9. Undertaking the cost-benefit analysis for restoration programmes for shallow
9.3 Socio-economic assessment of different compliance regimes
9.3.2 Introducing socio-economics for assessing the costs of different compliance regimes 71
An additional test was made to illustrate how the cost estimates of the previous chapter change when “sites” are selected for checking compliance based on cost-effectiveness (CE) or multi-criteria analysis (MCA). Figure 13 presents the cumulative costs when measures for additional sites are cleaned from 0 to 100%.
• The blue curve in Figure 7 below selects sites one by one based on their cost-effectiveness ratio (the rank starts with the “site” having the least costs per 1% of pollution load reduction and ends with the “site” having the highest costs per 1%
pollution load reduction).
• The pink curve in the diagram was obtained by ranking “sites” based on the multi-criteria analysis considering additional multi-criteria such as negative impact on connected surface waters, size of the area polluted, intensity of pollution, location in residential areas, possible sources of financing for cleaning the site, etc.23 Sites are then added one by one – and cumulative costs computed – following their ranking in the multi-criteria table.
• The curve “Acum random” in the diagram is built based on a random selection of sites as already presented in Figure 12.
22 The costs are not discounted for a particular time scale
23 Overall 11 criteria were used, where cost-effectiveness and benefits were only two of them. Weight of each criterion was assessed by experts (see also the Annex 1) Assessment of the sites by applying these criteria was made based on available information, expert opinions and calculations.
Costs of different compliance regimes
0 20 40 60 80 100
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97
No of sites
Costs, milj.EUR
Acum CE Acum MC Acum Random Costs of
Baseline measures
"Acum Random” – costs, where sites are ranked randomly
“Acum CE” – costs, where sites are ranked based on the cost-effectiveness criterion
“Acum MC” – costs where sites are ranked based on the multi-criteria analysis (11 different criteria) Note. The costs of meeting the given threshold at 0% of points is not equal to zero because the costs of preventive measures are considered.
Figure 13. Introducing socio-economic analysis into setting compliance regime
Overall, reaching the same percentage of sites complying with a given threshold for groundwater quality will lead to different costs of measures depending on how sites have been ranked. For example, reaching the threshold of 85% of all sites been clean would cost around 74 million Euros if sites that are to be cleaned are selected randomly, 70 million Euros if sites that are to be cleaned are ranked based on their cost-effectiveness ratio and around 82 million Euros if sites that are to be cleaned are ranked based on the results of the multi-criteria analysis. It is important to stress that the difference between the cost-effectiveness solution and the solution based on the multi-criteria analysis mainly differ when more than 50 sites need to be cleaned.
It has to be stressed that the tests presented in this sub-section were made assuming that the “sites” are representative monitoring stations. They aimed to illustrate socio-economic consequences of different compliance regimes and the approach how socio-economic criteria can be taken into account when identifying the most-efficient compliance regime if the compliance regime is treated as statistical procedure.
10. Conclusions
The analysis undertaken in the Latvian case study for assessing the economic impact of cleaning shallow groundwater from petroleum products shows that high net benefits can be expected from cleaning (mainly historical) pollution. Overall:
• Prioritising measures for ensuring polluted sites connected to surface waters and located in residential areas with very high pollution levels comply with a set threshold for petroleum products (0.2 mg/l) leads to higher net benefits that cleaning all the polluted sites of the shallow groundwater up to the same threshold value;
• Extending the time period for implementing measures for restoring shallow groundwater quality cannot be justified on economic grounds. Indeed, lower net benefits are obtained when longer time periods for implementation are proposed.
Similar benefits were estimated for the two scenarios considered, i.e. cleaning only sites connected to surface water and in residential areas versus cleaning all sites. This could be explained by the fact that shallow groundwater in Latvia has relatively low economic value (lower than artesian groundwater for instance), as it is used for drinking needs only in a few occasions. Thus, the total economic value of shallow groundwater mainly consists of “non-use” value (the value of shallow groundwater for its own benefits) and from the “indirect “non-use”
value related to supporting the functioning of connected surface water ecosystems. From a socio-economic efficiency point of view, considering also shallow groundwater itself as a receptor when setting groundwater quality objectives might not add much benefits for inhabitants.
There are many sources of uncertainty in the economic analysis performed. In particular, linked to:
• The selection of measures and the assessment of their effectiveness – an issue that has been dealt with thanks to experts’ knowledge but that would require further investigation;
• The assessment of benefits and the application of contingent valuation to groundwater (a good that is difficult to grasp for respondents, as illustrated by some incoherence in the survey results in particular linked to knowledge on groundwater and reasons for being willing to pay)
• The aggregation of individual values obtained from willingness to pay surveys to a given aquifer or area. As illustrated by the study, benefits highly depend on the number of inhabitants considered for calculating total benefits. In the case of Riga, with a very high population density, total benefits obtained are then very high. In areas where population density would be significantly lower, net benefits might become negative. They might then might justify lower environmental objectives or be the basis to developing mechanisms for the mutualisation of financial contribution of inhabitants to groundwater protection at larger scale.
The study has provided first values for groundwater in Latvia based on a contingent valuation survey. While this is a clear step forward in the field of water in Latvia, it is only a first step – and many questions and methodological aspects will require further investigation. For example: understanding the relative importance of use and non-use values in total values given by respondents; assessing the impact of the interview environment (the interviewer, the location, the time of the day, the weather…) on responses and willingness to pay….
Clearly, further work is also required for the application of other methods for assessing benefits (e.g. assessing avoided costs linked to land remediation) – as they clearly complement CVM results.
The study stressed that both the definition of threshold values (what is the proposed concentration level for defining good groundwater quality) and the definition of the compliance regime (e.g. for how many monitoring points or sites do we need to comply – an
approach very relevant to numerous localised problems and high contamination) have clear economic implications in particular in terms of costs of measures that need to be implemented.
In a situation when the monitoring network provides very limited information about the actual status of a given water body, when quantitative information about pollution loads is very limited (and cannot be modelled due to lack of tools), and when pollution sources and problems are very localised but numerous, assessing compliance of a water body with any threshold value remains a challenging task. Overall, even with limited information on actual pollution loads to the groundwater, different criteria could be used to select sites to be tackled in priority as because of expected high benefits. In particular:
• Polluted sites close to drinking water abstraction sites and posing risk of pollution into deeper/artesian aquifers (this aspect was not important for the case study described in this report);
• Polluted sites connected to surface waters (avoiding/preventing damage to surface water ecosystems);
• Polluted sites located in residential areas;
• Polluted sites with particularly high pollution levels.
The issue of historically polluted shallow groundwater areas create certain complications when the setting of quality objective for a water body is discussed. The total area polluted can be insignificant at the water body scale. But the number of polluted areas can be considerable and the pollution level in such areas can be extremely high. Besides the pollution in shallow groundwater can cause pollution risk for connected surface waters and put limitations for land use in these areas. Such situation requires a specific approach to compliance because of expected significant economic impacts.
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