Title: Applications%20of%20Benefit-Cost/%20Cost-Effectiveness%20Analysis
1Applications of Benefit-Cost/ Cost-Effectiveness
Analysis
- Tuolumne River preservation
- Lead in drinking water
- Habitat Protection
2Saving the Tuolumne
- Dam proposed for hydroelectric power generation.
- The tension valuable electricity-loss in
environmental amenities. - Benefits hydroelectric power, some recreation.
- Costs environmental, rafting, fishing, hiking,
other recreation. - Question Should the dam be built?
- Influential analysis by economist R. Stavins.
3Tuolumne background
- Originates in Yosemite Natl Park
- Flows west 158 miles, 30 miles free-flow
- Many RTE species rely on river
- Historic significance
- World-class rafting 15,000 trips in 1982
- Recreation 35,000 user-days annually
4The Tuolumne A nice place
5Hydroelectric power generation
- Rivers steep canyon walls ideal for power
generation - Tuolumne River Preservation Trust lobbied for
protection under Wild Scenic - 1983 existing hydro captured 90 water
- Municipal, agricultural, hydroelectric
- Rapid growth of region would require more water
more power
6New hydroelectric projects
- 2 proposed hydro projects
- Clavey River, Wards Ferry
- 3 year study on Wild Scenic stalled FERC (Fed.
Energy Reg. Comm.) from assessing feasibility of
hydro projects. - April 1983, FERC granted permit to study
feasibility of Clavey-Wards Ferry Project (CWF).
7Clavey-Wards Ferry project
- 2 new dams reservoirs, 5 mile diversion tunnel
- Jawbone Dam 175 high
- Wards Ferry Dam 450 high
- Generate 980 gigawatt-hours annually
- Annual water supply of 12,000 AF
- Increased recreational opportunities
- Cost 860 million (1995 dollars)
8The opposition
- Historical context John Muir Sierra Club lost
Hetch Hetchy Valley fight. - Dams would damage
- Fishing, rafting, wildlife populations, wild
character. - Recreational opps created are minimal
- Cheaper alternative sources of energy
9Economic evaluation
- EDF economists to evaluate costs and benefits,
including environmental costs - Traditionally, environmental losses only measured
qualitatively. Difficult to compare with
quantified Benefits. - Stavins Rather than looking at it from a narrow
financial perspective, we believed we could look
at it from a broader social perspective by trying
to internalize some of the environmental
externalities.
10Differences in the CBAs
- Stavins CBA
- Used data from original project proposal
- Included environmental externalities (mostly in
lost rafting and fishing opportunities). - Took dynamic approach evaluated costs and
benefits over entire life of project (50 year
planning horizon), r10.72 - 10.72 40 year bond rate for district
11The costs and benefits
- Benefits 188 million annually
- Electricity benefits 184.2 million
- Water yield 3.4 million
- Social Costs 214 million annually
- Internal project costs 134 million
- Lost recreation 80 million
- C (214) gt B (188)
12Tuolumne River epilogue
- Clavey-Wards Ferry project dams were not
built.partly due to formal CBA. - Intense lobbying forced the political decision to
forbid project. - Pete Wilson was senator.
- Stavins said Wilson couldnt say I did it
because I love wild rivers and I dont like
electricity, but he could do it by holding up
the study and saying, look, I changed my vote
for solid economic reasons.
13Lead in drinking water
- Should the EPA control lead contamination of
drinking water? - Should water utilities be responsible for the
quality of water at the tap? - Would benefits of such a program outweigh costs?
- Economic analysis at EPA formed basis for
adoption of this rule.
14Background
- Lead in drinking water is byproduct of corrosion
in public water systems - Water leaves treatment plant lead-free, lead
leaches into water from pipes. - Factors associated with risk
- Corrosivity of pipe material
- Length of time water sits in pipe
- Lead in plumbing
- Water temperature (hotter -gt more lead)
15Primary issues
- Evidence of lead-related health effects even from
low exposure - Tendency of lead to contaminate water in the
house - Decreasing corrosivity of water, also reap extra
economic benefits by reducing damage to plumbing.
16Scientific analytical problems
- No baseline data on lead levels in tap water
- High variability in lead levels in tap water
- Corrosion control is system specific
- Uncertainty over reliability of corrosion control
treatment - Corrosion control treatment may change water
quality and require further treatment.
17Approach
- Stakeholders 44 of U.S. population.
- 2 regulatory approaches
- Define a single water quality standard at the tap
or at the distribution center, OR - Establish corrosion treatment requirements.
- Compare costs and benefits for each regulator
approach
18Estimating costs 1 of 2
- Source water treatment for systems with high
lead in water entering distn system. 880 water
systems, 90 million/yr. - Corrosion control treatment either (1) adjust
pH, (2) water stabilization, or (3) chemical
corrosion inhibitors engineering judgment 220
million/yr. - Lead pipe replacement 26 of public water
systems have lead pipes usually best to increase
corrosion treatment, 80-370 million/yr.
19Estimating costs 2 of 2
- Public education inform consumers about risks
30 million/yr. - State implementation 40 million/yr.
- Monitoring (1) source water, (2) corrosion, (3)
lead pipe replacement, 40 million/yr. - Total costs 500-800 million/yr.
20Benefits childrens health
- Avoided medical costs from lead-related blood
disorders 70,000/yr. - Avoided costs to compensate for lead-induced
congnitive damage (4,600 per lost IQ point) 900
million/yr. - Offset compensatory education 2 million/yr.
- Total 900 million/yr.
21Benefits adult health
- Avoided hypertension, 399 million/yr (628 per
case). - Avoided heart attacks, 818 million/yr (1
million per event). - Avoided strokes, 609 million/yr (1 million per
event). - Avoided deaths, 1.6 billion/yr (2.5 million per
death). - Total 3.4 billion/yr.
- Total (all health) 4.3 billion/yr.
22Key uncertainties sensitivity
- Current lead level in drinking water
- Efficacy of corrosion treatment
- Likelihood of decreased lead in blood
- Precise link between lead exposure and cognitive
damage. - Sensitivity Analysis
- Costs ? 50, Benefits 100, -30
23Summary of costs benefits
- Costs
- 500-800 million/yr.
- NPV 4 - 7 billion
- Benefits
- 4.3 billion/yr.
- NPV 30 - 70 billion
- Benefits outweigh costs by 101
24(No Transcript)
25Reflections on analysis
- CBA played prominent role in regulation
- Very stringent rule was adopted by EPA
- Widespread EPA/public support
- Quantitative analysis more likely to have impact
if - Credibly done and
- Done early in process
26Ando et al Species Distributions, Land Values,
and Efficient Conservation
- Basic Question are we spending our species
conservation wisely? - Habitat protection often focuses on biologically
rich land - Focusing on biologically rich land results in
fewer acres of habitat to protect species
27Cost-effectiveness Analysis
- Goal
- Provide habitat to a fixed number of species
- No issue of how many species to protect
- Compare two approaches
- Acquire cheapest land to provide protection
- Acquire smallest amount of land to provide
protection - Why is this an interesting question?
28Approach
- Conduct analysis at county level in US
- Use average ag land value for price of land
- Use database of species location by county
(endangered or proposed endangered) - Assume if land acquired in county where species
lives ? species is protected
29Results
Locations for 453 species Blue cost-min
only Yellow site-min only Green both
30Cost-minimizing Problem
min
Subject to
For all ieI
where J j j 1, ... , n is the index set
of candidate reserve sites, I i
i 1, ... , m is the index set of species to
be covered, Ni is the subset of J that contain
species i, cj is the loss associated with
selecting site j, and xj 1 if site j is
selected and 0 otherwise.
31Conclusions
- For 453 species
- Cost per site 1/6 under cost-minimizing
- Result similar to
- Santa Clara River Group Project
- FWS had 8 million from NRDA settlement
- Wanted to use to buy habitat
- Chose species rich coastal land
- Must more bang choosing interior low quality/low
price land - Ecological Linkages Group Project
32Mini-Group Project Hints
- Try to explain the problem setup to another
person. - Solve it without Excel.
- Computers are dumb they can only do what we ask
them to do. - What is our objective? What are we choosing in
order to meet it? What are the constraints?
33Dealing with Multiple Criteria
- Consider your first assignment
- Single Species
- Efficient way to conserve land, as function of
Budget - Think of probability of survival as function of
land conserved. - Extend to 2 species with different habitat
requirements. - Derive efficiency frontier
34The Concept of an Efficient Frontier
Efficient Frontier
Attainable Points
Frog Prob
35Excel needs 3 things
- An objective function cell
- The thing Excel is trying to maximize (the
probability of survival, or total species
protected) - A policy cell or block of cells
- The thing Excel changes in order to maximize the
objective (amount of each site selected). - Constraints
- Things that bound the problem (Xi0, Xi100, C
20,000,000)