Swedish University of Agricultural Sciences Department of Forest Economics Cost-Benefit Analysis- An Economic tool to measure costs and benefits of an environmental policy Cecilia Hkansson Department of Forest Economics SLU, Sweden Trade-offs between hydropower and wild salmon in the Ume/Vindel River, northern Sweden Swedish University of Agricultural Sciences Department of Forest Economics Introduction/Method/Empirical Exmple/Conclusions (2/21) Article 5 Characteristics of the river basin district, review of the environmental impact of human activity and economic analysis of water use 1. Each Member State shall ensure that for each river basin district or for the portion of an international river basin district falling within its territory: -an analysis of its characteristics, -a review of the impact of human activity on the status of surface waters and on groundwater, and -an economic analysis of water use is undertaken according to the technical specifications set out in Annexes II and III and that it is completed at the latest four years after the date of entry into force of this Directive. 2. The analyses and reviews mentioned under paragraph 1 shall be reviewed, and if necessary updated at the latest 13 years after the date of entry into force of this Directive and every six years thereafter. Swedish University of Agricultural Sciences Department of Forest Economics Why should an economic analysis be carried out? Efficiency The economic requirement is intendent to enable there to be a rational discussion on the cost-effectiveness of the various measures. Equity Decisions on the most appropriate measures to achieve the objectives in the river basin management plan will involve balancing the interest in various groups. The economic requirement is intendent to provide a rational basis for this discussion. Transparency The greater transparency in the establishment of objectives, the greater the care Member States will take to implement the legislation in good faith. Introduction/Method/Empirical Exmple/Conclusions (3/21) Swedish University of Agricultural Sciences Department of Forest Economics Cost-Benefit Analysis- What is it and what kind of information can/should it provide? (1/3) Welfare improvement A Cost-Benefit Analysis (CBA) examines the consequences (costs and benefits) of an environmental policy in order to assess the relative merits of possible options. Cost-efficiency The option with the highest net benefit (benefits minus costs) is the most efficient. Environmental goods Evidently, a CBA should entail marketrelated as well as non- marketrelated costs and benefits. Introduction/Method/Empirical Exmple/Conclusions (4/21) Swedish University of Agricultural Sciences Department of Forest Economics Equity It is not obvious how to deal with distributional issues when applying CBA. Transparency and Equity However, by shedding light on how environmental policy maps into consequences for different groups in the society we obtain a richer basis for making decisions. Cost-Benefit Analysis- What is it and what kind of information can/should it provide? (2/3) Introduction/Method/Empirical Exmple/Conclusions (5/21) Swedish University of Agricultural Sciences Department of Forest Economics Cost-Benefit Analysis- What is it and what kind of information will/should it provide? (3/3) Transparency and Uncertainty A CBA should present the degree of uncertainty in the analysis that is due to that our understanding of the economic and ecological systems per se is limited. Perhaps more importantly, our understanding of the complex interplay between the economy and the environment is even more limited. In Summary A CBA provides decision-support information, rather than definite answers. Introduction/Method/Empirical Exmple/Conclusions (6/21) Swedish University of Agricultural Sciences Department of Forest Economics Trade-offs between Hydropower and Wild Salmon in the Ume/Vindel River Introduction/Method/Empirical Example/Conclusions (7/21) Swedish University of Agricultural Sciences Department of Forest Economics Ume/Vindel River Introduction/Method/Empirical Example/Conclusions (8/21) Swedish University of Agricultural Sciences Department of Forest Economics The lifecycle of Atlantic Salmon Introduction/Method/Empirical Example/Conclusions (9/21) Swedish University of Agricultural Sciences Department of Forest Economics 80 % These wild salmon have their most important spawning sites c. 230 km upstream (data from Laxracet) These wild salmon have their most important spawning sites c. 230 km upstream (data from Laxracet) Major Upstream problem: Stornorrfors Power station Swedish University of Agricultural Sciences Department of Forest Economics The Study area in the Ume River Bypass channel (Old river bed) Fish- ladder Rapids (Laxhoppet) Laxhoppet Minimum flow: Weekdays 20 m 3 /s Weekends 50 m 3 /s Swedish University of Agricultural Sciences Department of Forest Economics Cost-Benefit Analysis Project: Guarantee that a certain amount of salmon reach their spawning places each year. Benefits: Increase of the wild salmon stock Non-market good Non-market valuation Costs: Loss of electricity production Market good Introduction/Method/Empirical Example/Conclusions (12/21) Swedish University of Agricultural Sciences Department of Forest Economics Non-market valuation Introduction/Method/Empirical Example/Conclusions (13/21) Swedish University of Agricultural Sciences Department of Forest Economics Introduction/Method/Empirical Example/Conclusions (14/21) Swedish University of Agricultural Sciences Department of Forest Economics Ecological Models (1/2) How much extra water needs to be allocated to the wild salmon? Model: Predicted upstream migration success of salmon in the bypass channel at added bypass flows River specific data: Turbine flow, flow in the bypass chanell, water temperature, sex of salmon, length of salmon and the salmons moving patterns in the river. Swedish University of Agricultural Sciences Department of Forest Economics Ecological Models (2/2) Model: Predicted number of salmon passing the fish ladder after improved upstream migration. River specific data: The model is based on results from of tracking radio-tagged upstream migration salmon in the Ume River, and 30 years of information from the fish ladder. Other data: Data from International Council for the exploration of the Sea (ICES) (2000) For how many years do we need to allocate extra water to the wild salmon? Years after improvement Swedish University of Agricultural Sciences Department of Forest Economics Results Total benefits: 96 MSEK- 517 MSEK Total costs:114 MSEK MSEK Net-benefits:-2005 MSEK- 403 MSEK Introduction/Method/Empirical Example/Conclusions (17/21) Swedish University of Agricultural Sciences Department of Forest Economics Benefit side Valuation uncertainty Cost side Electricity price Biological models Uncertainties Total Costs 0.25 SEK/kWh Total Benefits Total Costs 0.25 SEK/kWh Total Costs 1.50 SEK/kWh Total Costs 1.00 SEK/kWh Total Costs 0.50 SEK/kWh Introduction/Method/Empirical Example/Conclusions (18/21) Swedish University of Agricultural Sciences Department of Forest Economics During the coming years we will investigate how costs and benefits are distributed between different groups. Conclusions Among other things this cost-benefit analysis shed light on: Efficiency Transparency Equity the presence of big economic and ecological uncertainties the importance of including environmental costs and benefits that are not priced on a market in the analysis Introduction/Method/Empirical Example/Conclusions (19/21) Swedish University of Agricultural Sciences Department of Forest Economics According to the WFDs requirements this issues have to be seriously evaluated and the programme of measures have to be developed accordingly to the outcomes of art.5 analysis. Introduction/Method/Empirical Example/Conclusions (20/21) Swedish University of Agricultural Sciences Department of Forest Economics Introduction/Method/Empirical Example/Conclusions/End All Swedes Angling days/yearNr. of observations Proportion of responses with WTP>0 Mean WTP (SEK) Proportion of men >= No use-values > > > Table 1 Characteristics for Swedes depending on how often the respondents go angling a. Characteristics for the sample Swedes, i.e. women and men WomenMen Angling days/year Nr. of observations Proportion of responses with WTP>0 Mean WTP (SEK) Nr. of observations Proportion of responses with WTP>0 Mean WTP (SEK) >= No use-values > > > * b. Characteristics for women respectively men in the sample Swedes * Only three observations.