Environmental Costs of Freshwater Eutrophication in England and Wales - Pretty et al (2003)

Introduction

• Eutrophication's consequences lack sufficient data on environmental and health costs.
• Economic activities impact the environment through resource overuse and pollution.
• Externalities: environmental costs not included in market prices, distorting markets by encouraging activities costly to society.
• Externality defined: Action affecting welfare/opportunities without direct payment/compensation.
• Water sector externalities:
  • Costs often neglected.
  • Occur with a time lag.
  • Damage groups with poor representation.
  • Source of externality often unknown.
• Industries/agriculture lack incentives to prevent nutrient runoff into water bodies due to not paying full cleanup costs.
• Ecosystem services' value is poorly understood.
• Accounting systems underestimate environmental goods/services' present and future values.
• Valuation of ecosystem services is controversial due to its influence on public opinion and policy.
• Best damage estimation: calculate willingness to pay (WTP) to avoid damage or willingness to accept (WTA) compensation to tolerate it.
• This study uses a range of published valuation studies with various methodologies.

Development of Cost Category Framework

• Framework derived from the pressure-state-response model.
• Eutrophication pressures from point and nonpoint nutrient sources.
  • Point sources: sewage treatment and industrial effluents.
  • Nonpoint sources: agriculture, aquaculture, forest management, transport, septic tanks, natural sources.
• Two cost category types:
  • Damage costs (A): value-loss from reduced clean water value.
  • Policy costs (B): costs responding to eutrophication damage and changing practices to meet obligations.
• Damage costs cannot be added to policy response costs.
• Damage costs (A) represent loss of existing value and are divided into use and nonuse values.
• Use values: Private benefits from ecosystem service use.
  • Private uses (agriculture, industry).
  • Recreation benefits (fishing, water sports, bird watching).
  • Education & amenity benefits.
  • Option values (future use choice).
• Nonuse values:
  • Existence values (preservation).
  • Bequest values (preservation for future).
• Identified 10 types of use value (A1) for water bodies affected by eutrophication.

Social Damage Costs

• Comprise:
  • (i) Reduced value of waterside dwellings.
  • (ii) Reduced value of water bodies for commercial uses.
  • (iii) Drinking water treatment costs (algal toxins & decomposition products).
  • (iv) Drinking water treatment costs (nitrogen removal).
  • (v) Cleanup costs of waterways (dredging, weed-cutting).
  • (vi) Reduced value of nonpolluted atmosphere (greenhouse & acidifying gases).
  • (vii) Reduced recreational & amenity value.
  • (viii) Net economic losses for tourist industry.
  • (ix) Net economic losses for commercial aquaculture.
  • (x) Health costs to humans, livestock, & pets.

Ecological Damage Costs (non-use values)(A2)

• Ecological damage costs (A2) include:
  • Damage to biota and ecosystem structure by nutrient enrichment.
  • Negative ecological effects on biota, leading to changes in species composition and loss of key species.

Policy Response Costs

• Costs arising from policy response to eutrophication problems.
• Divided into:
  • Compliance control costs (B1).
  • Direct costs by agencies (B2).
• Benefits of eutrophication:
  • Increased fishery productivity.
  • Positive fertilization effect on farmland.
  • Improved food sources for some wild birds.

Difficulties in Cost Assessment

• No absolute definition of when nutrient enrichment causes adverse effects.
• Varying thresholds for when nutrient enrichment becomes problematic.
• Complex relationships between nutrient enrichment, effects, and costs.
  • Costs varying linearly with nutrients.
  • No costs until a threshold, then linear increase.
  • Costs increase faster than nutrients at high levels.
  • Costs increase to an asymptote.
• Eutrophication costs arise from responses triggered by nutrient levels or effects (e.g., algal blooms).
• Economic data on eutrophication costs are limited.
  • Different valuation methodologies.
  • Limited England and Wales data.
  • Some costs are for wider problems (e.g., sewage treatment).
  • Lack of data on problem incidence.
  • Costs known only for the whole U.K. system (e.g., water treatment).

Environmental Costs of Eutrophication

• (A) Damage (or Value-Loss) Costs: Reductions in the Value of Nonnutrient-Enriched Water
• Calculation requires estimating eutrophication extent and frequency.
• UK Environment Agency's data (1990-1999) on blue-green algal blooms used to estimate frequencies of closure.
• Over 10 years, 3993 incidents reported in 2710 water bodies.
• Average frequency: 1.47 blooms per water body over 10 years.
• Assumptions for closure rate calculation:
  • All blooms recorded (underestimate).
  • Value losses accrue before bloom occurrence (underestimate).
  • 25% of blooms cause 30-day closure, 50% cause 15-day closure, 25% cause 5-day closure.
  • Average closure: 16.25 days for severe toxic blooms (underestimate).
• Closure frequency (fc) calculation:

fc = (I{bg}N) / (C(S{1/2} or S_1)Y)

• Where:
  • I_{bg} = incidents of blue-green algal blooms
  • C = number of water bodies affected
  • N = days water body closed
  • S_{1/2} = season length (half year)
  • S_1 = season length (full year)
  • Y = years of data
• For half-year season: fc = 0.0131 or 1.31%; for full-year: fc = 0.0066 or 0.66%.
• Closure rate range: 0.66-1.31% for water bodies due to blue-green algal blooms.
• Probability of water body closure: between 1 in 76 and 1 in 151 on any given day.

(A1) Social Damage Costs

(A1i) Reduced Value of Waterside Dwellings

• Water quality affects property values near water bodies.
• Waterfront properties generally have higher value (0-15% for offices, 0-25% for leisure, 10-40% for residential).
• Value loss if water quality decreases (turbidity, algal blooms, odors).
• No national studies of value loss in waterfront properties affected by eutrophication in the U.K.
• One study: leisure/residential property devalued by 20% due to poor water quality.
• Studies elsewhere: periodic eutrophication causes significant losses.
• Data needed: freshwater frontage length impacted and number of properties.
• EC Urban Waste Water Treatment Directive: 2540 km of water courses designated as sensitive areas (eutrophic) (6.35% of rivers assessed).
• Rivers graded 4 and above (>0.1 mg of P/L) exceed eutrophic guideline (51.6% of rivers in these grades in 1993-1995).
• There are also 6300 standing waters in England and Wales larger than 1 ha.
• Assumptions:
  • 10% loss in value per property.
  • Average waterside property value: $140,000.
  • 75,000 waterfront properties exposed (average density of 121 dwellings km-1).
• Value-loss relationship:

VLA1i = Pn fc VL_p = 13.76 million yr-1

• Where:
  • VLA1i is the total value loss for waterside properties.
  • P_n is the number of waterside properties.
  • f_c is the frequency of loss of value.
  • VL_p is the value loss per average 10 m of frontage.

(A1ii) Reduced Value of Water Bodies for Abstraction, Livestock Watering, Navigation, Irrigation, and Industrial Uses

• Water bodies have industrial uses: manufacturing, electricity generation, farming, navigation, waste treatment.
• Costs arise when nutrient enrichment reduces clean water value and aquatic biomass impedes navigation.
• Once eutrophic, water bodies may perform these functions less effectively.
• Value-loss relationship:

VLA1ii = Vw fc

• Where:
  • VLA1ii is the reduced value of water bodies for various uses.
  • V_w is the value of water for industrial, farming, and navigation uses.
  • f_c is the frequency of closure.
• No national data sets to calculate V_w.
• A proxy for value: charges for licenses (89.34 million yr-1).
• Using equation 3, loss of 0.13-0.27 million yr-1.
• Cost to three paper mills from a single incident: 0.22 million.
• Estimated costs: 0.7-1.4 million yr-1.

(A1iii) Drinking Water Treatment Costs (Treatments and Actions To Remove Algal Toxins and Algal Decomposition Products)

• Nutrient enrichment and algal blooms cause problems for water supply and sewerage treatment operators.
• Some costs are to meet compliances, others relate to the adverse effects of algal blooms and their decomposition products.
• Damage cost relationship:

DCA1iii = (CoAp ASPo) + (CcAp ASPc) + C_r

• Where:
  • C_o is the annual operating expenditure by water companies.
  • C_c is the annual capital expenditure by water companies.
  • A_p is the proportion of production liable to suffer from algal proliferation.
  • ASPo is the proportion of algae sensitive production operating costs for eutrophication.
  • ASPc is the proportion of ASP capital costs for eutrophication.
  • C_r is the annual cost of reservoir management systems.
• Assume 10% of direct operating costs and 5% of capital costs for ASP arise from eutrophication.
• Direct operating costs for water treatment: 398 million yr-1
• Additional treatment costs: 398m 0.33 0.1 = 13.3 m yr-1
• Capital expenditure (Capex) on water treatment : 466.1 million
• yielding additional expenditure as 466. 1m 0.33 0.05 = 7.77 m yr-1
• Combined capital and operating costs of reservoir systems: 5.6 million yr-1.
• Thus DCA1iii = 13.3 + 7.77 + 5.6 million = 26.6 million yr-1

(A1iv) Drinking Water Treatment Costs (To Remove Nitrogen)

• Costs incurred to comply with drinking water standards for pesticides and nitrates.
• Costs reported annually by water companies to Ofwat.
• Cost of compliance reflects nitrogen enrichment extent.
• Ofwat returns (1992-1997): water companies expended 28.1 m yr-1
• Total U.K. cost of achieving nitrate standard: \pounds 278 m over 20 yr.
• Inclusion as a cost arising from nitrogen enrichment.
• Damage cost relationship:

CCA1iv = NCo + NCc = 28.1 million yr-1

• Where:
  • CCA1iv is the drinking water treatment costs (to remove nitrates)
  • NC_o is the annual operating costs of removal of nitrate by water companies
  • NC_c is the annual capital costs of removal of nitrate by water companies

(A1v) Cleanup Costs of Waterways (Dredging, Weed-Cutting)

• U.K. policy: maintain flood defense and channel capacity through routine maintenance.
• Impossible to separate cost of dredging/weed-cutting due to eutrophication.
• No national data sets; rely on case material.
• Internal Environment Agency review: annual cost at 404 000 for a river length of 285 km.
• Individual restoration projects can be more costly.
• Damage cost relationship:

DCA1v = (\sum W_{ci-j})P

• Where:
  • \sum W_c is the sum of cost of weed cutting for organizations i-j
  • P is the proportion of weed cutting that can be attributed to eutrophication.
• Estimated average costs: 0.7-1.4 million yr-1.

(A1vi) Reduced Value of Nonpolluted Atmosphere (via Greenhouse and Acidifying Gases)

• Cost of eutrophication: emissions of nitrous oxide (N2O), methane (CH4), and ammonia (NH_3).
• Microflora produce ammonia, nitrogen gas, and nitrogen oxides.
• Methane emitted from water courses with severe plant growth.
• Greenhouse gases contribute to climate change and ammonia to acidification.
• Value-loss relationship:

VLA1vi = (E{CH4}Pw C{CH4}) + (E{N2O}Pw C{N2O}) + (E{NH3}Pw C_{NH3})

• Where:
  • $VLA1vi$ is the reduced value of nonpolluted atmosphere
  • E is the annual emissions of N2O, CH4, and NH3 (in t)
  • P_w is the proportion of emission arising from water bodies and water courses
  • C is the environmental cost per metric ton of each gas (N2O, CH4, and NH3).
• Gaseous emissions recorded in national and European inventories.
• Marginal costs (Hartridge and Pearce analysis):
  • CH_4: $109.1 t-1
  • N_2O: $4145 t-1
  • NH_3: $239 t-1
• Value-loss costs for this category: 7.17-11.19 million yr-1.

(A1vii) Reduced Recreational and Amenity Value of Water Bodies

• Extensive water-based recreational activities (bathing, boating, windsurfing, canoeing) and amenities (angling, dog-walking, rambling, picnics).
• Eutrophication results in a loss of this value.
• High risk: swimming, diving, windsurfing, water-skiing.
• Medium risk: canoeists, sailors, and walkers.
• Low risk: boating and pleasure cruising.
• Livelihoods relying on visitors also suffer.
• No national database recording eutrophication effects on recreational/amenity value.
• Data from 37 studies: benefit derived from water courses by visitors in the U.K.
• Individual WTP: 11.2-28 per person per visit.
• Conservative range: 11-19 per person yr-1.
• Value-loss relationship:

VLA1vii = Nv fc C_s

• Where:
  • VLA1vii is the reduced recreational and amenity value of water bodies
  • N_v is the number of day and tourist-day visits to water bodies made each year
  • f_c is the frequency of closure (% of days)
  • C_s is the consumer surplus per day
• Countryside Agency and English Tourism Council data: 182.9 million days spent in inland water-based leisure in 1998.
• VLA1vii = 13.51-46.96 million yr-1

(A1viii) Net Economic Losses for Formal Tourist Industry

• Direct revenue losses in the tourist industry from restrictions on water courses due to eutrophication/algal blooms.
• Visitors spend money on accommodation, food, and services.
• Loss of access results in revenue loss.
• No national studies of costs.
• Studies in Scotland and Australia indicate substantial costs.
• Loss of expenditure and jobs at a local level.
• Measuring the loss of economic activity represents local losses of income
• Value-loss relationship:

VLA1viii{total} = Nv fcE{day}
VLA1viii{net} = Nv fcE{day}P

• Where:
  • $VLA1viii$ is the revenue losses for formal tourist industry
  • N_v is the number of day and tourist-day visits to water bodies made each year
  • f_c is the frequency of closure (% of days)
  • E_{day} is the total expenditure per day and tourist-day visit
  • E_{day}P is the local profit arising from total expenditure per day and tourist-day visit (net economic value)
• Daily expenditure varies according to individuals are U.K. residents, overseas tourists, or U.K. day-visitors.
• Annual total spent on freshwater-based days to be 6.23 billion.
• Total value of economic activity lost to eutrophication, VLA1viii_{total} : 41.1-81.6 million yr-1
• In the service sector, profits are in the range of 10-20%, and so the net economic value lost
• VLA1viii_{net}: 4.12-16.32 million yr-1
• Use net value for the losses in this study.

(A1ix) Net Economic Losses for Commercial Aquaculture, Fisheries, and Shell-Fisheries

• Eutrophication frequently reduces the economic value of a fishery (replacement of whitefish and salmonids).
• Shell-fisheries adversely affected by toxins from blooms.
• Livelihoods of commercial fishing adversely affected.
• Fisheries have declined, shell-fisheries have been damaged
• No national data sets.
• Value-loss relationship:

VLA1ix{net} = Vf f_c

• Where:
  • VLA1ix is the revenue losses for commercial freshwater aquaculture and fisheries
  • V_f is the value of commercial inland and shell-fisheries in U.K
  • f_c is the frequency of closure (damage to fishery)
• Closure rate (damage) holds for commercial fisheries, freshwater fish account for 10% of the total, and profit in this sector is 10-20%.
• Net economic loss: 40-165 000 yr-1.

(A1x) Health Costs to Humans, Livestock, and Pets

• Eutrophication carries three potential health risks to humans, livestock, and pets.
• Nitrate content of drinking water (no longer a problem in the U.K.) and toxic algal blooms.
• Cyanobacteria caused deaths of livestock and poisoned soldiers.
• Events appear to be rare and and taken to be close to zero.

(A2) Ecological Damage Costs

(A2i) Negative Ecological Effects on Biota

• Value-loss costs related to changes in species composition and loss in ecosystems affected by eutrophication are difficult to measure.
• Eutrophication has a direct effect on the primary production of plants and, through changes in pH, indirectly affects the abundance and nature of organisms within it.
• Water species and habitats adversely affected by eutrophication are listed in the U.K. Biodiversity, Species and Habitat Action Plans.
• The average cost of each SAP is 26 880 yr-1, and there are 13 BAP species affected by eutrophication.
• Costs for plans for eutrophic lakes is 0.53-0.92 m yr-1 and for mesotrophic lakes is 0.45 m yr-1.
• Individual costs for restoration can be high.
• Relationship for the value loss:

VLA2i = Ce + Cm + (S C_s P)

• Where:
  • VLA2i is the negative ecological effects on biota resulting in changed species composition (biodiversity) and loss of key or sensitive species
  • C_e is the average annual cost of HAP addressing eutrophic lakes
  • C_m is the average annual cost of HAPs addressing mesotrophic lakes
  • S is the number of Species Action Plans potentially affected by eutrophication
  • C_s is the average annual cost of SAPs
  • P is the proportion of SAP affected by eutrophication
• Thus VLA2i = (0.53-0.92 10) + (0.45 10) + (13 0.027 0.1) = 10.28-14.17 million yr-1.

(B) Policy Response Costs: Costs of Addressing and Responding to Eutrophication

(B1) Compliance Control Costs Arising from Adverse Effects of Nutrient Enrichment

(B1i). Sewage Treatment Costs

• Sewage treatment companies incur costs to comply with environmental legislation for removal of phosphorus before it enters water courses.
• Capital expenditure on phosphorus removal will be 150 million.
• Capital cost has been projected at 69 million yr-1, with an average annual operating cost of 0.08 million.
• The P removal that comes under the EC Urban Wastewater Treatment Directive is predicted to cost water companies 81-118 million yr-1 for capital expenditure and 2.1 million yr-1 for operating expenditure during 2000-2010.
• Compliance costs:

CCB1i = PCo + PCc

where:
* CCB1i is the sewage treatment costs to remove phosphate
* PCo is the annual operating costs of removal of phosphate by water companies
* PCc is the annual capital costs of removal of phosphate by water companies.

• Thus, CCB1i : 70.42 million yr-1

(B1ii) Cost of Treatment of Algal Blooms and In-Water Preventative Measures

• Water delivery and management companies incur additional costs through a variety of physical, chemical, and biological preventative and restorative measures
• The damage cost relationship for this category is

DCB1ii = \sum C_{ti-j}

• There is no national database for these costs, nor are there available data for each of the organizations concerned with treatment
• We estimate costs to be 0.7 million yr-1.

(B1iii) Costs to Farmers of Adopting New Farm Practices

• Agriculture is a major source of nutrients in surface and groundwater.
• Up to 50% of nitrogen and 60% of phosphorus applied to crops can be lost by leaching and soil erosion to water courses.
• Policy measures have focused only on voluntary Codes of Good Agricultural Practice to limit the loss of nutrients.
• NSAs and NVZs have recently been established over many sensitive aquifers.
• Costs of subsidizing and enforcing schemes as a proxy for costs, are 4.75 million yr-1.
• Farmers in NVZs are required to comply with mandatory measures to protect both groundwaters and surface water against pollution caused by nitrate.
• There are no mandatory measures for phosphorus.

(B2) Direct Costs Incurred by Regulatory Bodies for Monitoring, Investigating, and Enforcing Solutions to Eutrophication

(B2i) Monitoring Costs for Water

• Statutory agencies monitor water-bodies for the presence of both nutrients and algae and their decomposition products.

MCB2i = \sum M_{ci-j}

where:
*  MCB2i is the monitoring costs for water
*    M_c is the monitoring costs for organizations i-j

• The Environment Agency spends 37 800 yr-1 on additional monitoring of nitrate and phosphate at the 8000 sites that are sampled monthly
• MCB2i is 0.62 million yr-1.

(B2ii) Costs of Developing Eutrophication Control Policies and Strategies

• Costs incurred by statutory agencies for development of eutrophication control policies and strategies.
• broken down into national and local level activities.
• Environment Agency’s aquatic eutrophication management strategy cost 794 000 over 2 yr.
• Implementation of the strategy, including national policy and local level action plans, is estimated by the Environment Agency to cost 258 000 per year.
• For this category, we estimate costs to be 280 000 yr-1.

Research and Policy Implications

• Findings indicate the severe effects of nutrient enrichment and eutrophication.
• Total damage costs of freshwater eutrophication are 105-160 million yr-1.
• policy response costs are 77 million yr-1.
• Damage costs are dominated by seven items each with costs of about $$15 million yr-1
• Policy response costs illustrate how much is already being spent to meet legislative obligations
• Five policy and research priorities were identified.
  • Need for greater analysis of representative catchments
  • Need for model/pilot studies to be conducted on representative whole catchments or river basins to produce detailed nutrient budgets.
  • Requires management of estuaries and marine waters as well as freshwater
  • Need for further analysis of the nature of the nutrient-enrichment and eutrophication relationship and more coordination of data on eutrophication between agencies to ensure efficient responses
  • Improvement of data on the extent of ecological and social damage and on the costs of in-water preventative and remedial measures
• Further research is needed on the value of water- based tourism and sports and the site-specific value losses caused by nutrient enrichment and eutrophication.