotels4&5 stars + 50%of 3 starsInvest. 40,000 Lm/hotelO&M=0,40 Lm/m3150 litres/capita/day

WW reuse in hotels in hotels4&5 stars + 50%of 3 stars (50 hotels)Invest. 50,000 Lm/hotelO&M=0,10 Lm/m370 liters/capita/day

Grey water reuse by households4&5 stars + 50%of 3 starsInvest. 40,000 Lm/hotelO&M=0,40 Lm/m3150 liters/capita/day

WW reuse in industryIn 2-3 industrial areamanaged by MIP(measure not completelyspecified)

Centralized distribution of TSE for irrigationEffluent treatment with RO& centralized distribution system + boreholes closedInvest. 25 M Lm (?)O&M=0,15 Lm/m320,000 m3/day( average)

Economic incentives through taxes on private boreholes

Justification of a tax: Groundwater over-abstraction by private borehole

ownersgenerate an environmental cost (sea water intrusion).

This environmental cost can be assessed using the replacement cost method: each cubic meter over-abstracted makes necessary the desalination of one additional cubic meter, at a cost of 1,1 Lm/ m3.

The maximum value of an environmental tax can thus be equal to 1,1 Lm/m3.

Lower values (0,1 to 0,25 Lm/m3) have been assumed but this choice is open for discussion

Economic incentives through taxes on private boreholes

Households IndustriesFarms Bowsers

Tax = 0,2 Lm/m3Installation of metersTarget: 2000 boreholesAverage use 800m3/year 40% water use reduction

Tax = 0,1 Lm/m3Installation of metersTarget: 5000 boreholesIrrigating 3500 haAverage GW use 3000m3/year 20% water use reduction

Tax = 0,2 Lm/m3Installation of metersTarget: 50 largest GW usersAverage GW use 20,000m3/year 30% water use reduction

Tax = 0,25 Lm/m3Recording of sales, quality controlAccess to TSE allowedTarget: 25 companiesAverage GW use 2 M. m3/year 50% water sales reduction, partly replaced with TSE

+ enforcing groundwater regulation legalframework (REG 1_1)

+ Waste water reuse in agriculture (QUAN 5_1)

Uncertainty on effect of the tax on consumption

Cost effectiveness analysis

Distribute free water saving devices households Rehabilitate existing rainwater harvesting householdsLevy a tax on industrial boreholes Levy a tax on agricultural boreholedLevy a tax on domestic boreholesIncrease desalination with existing infrastructureLevy a tax on bowsersWater saving practices in livestock farmsCentralised distribution of TSE for irrigationWaste water reuse in hotelsTax rebate for water saving appliances (households)Desalination plants for hotels (RO)Construct new run off storage reservoirs for irrigationDevelop grey water recycling systems for householdsDevelop of rain water harvesting in large livestock farmsConstruct rain water harvesting systems for industryConstruct rainwater harvesting systems for householdsDevelop rain water harvesting in hotels

Name of measure Volume saved (m3/year)

Total cost (Lm/year)

Cost effectiveness (Lm/m3)

• Investment cost (annual equivalent, considering lifetime of equipment)• Recurring costs (operation & maintenance)• Indirect costs for private actors• Administrative costs of measure implementation (inspection, creation of information system, etc.• Environmental cost (CO2 emission valued at the rate of 14 €/Ton)

Cost effectiveness analysis

Distribute free water saving devices households Rehabilitate existing rainwater harvesting householdsLevy a tax on industrial boreholes Levy a tax on agricultural boreholedLevy a tax on domestic boreholesIncrease desalination with existing infrastructureLevy a tax on bowsersWater saving practices in livestock farmsCentralised distribution of TSE for irrigationWaste water reuse in hotelsTax rebate for water saving appliances (households)Desalination plants for hotels (RO)Construct new run off storage reservoirs for irrigationDevelop grey water recycling systems for householdsDevelop of rain water harvesting in large livestock farmsConstruct rain water harvesting systems for industryConstruct rainwater harvesting systems for householdsDevelop rain water harvesting in hotels

Name of measure Volume saved (m3/year)

Total cost (Lm/year)

Cost effectiveness (Lm/m3)

194 388154 955300 000

2 100 000640 000

15 000 0001 060 000

394 2007 300 000

43 182160 992

35 088264 500156 520

68 850553 590

90 3001 017

-454 960-45 002

7 664204 086

69 6443 685 944

345 230131 990

3 847 50538 928

189 20349 103

386 943322 973183 608

4 073 412734 630

10 166

-2,34-0,290,030,100,110,250,330,330,530,901,181,401,462,062,677,368,14

10,00

Distribute free water saving devices households Rehabilitate existing rainwater harvesting householdsLevy a tax on industrial boreholes Levy a tax on agricultural boreholedLevy a tax on domestic boreholesIncrease desalination with existing infrastructureLevy a tax on bowsersWater saving practices in livestock farmsCentralised distribution of TSE for irrigationWaste water reuse in hotelsTax rebate for water saving appliances (households)Desalination plants for hotels (RO)Construct new run off storage reservoirs for irrigationDevelop grey water recycling systems for householdsDevelop of rain water harvesting in large livestock farmsConstruct rain water harvesting systems for industryConstruct rainwater harvesting systems for householdsDevelop rain water harvesting in hotels

Name of measure Volume saved (m3/year)

Total cost (Lm/year)

Cost effectiveness (Lm/m3)

194 388154 955300 000

2 100 000640 000

15 000 0001 060 000

394 2007 300 000

43 182160 992

35 088264 500156 520

68 850553 590

90 3001 017

= 3,4 M. m3

• Over-exploitation = 4 Millions m3 (rough estimate)• Implement the most cost-effective measures to reduce imbalance

Net social benefit = 70 000 Lm /year

Total investment cost = 5,8 M Lm

Cost for drinking water consummers= 1,38 M Lm

Benefit for government (tax payers) = -1,6 M Lm

Cost for industry = 0,14 M Lm

Environ. cost = 0,012 M Lm

Desalinate additional volume of 0,6 M m3

-454 960-45 002

7 664204 08669 644

147 438

Economics do not prescribe which measure to implement, other criteria should be considered

Social acceptance: implement changes progressively (install meters, declare boreholes, levy environmental tax…

Economic impact on economic activities (e.g. agriculture)

Consistency with existing regulatory framework

The choice of measures remains a political choice based on multiple criteria

Cost effectiveness (Lm/m3)

-2,34-0,290,030,100,110,250,330,330,530,901,181,401,462,062,677,368,14

10,00

Name of measure

Distribute free water saving devices households Rehabilitate existing rainwater harvesting householdsLevy a tax on industrial boreholes Levy a tax on agricultural boreholedLevy a tax on domestic boreholesIncrease desalination with existing infrastructureLevy a tax on bowsersWater saving practices in livestock farmsCentralised distribution of TSE for irrigationWaste water reuse in hotelsTax rebate for water saving appliances (households)Desalination plants for hotels (RO)Construct new run off storage reservoirs for irrigationDevelop grey water recycling systems for householdsDevelop of rain water harvesting in large livestock farmsConstruct rain water harvesting systems for industryConstruct rainwater harvesting systems for householdsDevelop rain water harvesting in hotels

Potential costs effects on various sectors for the 3 scenarios built on quantity.

-3 000 000

-2 000 000

-1 000 000

0

1 000 000

2 000 000

3 000 000

Scenario 1 Scenario 2 Scenario 3

Lm/yearCost for Govt (taxpayers)

Cost for drinking waterusers

Cost for agriculture

Cost for tourism

Cost for Industry

Cost for environment

Cost for other sectors(Bowsers, etc)

Table 13: Sensitivity analysis for the discount rate.

Measure Code Total Investment costQUAN_1_1a 203 360 45 680 43 145 52 282 -529 006 -531 542 -522 404 -2,261 -2,272 -2,233 1 1 1QUAN_3_2 4204200 309 352 257 115 460 555 -99 656 -151 894 51 547 -0,515 -0,785 0,267 2 2 4QUAN_5_2a 1300000 95 656 79 504 142 410 -33 085 -49 238 13 669 -0,512 -0,761 0,211 3 3 3QUAN_4_2 640 000 57 562 49 808 79 398 -14 271 -22 025 7 565 -0,300 -0,462 0,159 4 4 2QUAN_1_3 765 720 113 731 104 528 138 346 127 182 117 980 151 797 0,323 0,2993 0,385 5 5 5QUAN_4_1 25 000 000 1 839 543 1 528 918 2 738 662 5 225 488 4 914 862 6 124 606 0,348 0,3277 0,408 6 6 6QUAN_5_1 50 000 000 2 891 505 2 232 496 4 866 818 3 817 505 3 158 496 5 792 818 0,523 0,4327 0,794 7 7 8QUAN_2_1 0 0 0 0 330 996 330 996 330 996 0,552 0,552 0,552 8 8 7QUAN_2_2c 40 000 6 664 6 180 7 948 85 164 84 680 86 448 0,852 0,8468 0,864 9 10 9QUAN_1_1b 4 875 000 601 043 542 717 759 623 189 992 130 499 351 743 1,103 0,7577 2,042 10 9 10QUAN_4_4 6348000 367 105 283 438 617 891 386 943 303 275 637 729 1,463 1,1466 2,411 11 11 11QUAN_2_2b 400 000 66 644 61 805 79 476 247 144 242 305 259 976 2,471 2,423 2,600 12 12 12QUAN_6_1 80000 4 626 3 572 7 787 204 626 203 572 207 787 2,950 2,935 2,996 13 13 13QUAN_2_2a 1000000 166 610 154 512 198 691 9 596 642 9 584 544 9 628 723 4,570 4,5641 4,585 14 15 14QUAN_3_4 3029400 175 191 135 262 294 871 183 804 143 875 303 484 5,006 3,9182 8,265 15 14 15QUAN_3_1 12600000 927 130 770 575 1 380 286 688 780 532 225 1 141 936 6,112 4,7225 10,133 16 16 17QUAN_5_2b 6 405 000 576 073 498 472 794 597 519 634 440 482 742 529 6,207 5,2614 8,869 17 17 16QUAN_3_3 2112000 155 405 129 163 231 362 164 053 137 812 240 011 6,935 5,826 10,147 18 18 18QUAN_3_5 295650 21 754 18 081 32 387 19 902 16 228 30 535 21,951 17,899 33,678 19 19 19

Cost effectiveness ratioTotal annual cost (Lm/year)Annual investment cost (Lm/year) Ranking

Preliminary results Exploratory approach, all measures considered

irrespective of possible technical & social acceptance constraints

Illustration of the methodology: showing the way forward Intended to promote discussion

On the role of economics in the planning process Help choosing between alternative options Assess the total cost and its distribution among actors

and sectors But only one criteria among others to guide policy

decision