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

Introduction to Eutrophication and Externalities

Eutrophication has numerous consequences, but data on environmental and health costs are limited.
Economic activities impact the environment through resource overuse or pollution.
The costs of environmental use are called externalities, which distort markets as they are not part of prices paid by producers or consumers.
An externality affects the welfare of individuals or groups without direct payment or compensation.
Water sector externalities:
- Costs are often neglected.
- Occur with a time lag.
- Damage groups with poorly represented interests.
- Source is not always known.
Industries and agriculture lack incentives to prevent nutrient escape into water bodies, as they don't pay the full cleanup cost.
There's insufficient knowledge about the value of ecosystem services and the consequences of their diminishment or loss.
Current accounting systems underestimate present and future values of environmental goods and services.
Ecosystem service valuation is controversial due to its influence on public opinion and policy decisions.
The best way to estimate damage is to calculate willingness to pay (WTP) to avoid damage or willingness to accept (WTA) compensation to tolerate it.
This study uses a wide range of published valuation studies with various methodologies.

Development of Cost Category Framework

A new framework of cost categories was developed from the pressure-state-response framework.
Pressures driving eutrophication come from point and nonpoint sources of nutrients.
- Point sources: sewage treatment and industrial effluents.
- Nonpoint sources: agriculture, aquaculture, forest management, transport (atmospheric nitrogen products), rural septic tanks, and natural sources (guanotrophy from bird roosts).
Two types of cost categories:
- Damage (or value-loss) costs (A): arising from reduced value of clean water.
- Policy costs (B): incurred in responding to eutrophication damage and changing practices to meet legal obligations.
Damage costs cannot be added to policy response costs, as policy costs measure spending to deal with the problem.
Damage costs (A) represent a loss of existing value and are divided into use values and nonuse values.
Use values: associated with private benefits from ecosystem service use.
- Private uses (e.g., agriculture, industry).
- Recreation benefits (e.g., fishing, water sports, bird watching).
- Education benefits.
- General amenity benefits.
- Option values (desire to maintain the choice to use an ecosystem’s services in the future).
Nonuse values:
- Existence values (preservation of an asset, even without envisaging its use).
- Bequest values (attached to preservation so that a future generation has an option for use).
Ten types of use value (A1) are identified for water bodies affected by eutrophication.
Social damage costs include:
- Reduced value of waterside dwellings.
- Reduced value of water bodies for commercial uses.
- Drinking water treatment costs (to remove algal toxins and algal decomposition products).
- Drinking water treatment costs (to remove nitrogen).
- Cleanup costs of waterways (dredging, weed-cutting).
- Reduced value of nonpolluted atmosphere (via greenhouse and acidifying gases).
- Reduced recreational and amenity value of water bodies.
- Net economic losses for the formal tourist industry.
- Net economic losses for commercial aquaculture.
- Health costs to humans, livestock, and pets.
Ecological damage costs (nonuse values) (A2) include damage to biota and ecosystem structure by nutrient enrichment.
- Negative ecological effects on biota: changed species composition (biological diversity) and loss of key or sensitive species.
Costs also arise from policy responses to eutrophication problems, as it's hard to fully assess all damage costs in category A.
When a water body is recognized as eutrophic, costs are incurred through responses by statutory and nonstatutory agencies.
Direct costs of responding to eutrophication and costs of changing behavior and practices are divided into compliance control costs and direct costs incurred by agencies (B1 and B2).
Three benefits of eutrophication are noted:
- Increased productivity of some fisheries.
- Positive fertilization effect on farmland through the use of nutrient-enriched irrigation water.
- Improved sources of food for some wild birds.
One difficulty in costing eutrophication is the lack of an absolute definition of when nutrient enrichment causes adverse effects.
A given level of nutrients in one water body may cause adverse effects, while in another, there may be no effects and costs.
The threshold at which nutrient enrichment becomes a problem varies.
The central problem is the nature of relationships between nutrient enrichment, resultant effects, and costs.
Relationships:
- Costs vary linearly with increasing nutrients.
- No costs until a threshold is passed, after which costs increase linearly.
- Costs increase more rapidly than nutrients at high enrichment levels.
- Costs increase until an asymptote is reached.
Some costs arise from responses to the problem, triggered by some given level of nutrients or their effects (e.g., algal blooms), and differ from place to place and over time.
Economic data on eutrophication costs are limited due to:
- Different valuation methodologies that are not necessarily comparable.
- Limited data for England and Wales, with some costs drawn from elsewhere.
- Some costs are for a wider problem (e.g., sewage treatment), with only a proportion allocated to eutrophication.
- For some cost categories, there's an example of costs but unknown incidence and geographic extent.
- For some categories, there's no economic data but known problem extent, and for others, costs are known only for the whole U.K. system (e.g., cost of water treatment).

Environmental Costs of Eutrophication (A) Damage (or Value-Loss) Costs

Reductions in the Value of Nonnutrient-Enriched Water.
Calculation requires an estimate of eutrophication extent and frequency (e.g., days of closure per season or year).
The U.K. Environment Agency’s 1990-1999 national data set on blue-green algal blooms was used to estimate frequencies of closure.
Over this decade, 3993 incidents were reported in 2710 water bodies in England and Wales (Table 1).
The average frequency of a blue-green algal bloom over 10 years is 1.47 per water body.
Assumptions for closure rate calculation:
- All blue-green algal blooms have been recorded (though underestimated).
- Some value losses accrue before a bloom (underestimate).
- 25% of blooms cause closure for 30 days, 50% for 15 days, and 25% for 5 days each.
- Average closure: 16.25 days for severe toxic blooms (could be an underestimate).
Frequency of closure $fc$ is calculated for the summer season (6 months) and the whole year using the formula: $fc = (I{bg}N)/(C(S{1/2} or S_1)Y)$
- $I_{bg}$ = number of incidents of blue-green algal blooms
- $C$ = number of water bodies affected
- $N$ = number of days water body closed for each incident
- $S_{1/2}$ = season length (days in half year)
- $S_1$ = season length (days in full year)
- $Y$ = number of years of data
For a half-year season ( $S{1/2}$ ), $fc = 0.0131$ or 1.31%, and for a full-year season ( $S1$ ), $fc = 0.0066$ or 0.66%.
Closure rate range: 0.66-1.31% for water bodies due to blue-green algal blooms.
The probability of a water body closure on any given day is between 1 in 76 and 1 in 151.

(A1) Social Damage Costs

(A1i) Reduced Value of Waterside Dwellings

Water quality affects the value of property near a water body.
Waterfront dwellings have a higher value (0-15% for offices, 0-25% for leisure, 10-40% for residential) but can lose value due to poor water quality.
One study found leisure and residential property devalued by 20% due to consistently poor water quality.
Data needed: length of freshwater frontage impacted and number of properties.
Under the EC Urban Waste Water Treatment Directive, 2540 km of water courses are designated as sensitive areas (eutrophic), 6.35% of all rivers assessed.
51.6% of rivers exceeded the guideline value for eutrophic rivers in the Directive during 1993-1995.
6300 standing waters in England and Wales are larger than 1 ha.
Assumptions: 10% loss in value per property, average waterside property value of 140 000, 75 000 waterfront properties exposed.
Value-loss relationship:
- VLA1i = Pn fc VL_p,
- VLA1i = total value loss for waterside properties.
- P_n = number of waterside properties,
- f_c = frequency of loss of value due to eutrophication,
- VL_p = value loss (£) per average 10 m of frontage.
VLA1i = $13.76 million yr-1.

(A1ii) Reduced Value of Water Bodies for Various Uses

Water bodies have industrial uses, including direct use for manufacturing, electricity generation, farming, navigation, and waste treatment.
Costs arise when nutrient enrichment reduces the value of clean water and impedes waterways for navigation.
Value-loss relationship:
- VLA1ii = Vw fc,
- VLA1ii = reduced value of water bodies for abstraction, livestock watering, navigation, irrigation, and industrial uses,
- V_w = value of water for industrial, farming, and navigation uses,
- f_c = frequency of closure.
No national data sets to calculate V_w, but case studies indicate the importance of the problem.
A proxy for the value of water abstraction derived from license charges is 89.34 million yr-1.
Using eq 3, this suggests a loss of 0.13-0.27 million yr-1.
The cost to three paper mills from a single incident was 0.22 million.
Estimate: 0.7-1.4 million yr-1.

(A1iii) Drinking Water Treatment Costs (Algal Toxins and Decomposition Products)

Nutrient enrichment and algal blooms cause problems for water supply and sewerage treatment operators.
Costs related to compliance at national and European levels and adverse effects of algal blooms.
Damage cost relationship:
- DCA1iii = (Co Ap ASPo) + (Cc Ap ASPc) + C_r
- C_o = annual operating expenditure by water companies,
- C_c = annual capital expenditure by water companies,
- A_p = the proportion of production liable to suffer from algal proliferation,
- ASPo = proportion of algae sensitive production (ASP) operating costs for eutrophication,
- ASPc = proportion of ASP capital costs for eutrophication,
- C_r = annual cost of reservoir management systems.
Assumptions: 10% of direct operating costs and 5% of capital costs for ASP arise from eutrophication.
Direct operating costs for England and Wales against “water resources and treatment” are 398 million yr-1.
Additional treatment costs: 398 m 0.33 0.1 = $13.3 m yr-1.
Capital expenditure (Capex) on water treatment: 466.1 million.
Additional expenditure: 466.1 m 0.33 0.05 = $7.77 m yr-1.
Combined capital and operating costs of reservoir systems: 5.6 million yr-1.
DCA1iii = $13.3 + $7.77 + $5.6 = $26.6 million yr-1.

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

Costs incurred by water supply companies to comply with drinking water standards for pesticides and nitrates.
The cost of compliance reflects the extent of nitrogen enrichment.
Water companies expended 28.1 m yr-1 on nitrate removal to meet compliances (1992-1997).
The total U.K. cost of achieving the nitrate standard is 278 m over the next 20 years.
Damage cost relationship:
- $CCA1iv = NCo + NCc$
- $CCA1iv$ = drinking water treatment costs (to remove nitrates),
- $NCo$ = annual operating costs of removal of nitrate by water companies,
- $NCc$ = annual capital costs of removal of nitrate by water companies.
CCA1iv = $28.1 million yr-1.

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

U.K. policy maintains flood defense and channel capacity through routine maintenance.
Almost impossible to separate the cost of dredging and weed-cutting because of eutrophication effects from overall annual costs.
An internal Environment Agency review of weed cutting put the annual cost at 404 000 for a river length of 285 km.
Damage cost relationship:
- DCA1v = (∑Wc_{i-j})P
- ∑Wc = sum of cost of weed cutting for organizations i-j
- P = proportion of weed cutting attributed to eutrophication.
Estimated average costs: 0.7-1.4 million yr-1.

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

Eutrophication leads to emissions of nitrous oxide (N2O $), methane ($ CH4 $), and ammonia ($ NH_3).
These gases impose costs on the environment by contributing to climate change and acidification.
Value-loss relationship:
- VLA1vi = (E{CH4} Pw C{CH4}) + (E{N2O} Pw C{N2O}) + (E{NH3} Pw C{NH_3})
- VLA1vi = reduced value of nonpolluted atmosphere,
- E = annual emissions of N2O, CH4, and NH3 (in t),
- P_w = proportion of emission arising from water bodies and water courses,
- C environmental cost per metric ton of each gas (N2O, CH4, and NH3).
Emissions recorded in national and European inventories.
Total emissions of methane: 3.7 million t yr-1, 1-2% from waste disposal and sewage treatment works (37-74 000 t yr-1).
Total emission of N_2O are 189 000 t yr-1, of which just 200 t is released from water courses during waste treatment.
Total ammonia emissions: 320 000 t yr-1, 9600 t yr-1 from water bodies.
Marginal costs for CH4: 109.1 t-1, for N2O 4145 t-1, and for NH3 239 t-1.
- Value-loss costs: $7.17-11.19 million yr-1.

(A1vii) Reduced Recreational and Amenity Value of Water Bodies

Eutrophication results in a loss of value for water-based recreational and amenity activities.
Value-loss costs incurred when people are prevented from enjoying the quality of a water body.
Value-loss relationship:
- VLA1vii = Nv fc C_s
- VLA1vii = reduced recreational and amenity value of water bodies,
- N_v = number of day and tourist-day visits to water bodies each year,
- f_c $= frequency of closure (% of days),</li>\n<li>$ C_s = consumer surplus (£ per day) for use of water-based ecosystem services.
Benefit derived from water courses by visitors in the U.K.: $11.2-28 per person per visit.
Adopting a range of $11-19 per person yr-1.
182.9 million days spent in inland water-based leisure and recreational activities 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 and algal blooms.
The net economic value of tourism and the value of total economic activity are important measures.
Value-loss relationship:
- VLA1viii total = Nv fcE_{day}
- VLA1viii net = Nv fcE_{day}P
- VLA1viii = the revenue losses for formal tourist industry (inland and coastal)
- Nv = number of day and tourist-day visits to water bodies made each year
- f_c $= frequency of closure (% of days)</li>\n<li>$ E_{day} = total expenditure per day and tourist-day visit
- E_{day}P = local profit arising from total expenditure per day and tourist-day visit (net economic value)
Annual total spent on freshwater-based days: 6.23 billion.
The total value of economic activity lost to eutrophication, VLA1viii total= $41.1-81.6 million yr-1.
Net economic value lost, VLA1viii net= $4.12-16.32 million yr-1.

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

Eutrophication frequently results in a reduction in the economic value of a fishery.
Shell-fisheries can be adversely affected by toxins from blooms.
Value-loss relationship:
- $VLA1ix net = Vf fc$
- $VLA1ix$ = the revenue losses for commercial freshwater aquaculture and fisheries
- $V_f$ = value of commercial inland and shell-fisheries in U.K
- $f_c$ = frequency of closure (damage to fishery).
Net economic loss VLA1ix = $40-165 000 yr-1.

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

Eutrophication carries three potential health risks: high nitrate content of drinking water (no longer a problem in the U.K.) and toxic algal blooms.
Cyanobacteria have caused deaths of livestock.
These events appear to be rare, so costs are close to zero.

(A2) Ecological Damage Costs

(A2i) Negative Ecological Effects on Biota

The 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 plant primary production and indirectly affects organisms within it.
Several water species and habitats adversely affected by eutrophication are listed in the U.K. Biodiversity, Species and Habitat Action Plans (50).
Value loss relationship: $VLA2i = Ce + Cm + (S C_s P)$
- $VLA2i$ = the negative ecological effects on biota resulting in changed species composition (biodiversity) and loss of key or sensitive species
- $C_e$ = average annual cost of HAP addressing eutrophic lakes
- $C_m$ = average annual cost of HAPs addressing mesotrophic lakes
- $S$ = number of Species Action Plans potentially affected by eutrophication
- $C_s$ = average annual cost of SAPs
- $P$ = proportion of SAP affected by eutrophication
The average cost of each SAP is 26 880 yr-1, and there are 13 BAP species affected by eutrophication.
The cost for plans for eutrophic lakes is 0.53-0.92 m yr-1 (for 2000-2004) and for mesotrophic lakes is 0.45 m yr-1.
Estimate: VLA2i = $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 phosphorus removal.
Compliance costs for this category:
- $CCB1i = PCo + PCc$
- $CCB1i$ = sewage treatment costs to remove phosphate,
- $PCo$ = annual operating costs of removal of phosphate by water companies
- $PCc$ = annual capital costs of removal of phosphate by water companies
- CCB1i is $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 measures.
Damage cost relationship: $DCB1ii = ∑C_ti-j$
- sum of treatment cost by by water companies i-j
Estimated costs: $0.7 million yr-1.

(B1iii) Costs to Farmers of Adopting New Farm Practices

Agriculture is a major source of nutrients.
Up to 50% of nitrogen and 60% of phosphorus applied to crops can be lost.
The costs of subsidizing and enforcing schemes as a proxy for costs, which are $$4.75 million yr-1.

(B2) Direct Costs Incurred by Regulatory Bodies

(B2i) Monitoring Costs for Water

Statutory agencies monitor water-bodies for nutrients and algae.
These monitoring costs where
- MCB2i = ∑Mci-j
- MCB2i is $0.62 million yr-1.

(B2ii) Costs of Developing Eutrophication Control Policies and Strategies

Costs incurred by statutory agencies for the development of policies.
Estimated costs: Cost: $280 000 yr-1.

Research and Policy Implications

Findings indicate severe effects of nutrient enrichment and eutrophication.
Total damage costs of freshwater eutrophication: $105-160 million yr-1.
The policy response costs amount to $77 million yr-1.
The damage costs are dominated by seven items with costs of about $15 million yr-1 or more.
If damage costs (A) continue to exceed policy response costs (B), then it is worthwhile reducing the damage.
If losses were prevented at source, it would represent net value (or cost reduction).
Five policy and research priorities are identified.
Need for analysis of representative catchments to understand nutrient budgets and loads.
There is a need for model/pilot studies conducted on representative whole catchments or river basins.
The WFD requires management of estuaries and marine waters as well as freshwater, and so further research is needed on the degree of eutrophication.
There remains uncertainty over the definition of the point at which nutrient enrichment becomes a eutrophication problem with adverse economic effect.
There is a requirement for improved harmonization of data on the extent of ecological and social damage and on the costs of in-water preventative and remedial measures.
There remains considerable uncertainty over the specific effects of eutrophication on recreation and tourism and on the livelihoods of those living and working by affected water courses. 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.