Transcript A Manual for Implementing Integrated Groundwater Management

A Manual for Implementing
Sustainable/Green Development
Relevant for various spatial scales (villages, towns, cities,
small islands, countries)
Assistant Prof. Dr. Phoebe Koundouri
ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS
E-mail: [email protected]
1
Define Sustainable/Green Development
(SD): Why do we care?


SD: a pattern of resource use
 that aims to meet human needs
 while preserving the environment
 so that these needs can be met not only in the
present, but also for future generations.
Any other development path puts the society



consumers
producers
businesses, including financial institutions
on self-destructing rotations.
2
Define triple goal of SD over
space (i) and time (t)



Environmental/ Ecological Sustainability:
ecosystem resilience, resource-specific equilibrium (taking
into a/c substitutability & complementarity of different
natural capitals & other forms of capital, i.e. human and
physical)
Economic Sustainability:
economic efficiency by economic sector overt t (allocation of
resources in a way that accelerates growth and maximizes
economic value)
Social Sustainability:
cross-sectional (by income group) and dynamic (intergenerational) affordability & equity
3
Ecovillage


(a)
(b)
(c)
(d)
Definition: Communities with the goal of
becoming more socially, economically and
ecologically sustainable.
Relies on:
green infrastructural capital
autonomous building or clustered housing to min
ecological footprint
renewable energy
permaculture (landscaping designed to mimic
nature and to provide the community with food,
fibre, fuel)
4
Eco-Municipality/Eco-Town


a.
b.
c.
d.
Definition: local government area that adopts ecological &
social justice values. Accepts principles of sustainability in
its operations & community-wide decision making
processes. The purpose is to increase overall community
sustainability.
An eco-municipality recognizes that sustainability is key to
all decisions made by government:
Reduce dependence on fossil fuels
Reduce dependence upon synthetic chemicals
Reduce encroachment upon nature
Better meet human needs fairly and efficiently
5
Sustainable city/Eco-city


Definition: A city designated with consideration of environmental
impact, inhabited by people dedicated to min required inputs of
energy, water, food, and waste output of heat, air pollution-CO2
and water pollution.
A sustainable city can feed itself with minimal reliance on the
surrounding countryside, and power itself with renewable sources
of energy.
The aim is to:
a.
create the smallest possible ecological footprint
b.
produce the lowest quantity of pollution possible
c.
efficiently use land
d.
compost used materials, recycle it or convert waste-to-energy
…and thus the city’s overall contribution to climate change will be
minimal.

6
3-step Approach Towards
Achieving the 3S
A Common Integrated Framework
Relevant for All Spatial Scales
7
3-step approach for each
NR&E service
Step 1
Characterization of supply and
demand (including TEV) for
all significant natural resources (NRs)
and environmental (E) services
Step 2
The assessment of the current
recovery of costs of NR&E services
Step 3
The economic assessment of potential
Measures/Investments for balancing
demand & supply over time and space
8
Step 1: Characterization of the NR&E basis
& identification of significant issues
Step1_A. Evaluation of socio-economic significance of NR (n) in
region (i) by economic sector (residential, industrial,
agricultural, tourism, services, environment).
Step1_B. Identification of key drivers (environmental
/economic /social) influencing pressures and uses.
Construct
Baseline
Scenario
Step1_C. How will these drivers evolve over time (t) & how will
they influence pressures?
Step1_D. How will demand and supply evolve over time & which
problems their paths are likely to cause?
Time & Money Constraints Define the Detail of Step 1!
9
Step1_A. Evaluate Significance of
NR&E in the Region by economic sector





Residential (e.g. population surved by the use of each
resource, population with self-supply, number of related
companies, etc.).
Industrial (e.g. turnover for key sub-sectors, employment in
sectors, etc.)
Agricultural (e.g. total cropped area, cropping pattern,
livestock, gross production, income, farm population, etc.)
Tourism (e.g. total number of tourist days, daily expense per
tourist day, employment and turnover in the tourism sector,
etc.)
Environment (e.g. Natura 2000, Eco-systemic services, etc.)
10
Step1_B. Identify Key Economic Drivers
Influencing Pressures and Uses





General socio-economic indicators and variables (e.g.
population growth, income, employment).
Key sector policies that influence significant NRs&E uses
(e.g. agricultural and environmental policies).
Production or turnover of main economic sectors /
significant NRs&E uses.
Implementation of planned investments linked to existing
regulation, likely to affect NR&E availability.
Implementation of future (environmental and other) policies
likely to affect NR&E uses.
11
Step1_C. Evolution of Economic Drivers &
their Influence on Pressures

Trend
variables



Critical
Uncertainties
Policy
Variables




Changes in demographic factors, e.g. population growth in specific
urban areas.
Economic growth and changes in economic activity composition,
e.g. changes in the relative importance of services/sectors.
Changes in land planning, e.g. new areas dedicated to specific
economic activities, etc.
Changes in social values and policy drivers, e.g. globalization.
Changes in natural conditions, e.g. climate changes.
Changes in economic sector national/international policies, e.g.
changes in agricultural policy or industrial policy that will affect
production and consumption in economic sectors.
Planned investments in different economic sectors, e.g. for
developing NR&E services, for restoring the natural environment/
mitigating for damage caused by given uses.
Development of new technologies likely to impact on NR&E use for
industrial production and related pressures.
12
Step1_D. Evolution of Supply & Demand
over t (time) and i (space)
 Evaluation of spatial and dynamic supply of significant NR(n) for region(i)
 Evaluation of sector-specific NR&E demands for i.
Structure
&
Processes
Anthropocentri
c
Values
Human
Benefits
Environmenta
l
Functions
Environment
Use
Values
Non-Use
Values
Total Economic Value
Use Value
Actual use
Value
Direct Use
Value
Option Value
Indirect Use
Value
Non-use Value
Existence
Value
For Others
Bequest
Value
Altruistic
Value
13
Market Failure leads the Need for
Non-Market Valuation Methods
Environmental resources are Public Good
Not explicitly traded in any market
No market price exists to reveal TEV (Hidden demand).
We need to retrieve TEV via WTP
Non-market Valuation Methods
(using: psychology/economics/sociology/statistics/econometrics)
14
Estimating Demand in Step1
i. Identification of Sector Water Demands in the Watershed Area
Households
Industry
Agriculture
Environment
ii. Valuation Techniques for Specific Types of Water Demand
Use Value
Revealed preference methods (indirect methods)
Hedonic Pricing Method
Travel Cost Method
Averting Behaviour Method
Residual Analysis (Production Cost Method)
Non-use
Existence & Values for others
(direct methods)
Contingent Valuation Methodology
Choice Experiments: Field, Lap
Meta-Analysis Method
Methods not strictly based on economic welfare
Replacement Cost Methods
Restoration Cost Methods
15
An Example on Marine Resources
16
Hedonic Valuation Method (HVM)
A resource can be defined in terms of services it yields or an `attribute' it
embodies. This attribute may be embodied in other goods or assets which are
marketed, and which do have observable prices. Using these prices you can
derive economic value.
E.g: Farm prices in an area with good groundwater are most likely higher than in an area
without either ground- or surface water. Comparing differences in farm prices across a
region and controlling for other influences, then the difference in prices of these farms
would lie in groundwater access.
Problems:
-Only capable of measuring the subset of use values that people are WTP for
through the related market.
- If consumers are not fully informed about the qualities of the attributes being
valued, hedonic price estimates are of little relevance.
17
Travel Cost Method (TCM)
Infers the value of a set of attributes from expenditure (time and
money spent on the trip) on outdoor recreational facilities or visits to
nature reserves.
E.g: Valuing the effects on the demand for recreation of a change in
water quality in a river.
Problems:
- Capable of measuring the subset of values that people are WTP for in the
related market.
- Very few applications outside resource-based recreational amenities.
- Data-intensive.
- What value should be assigned to time costs of travel?
- Statistical problems & sample bias.
18
Averting Behavior Method
(ABM)
Use of expenditures undertaken by households that are designated to
offset an environmental risk, in order to infer WTP for avoiding
environmental degradation.
E.g: Use of water filters.
Problems:
- Limited to cases where households spend money to offset
environmental hazards.
- Insufficient studies to comment on convergent validity.
19
Residual Analysis Method
(RAM)
Values all inputs for the good produced at their market price – except for
the natural resource in question. The remaining value of the good, after
all other inputs are accounted for, is then attributed to this particular
natural resource.
E.g: Valuing water as an input in production of different crops.
Problems:
- Only part of use-value of natural resource can be captured.
- Market imperfections can bias valuation estimates.
20
Contingent Valuation Method
(CVM)
CVM relies on a constructed, hypothetical market to produce monetary
estimates of value. The value of an environmental resource to an
individual is expressed as:
- Maximum Willingness-to-Pay (WTP)
- Minimum Willingness-to-Accept (WTA, Compensation)
E.g: Conduct survey to obtain peoples’ bids (either WTP or WTAC) for a
specified change in the quality of water in a river, contingent upon the description
of a hypothetical market where water quality is traded.
Problems:
- Interviewing bias
- Strategic bias
- Hypothetical bias
- Non-response bias
- Yea-saying bias
- Information bias
21
Choice Experiment Method
(CEM)
CEM is a survey-based technique which can estimate the total economic
value of an environmental stock/flow or service and the value of its attributes,
as well as the value of more complex changes in several attributes.
E.g: Each respondent is presented with a series of alternatives of the
environmental stock/flow or service with varying levels of its price and nonprice attributes and asked to choose their most preferred option in each set of
alternatives.
Problems:
- Simplified version of reality … but CEM eliminates or minimises several of
the CVM problems (e.g. strategic bias, yea-saying bias, embedding effects).
22
Operational at the policy level?
Question: How can these methods be made operational at the
policy level?
Answer: Recent years have seen a growing interest in the potential
for producing generally applicable models for the valuation of nonmarket environmental goods and services, which do not rely upon
expensive and time-consuming original survey work, but rather
extrapolate results from previous studies of similar assets.
This approach is called meta-analysis for the use and non-use
values generated by environmental resources.
23
Meta-Analysis Method (MAM)
Meta-analysis is the statistical analysis of the summary of findings of
empirical studies: i.e. the statistical analysis of a large collection of
results from individual studies for the purpose of integrating the
findings.
E.g: Freshwater fishing meta-analysis of valuation studies.
Meta-analytical research seems to have been principally triggered by:
- Increases in the available number of environmental valuation studies.
- Seemingly large differences in valuation outcomes as a result of use of
different research designs.
24
Environmental BenefitsTransfer



Transporting monetary environmental values estimated at one
site (study site) to another (policy site).
Values must be adjusted to reflect site specific features.
When time or resources are limited, this provides an alternative
to conducting a valuation study. Using meta-analysis for benefits
transfer has advantages.
E.g: Environmental Valuation Reference Inventory (www.evri.ca)
Problems
- May involve bias
- Validity and reliability issues
25
List of valuation studies by RESEES
Direct use values
Irrigation for agriculture PF, RC, MP
Domestic and industrial water supply PF, RC, MP
Energy resources (hydro-electric) CV
Transport and navigation CV
Recreation/amenity HP, TC, CVM, CEM
Wildlife harvesting CEM
26
List of valuation studies by RESEES
Indirect use values
Forest Conservation CVM, CEM
Nutrient retention RC
Pollution abatement RC
Flood control and protection RC, CEM
Storm protection RC, PF
External eco-system support RC, CEM
Micro-climatic stabilisation PF, CEM
Reduced global warming RC, CEM
Shoreline stabilisation RC, CEM
Soil erosion control PF, RC, CV, CEM
27
List of valuation studies by RESEES
Option values
Potential future uses of direct and indirect uses
CVM, CEM
Future value of information of biodiversity CVM,
CEM
Non-use values
Biodiversity CVM, CEM
Cultural heritage CVM, CE
Bequest, existence and altruistic values CVM, CE
28
Methodology for Constructing Baseline
Scenario Using Parameters from Step 1
1



Consider three possibilities of evolution of population.
Consider two possibilities of evolution of demography of other cities in the region.
Consider possible evolution of rural population.
2
Build scenarios using basic assumptions and quantify the NR&E balance with these assumptions.
3
Apply step two over time.
4
Based on steps 1,2,3, imagine a plot that tells the story of the system from now until at least
2100, giving consistency to the assumptions and NR&E balance curves.
29
How to apply the ‘Baseline scenario’?
Starting from initial
status it is possible
to elaborate a
baseline scenario.
The baseline scenario
refers to the situation
without doing
anything else than
planned today.
Measures to
close the
gap are
needed!
Sustainability:
Env/Eco/Soc
gap
Initial status
Date at which Sustainability
should be achieved.
30
Step2:
Assess Cost-Recovery of NR&E Services
Step2_A.
How much do current NRs&E services cost?
Step2_B.
Who pays these costs?
Step2_C.
What is the current cost-recovery level?
Step2_D.
Propose cost-recovery mechanisms.
31
Step2_A&B. Current cost of services
Who pays for these costs?
Estimate costs of NRs&E services by sector.
 Do users and/or institutional mechanisms recover these
costs?

Full-Economic Cost:
-Financial Cost: Capital, Administrative, Operation & Maintenance
-
Environmental Cost (Approximated by use of Valuation Methods)
-
Resource Cost (Approximated by use of Valuation Methods)
32
Step2_A&B. Current cost of services
Who pays for these costs?
Estimate costs of NR services by sector.
Do users and/or institutional mechanisms recover these costs?
FINANCIAL COSTS
CAPITAL OPERATION & RESOURCE
TOTAL
MAINTENANCE ADMIN
ECONOMIC COST
(O&M)
COST
VALUE
COST
COST OF
RESOURCE
COST
ENVIRONMENTAL
COST
FORGONE
EXTERNAL
VALUE OF
COST OF
ALTERNATIVE QUALITY
USES
REDUCTION
(present/future)
Natural Resource
ABSTACTION
PAID
BY
USERS
Analysis per use: Households, Tourism, Industry,
Agriculture, Ecosystem
33
Step2_C. Current cost-recovery level.
Elements to be investigated:





Status of key NRs&E services (e.g. number of people being
served).
Costs of NRs&E services (financial, environmental &
resource costs).
Institutional set-up for cost-recovery (e.g. prices and tariff
structure, direct & indirect subsidies, cross-subsidies).
Contribution from key uses to the recovery of costs.
Resulting extent of cost-recovery levels, linked with the
34
affordability for NRs&E users.
RESEES Results for
Water Resources
Cost-Recovery
for Greece
35
Βαθμός Ανάκτησης Κόστους ανά
Υδατικό Διαμέρισμα
Υδατικό Διαμέρισμα
Βαθμός Ανάκτησης Κόστους (%)
Αττικής
106.13
Θράκης
78.28
Κεντρικής Μακεδονίας
78.27
Ανατολικής Μακεδονίας
70.74
Βόρειας Πελοποννήσου
68.22
Ηπείρου
68.11
Ανατολικής Στερεάς Ελλάδας
57.61
Δυτικής Μακεδονίας
51.71
Κρήτης
50.91
Δυτικής Πελοποννήσου
50.54
Δυτικής Στερεάς Ελλάδας
46.19
Νήσων Αιγαίου
37.84
Ανατολικής Πελοπονήσσου
34.18
Θεσσαλίας
29.82
36
Βαθμός Ανάκτησης Κόστους Ύδρευσης
Ανά Υδατικό Διαμέρισμα
Υδατικό Διαμέρισμα
Βαθμός Ανάκτησης Κόστους Ύδρευσης
(%)
Αττικής
108.14
Θράκης
103.29
Κεντρικής Μακεδονίας
86.58
Ανατολικής Μακεδονίας
79.39
Βόρειας Πελοποννήσου
77.31
Ανατολικής Στερεάς Ελλάδας
75.1
Ηπείρου
71
Δυτικής Πελοποννήσου
62.21
Δυτικής Στερεάς Ελλάδας
61.29
Δυτικής Μακεδονίας
53.55
Κρήτης
49.67
Νήσων Αιγαίου
42.94
Ανατολικής Πελοποννήσου
37.89
37
Βαθμός Ανάκτησης Κόστους
Άρδευσης ανά Υδατικό Διαμέρισμα
Υδατικό Διαμέρισμα
Βαθμός Ανάκτησης Κόστους Άρδευσης
(%)
Κρήτης
56.25
Δυτικής Μακεδονίας
41.05
Ανατολικής Μακεδονίας
27.38
Ηπείρου
22.44
Αττικής
21.30
Βόρειας Πελοποννήσου
19.41
Ανατολικής Στερεάς Ελλάδας
15.98
Ανατολικής Πελοποννήσου
15.66
Δυτικής Στερεάς Ελλάδας
14.28
Κεντρικής Μακεδονίας
12.04
Δυτικής Πελοποννήσου
11.44
Θράκης
11.05
Θεσσαλίας
6.38
38
Step2_D. Identify potential cost-recovery
mechanisms/Green Investments?
Potential cost-recovery mechanisms:

Pricing

Tradable permits

Quotas

Taxes/subsidies

Charges

Direct Controls

Educational/Awareness Campaigns

Voluntary Agreements

Legal Instruments
Green Investments in:

Pollution Control and Remediation (Air, Hazardous Substances, Waste,
Water, Coast, Cultivated Land)

Resource Conservation and Management (Fisheries, Forest, Historic Sites,
Minerals, Oil & Gas, Parks, Biodiversity/Species, Water)

Planning, Land Use and Infrastructure (Municipal Planning, Land Use,
Transportation Infrastructure, Energy infrastructure)

Renewable Energy Sources (Solar, Wind, Bio-mass, Natural Gas, Bio-fuels,
Photovoltaic, fuel cells, geothermal, etc.)
39
Time to Introduce
Sustainable Finance (SF)
40
40
SF: Concept & Activities


41
Concept: Activities that enhance the financial industry, while
 improving the environment and the allocation of natural
capital
 promoting sustainable economic growth
Activities:
 Financing ‘green’ enterprises and technologies, which are
essential for a healthy/sustainable economic growth
 Development of ‘green’ financial products and ‘green’
investors
 Efficient operation of emissions and other trading markets
 Consideration of environmental risks in lending decisions
41
Global Trend…

Indicative of the global trend is the dramatic growth of
investment in Clean Energy and Carbon Market.
• Growth barely
dented by the
global economic
and financial
crisis.
• Trend expected
to resume.
Source: World Economic Forum
42
Examples
Retail Finance
 Green Mortgage
 Green Home Equity Loan
 Green Commercial Building
Loan
 Green Car Loan
 Green Credit Card
Corporate Finance
 Green Project Finance
 Green Securitization
 Green Venture Capital & Private Equity
 Green Technology Leasing
 Carbon Finance
Asset Management
 Fiscal Fund (Treasury
Fund)
 Eco Fund
 Carbon Fund
 Natural Disaster Bond
Insurance
 Auto Insurance
 Carbon Insurance
 Catastrophe Insurance
 Green Insurance
Strengthening Environmental Risk
Assessment in Financing (Avoiding Default,
43
Maintaining Collateral Value, Maintaining Good
Reputation, Complying with Legal Issues on
Environment, Creating Value, …)
43
Step3:
The economic assessment of potential
measures/investments for reaching a SD
status
Step3_A.
Identify least-cost set of measures/
green investments.
Step3_B.
Assessment of cost of measures/green
investments.
Step3_C.
Assessment of the impact of
measures/green investments on economic
sectors/uses.
Step3_D.
Social Cost-Benefit Analysis
44
Step3_A. Search for Least-Cost Set of
Measures/Investments

Economic instruments (e.g. taxes, tradable permits,
subsidies).

Measures to increase awareness regarding NRs&E scarcity,
aiming at reducing over-exploitation & pollution.

Direct controls.


Programs providing financial and technical assistance for
reallocation of production & consumption functions, so that
each input is allocation to its most efficient production or
consumption use.
Green Investments for each economic sector.
45
Step3_B. Assessment of Cost of Measures/
Green Investments
- Estimate a range of costs along with key parameters influencing
costs over time (cost change with developments in sectors).
-
-
Allocate costs of measures/investments to users and identify
winners and losers, in order to potentially feed into the CBA
(possibly use to justify derogation from different EU and
International Treaties (Step3._D)).
Identify potential sources for financing green investments.
46
Step3_C. Impact of Measures/ Investments
on Key Economic Sectors/Uses

-

-

Net impacts on public expenditures and revenues: e.g.
impacts on expenditures for agri-environment schemes
revenues of economic instruments
impacts of changes in the prices charged for publicly
owned services.
Wider economic and social impacts: e.g.
significant changes in patterns of employment
economic impacts on industries & local economic
development from changes in the price of NR&E supply
Effects on the retail price index and inflation.
47
Step3_D. CBA: Cost-Benefit Analysis
Cost Benefit Analysis (CBA) is an economic tool for government
policy and investment project analysis used widely.
Can incorporate environmental impacts of policies/projects within
CBA to correct for market failure
“Social” appraisal of policies and projects, carried out by
aggregation of benefits from, and costs of a policy/project over
individuals and over time
Welfare theoretic underpinning: Economic efficiency with a
temporal dimension
48
CBA Steps

Stage 1: Definition of policy/project:



The reallocation of resources being proposed
The population of gainers and losers being
considered
Stage 2: Identification of policy/project
impacts:


Define all impacts that will result from
policy/project implementation
Consider additionality (net impacts) and
displacement (crowding out)
49
CBA Steps

Stage 3: Identification of economically relevant impacts:
Environmental impacts of a policy/project are relevant in
CBA if either


They change the utility of at least one person in the society
They change the quantity or quality of the output of some
positively valued commodity
Stage 4: Physical quantification of relevant impacts:



Determine physical amounts of costs and benefits and when
they occur in time
Use environmental impact analysis to estimate the impact of
policy/project on the environment
Estimations will be made with uncertainty, calculate the
expected value of costs and benefits
50
CBA Steps

Stage 5: Monetary valuation of relevant
effects



All physical measures of impacts should be
valued in common units to be comparable
Common unit = money
CBA analyst must



Predict prices for value flows extending into the
future
Correct market prices where they are distorted
Calculate prices where non exists using environmental
valuation methods
51
CBA Steps (cont.)
Stage 6: Discounting of costs and benefits:




Once costs and benefits are expressed in
monetary units they should be converted to
present value terms by discounting
PV= Xt[(1+r)-t] where X= cost or benefit; r =
discount rate; [(1+r)-t] discount factor; t= time
The higher the value of t the lower the
discount factor
The higher the discount rate for a given t the
lower the discount factor
52
CBA Steps (cont.)

Stage 7:Applying the net present value test:

Apply NPV test to choose those policies and projects that are
efficient in terms of their use of resources
Bt  Ct 

t
t  0 1  r 
n



Where Bt = benefits of the project at period t, Ct = the costs
of the project at period t, r = the discount rate, n = the number
of years over which the project will operate
NPV is the present value of the project’s/policy’s net benefit
stream, obtained by discounting the stream of net benefits
produced by the project/policy over its lifetime, back to its
value in the chosen base period, usually the present.
If NPV>0 accept policy or project (Based in Kaldor-Hicks
Criterion) since it would improve social welfare
53
Is Discounting so straight
forward?
‘Humanity has the ability to make development sustainable: to ensure
that it meets the needs of the present without compromising the ability
of future generations to meet their own needs.’ WCED, 1987
‘There is something awkward about discounting benefits that arise a
century hence. For even at a modest discount rate, no investment will
look worthwhile.‘
The Economist (1991), March 23, p 73
In the decade since that comment in The Economist, the nature of the
problem with long-run discounting has become clearer.
54
The Need for Time Declining
Social Discount Rate…
There are powerful reasons for choosing a declining social time
preference rate. This conclusion is supported by robust recent
theoretical work, which has taken several different approaches
to the subject.
Although there is a paucity of empirical evidence on the pattern
of that rate's decline, it may be better to use those data, which
are available rather than to continue practicing discounting
with non-declining rate in the long term. The data best suited
the policy-makers' need were produced by Newell & Prizer
(2003) and Koundouri et al (2005).
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Constant discount
rates (CDRs) s
Utility
discounting
ρ
Time declining
discount rates
(TDDRs) s(t)
Consumption
discounting μg
Uncertainty about
discount rate (s)
Weitzman
Koundouri et al.
Uncertainty
about the
future
Future
fairness
Uncertainty
about
growth (g)
Gollier
Chichilnisky
Heal
Li & Löfgren
Observed
individual
choice
Hyperbolic
discounting
Cropper et
al
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Case Study: Floods Defense



Over the last ten years, flood-defence investment has
been characterized by annual expenditure that has been
assumed to offset significant damage; i.e., a cost–benefit
ratio much greater than unity.
Stochastic model designed to assess the costs and
benefits of investment in a particular cell (protected
area) of flood defences for Shrewsbury for the
Environment Agency.
The model determines the net benefit of investment by
comparing the damage suffered in a ‘do nothing’ scenario,
with damages in the case where 100-year flood defences
have been constructed. The benefits can then be
compared with the costs of constructing and maintaining
the defences.
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Benefit–cost ratio for a particular
cell of flood defences in Shrewsbury
1.6
1.4
Benefit Cost Ratio
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Flat Rate (6%)
Flat Rate (3.5%)
Gamma
Discounting
Gamma
Sliding Schedule
Li and Lofgren
Hyperbolic
Discounting
58
Suggested Step Schedule of
Discount Rates
Period of Years
Discount Rate (%)
0 – 30
3.5
31 – 75
3.0
76-125
2.5
126-200
2.0
201-300
1.5
301 +
1.0
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Effect of shift from flat 3.5% to
the step schedule of discount rates
Project time horizon
Potential effect on project NPV
0-30 years
Small, generally insignificant
30-100 years
Significant (± 50%)
100-200 years
Large impact (± 100%)
200-400 years
Major impact (± 150%)
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Summary of the
3-Step Methodology
1- Characterisation




economic significance of NR&E
trends in key indicators and drivers
dynamic path of demand and supply of NR&E
gaps by the agreed date of meeting ‘sustainability’?
2- Assess current cost-recovery



how much NR&E services cost and who pays this cost?
how much of this cost is recovered?
potential cost-recovery mechanisms
3- Identification of measures/investments & economic
impact




construction of a cost-effective programme of measures/investments
assessment of cost-effectiveness of potential measures/investments
Env/Eco/Soc implications of the programme of measures/investments
Social Cost Benefit Analysis
61
Thank You!
From the Wealth of Nations…
To the Wealth of Nature!
Phoebe Koundouri
E-mail: [email protected]
http://www.aueb.gr/users/resees
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