Value of Water

Economic Assessment of Clean Water Environment

BACKGROUND

Many qualitative surveys show that clean surface waterbodies have appreciated characteristics and features in the urban environment. Most of the values associated with surface urban waters are non-priced environmental benefits which include aesthetic values like pleasant landscape and clean air; preservation and enhancing urban fishery and biodiversity, potential recreation opportunities for urban residents, improved health conditions and reduced flood impact. Benefits and costs of water-use related infrastructural projects are often assessed in monetary terms. However, quantitative valuation of clean urban water environment is difficult to integrate into the assessment procedure of policy decision in a city. At present, authorities and policy-makers in many cities of developing countries are challenged by possibility of explicit valuation of these clean water-related benefits that is supposed to embedded into the policy decisions and results in more effective city decision-making process. Low appreciation of clean urban water environment is also reflected in the limited budget allocations in many cities.

OBJECTIVE

Studies on economic assessment of water quality improvement were conducted in 2015-2017 for the three cities of Southeast Asia: Metro Manila, Philippines, Hanoi, Vietnam and Jakarta, Indonesia. The main objectives of these studies were: 1) to investigate cities’ residents’ willingness to pay for the improvement of water quality of surface waterbodies (stream, canals, rivers, lakes) in their cities, and 2) to estimate total economic value of benefits related to clean water environment in a city. As expected results of these undertakings could be useful in updating existing and developing new water infrastructure-related policy decisions in these cities.

CONTINGENT VALUATION METHOD

A survey-based methodology built on eliciting willingness-to-pay for the good water quality of waterbodies in each studied city was created. As no actual market exists for such an environmental good, researchers needed to create a hypothetical market and respondents were requested to reveal the value they place on the proposed change in the environmental service. After the several workshops with stakeholders in each city and talks with government agencies in charge for the water quality issues in the city the hypothetical scenario of water quality improvement was identified. Our study examined valuations of respondents to a proposed Surface Water Quality Improvement Program. The Program consists of two components: 1) building a new wastewater treatment plants, and 2) expansion of the existing sewerage system. The questionnaire has been translated into Tagalog language for the use in Metro Manila, Bahasa, Indonesia in Jakarta, and Vietnamese in Hanoi.

 

The future expected water quality standards in the framework used a reference based on each countries’ established thresholds for inland surface waterbodies. According to the assumption made in our survey and based on observation of the actual quality of a city’s waterbodies, the current quality of waterbodies was described as bad (class D). Certainly, it will take some period until the current water quality in waterbodies would reach Class C (“acceptable for fishery and boating”) and then Class B (“acceptable for bathing and swimming”), therefore the respondents were informed that changes will occur gradually depending on building a wastewater treatment plants and most importantly expansion of the existing sewerage system (timeframe 10 years). Accordingly, the surveys used two water quality standards, namely fishing (moderate) and swimming (good).

 

RESULTS

The use- and nonuse values should be revealed in order to estimate the total economic value of an environmental good. Use value is relatively easy and straightforward to understand and to explain. Use value includes direct consumptive use, for instance drinking water, irrigation, input in industry and indirect use such as flood control, nutrient retention, storm protection. However, nonuse value creates some challenges during the survey administration stage. Nonuse value consists of existence value which means you agree to pay for environmental good/service which you’ll never use, bequest value when you value it because you want future generations have opportunity to use it and altruistic value of which classic example could be donations for funds which saves whales, tigers and so on.

It should be mentioned that the highest response rate (percentage of respondents answered) was recorded in Metro Manila (75%) and the lowest in Jakarta (47%). These numbers don’t have direct relation on the value of WTP, but they could be an indicator of general attitude of people towards environment, in particular water quality conditions.

 

 

Figure 1. Use- and nonuse willingness to pay for two water quality standards in each city ($/ household/month for use WTP, $/household/once for nonuse WTP).

As it could be seen from the above table and the  highest use and non-use WTP for both water qualities was given by the residents in Metro Manila. This could be interpreted as the serious concern of local people about water quality degradation in the city and also their awareness about current situation and need for an improvement. The lowest use WTP for the swimmable water quality was recorded in Hanoi. It’s been clear from our discussions during the workshops in this city that Hanoi people generally are satisfied with the current water quality of their city’s waterbodies and this could be a reason for the low WTP. But, it doesn’t their non-use WTP which is higher than in Jakarta. However, the difference between non-use WTP for the swimmable water quality is not that much big between Hanoi and Jakarta. As it’s mentioned earlier, nonuse value is tricky by its nature and it’s extremely challenging to explain to respondents not only during the surveys but also during the special pre-survey workshops. Therefore, results of non-use WTP should be interpreted with special care and caution.

The drivers of WTP are income and education for all cities (which have been reported by many researchers in previous studies) in addition to the distance to the nearest waterbodies in Metro Manila. The logic behind of this driver was well explained during the workshop: “Why should I pay to improve water quality if I live far and do not pollute particular waterbody?”

Table 1. WTP drivers and total economic value for each city.

Category Metro Manila

Philippines

Jakarta

Indonesia

Hanoi

Vietnam

Main drivers of WTP Income

Education

Distance

Income

Education

Income

Education

Total economic value (International Dollar) $235M/year $130M/year $56M/year

 

In the above table we can observe the total economic value (TEV) which is aggregation of obtained average WTP over all city’s residents. The shown numbers are estimation of how much monetary benefits city’s residents value clean water environment in their cities. However, this is not a comparison across the cities – it’s difficult to say that TEV for Metro Manila almost five time higher than for Hanoi. The reason is population living in the city – Metro Manila has twice more population that Hanoi.

The TEV of each city has been compared with the costs needed to improve current bad water quality situation in each city. As expected, TEV is much lower than expenses for sanitation, sewerage, solid waste management, etc. which are main causes for water quality degradation.  But, these sectors are heavily subsidized even in developed countries. Policy-makers could view these numbers as additional source for funding of some project directed to protect the water environment. In addition, they could see how much monetary benefits they could get if they improve current condition water quality in the surface waterbodies.

CONCLUSION

Recent years have been marked by growing concerns about water pollution in urban waterbodies of fast growing Southeastern Asian countries. Many countries have adopted water quality standards for surface waterbodies and have strengthened pollution control and upgraded enforcement mechanisms. However, the implementation of these measures imposes a real cost on society and government in terms of cost of treatment, mitigation and compensation.

Results from the contingent valuation study show positive financial support for an action plan that would help to improve water quality in the city’s waterbodies. This estimation could help policy-makers in planning and promoting new and/or upgrading existing wastewater treatment plants in Metro Manila, Jakarta and Hanoi.

There are two ways of use of the CVM surveys’ results in policy-making: they could be used to contribute and simulate public awareness of potential monetary benefits of the surface water quality improvement and influence and help to develop new policies through cost-benefit analysis or justify existing decisions in urban water management and decision-making. However, the extent, coverage and goal of the use of CVM results in urban water management planning and policy-making varies across countries.