Dam Removal

1
Dam Removal -- Some Economic Issues
John J. Boland, Ph.D., P.E. The Johns Hopkins
University
2
Where Did They Come From?

• From earliest European settlement, built by
• Individuals
• Firms
• Public utilities
• Governments
• Real estate developers
• etc.

3
Why?

• Prior to 1950s, most dams built for a single
  purpose
• Agricultural or urban water supply
• Water power (e.g., grist mills, textile mills)
• Hydroelectric generation
• Flood control
• Recreation
• Navigation
• Visual amenity
• Fire protection

4
Why? (continued)

• Later, large federal dams began to have multiple
  purposes -- e.g., water supply flood control
  hydroelectric generation recreation

5
What is the Problem?

• Constructing a dam is a major intervention in the
  life of a stream
• Dams impose costs and produce benefits for the
  dam owner
• Owner's benefits may decline or disappear over
  time

6
What is the Problem? (continued)

• External effects may be large and becoming more
  important over time
• May have been inadequately considered when dam
  was built
• But how do we know that removal is a good idea?

7
Why Remove a Dam?

• Some dams no long considered desirable
• Some possible reasons
• Eliminate a hazard
• Eliminate maintenance needs
• Restore fish passage
• Restore habitat
• Improve water quality
• Improve visual amenity

8
Hazard/Maintenance

• Dams may present unreasonable risk of failure
• Dams may require substantial and continuing
  maintenance to avoid the possibility of failure
• Is dam failure the major concern?

9
Dam Break!
10
Historic Dam Failures

• 1889, Johnstown, PA -- dam owned by sporting club
  fails, 2,200 die
• 1924, San Francisquito Canyon, CA -- Los Angeles
  DWP dam fails, 450 die
• 1928, Lake Okeechobee (FL) dike fails in San
  Felipe hurricane, 2,000 die

11
Historic Dam Failures (continued)

• 20th century -- about 8,000 people died worldwide
  in dam failures
• The probability of the average dam failing in a
  given year is about one chance in 10,000
• However, substantial property damage

12
Economist's View of Dam Removal Question

• Complex question involving many issues
• Do the advantages of removal outweigh the
  advantages of continued operation?

13
Economic Analysis of Dam Removal

• Benefit Cost Analysis --
• a disciplined procedure for identifying,
  measuring, and comparing the expected beneficial
  and adverse consequences of an action
• Long experience with using BCA to evaluate the
  construction of dams

14
"Principles and Guidelines"

• Federal standard and procedures for application
  of BCA to water projects
• Most large dams were originally justified under
  the PG or one of its precursors

15
Decision Criterion

• Maximize National Economic Development (NED)
  (often reported as B/C ratio)
• Subject to --
• acceptable results for other accounts (EQ, RED,
  OSE, etc.)
• current cost sharing policy
• environmental regulations
• etc.

16
NED Account

• Objective MAX (Beneficial - Adverse)
• Beneficial effects
• Increased value of goods and services
• Beneficial external effects
• Adverse effects
• Value of resources commited to project
• Adverse external effects

17
Examples of Beneficial Effects

• Value of hydropower (market value)
• Value of flood control (avoided damage)
• Value of water supply (willingness to pay for
  water)
• Value of flatwater recreation (nonmarket
  valuation)

18
Examples of Adverse Effects

• Construction cost (engineering est.)
• Future OM costs (engineering est.)
• Value of lost wild river recreation (nonmarket
  valuation)
• Value of negative environmental impacts
  (nonmarket valuation)

19
Some Issues

• Effects measured on with/without basis
• Effects discounted to present value
• Economic life may be 50 years

20
Some Issues (continued)

• In most cases, only monetized effects figure in
  ranking or funding decisions
• Nonmonetized environmental effects given lip
  service, but little role
• Social and distributional effects hardly
  considered

21
BCA and Dam Removal

• Similar procedures to a point, but many
  differences
• NOT the inverse of dam building
• "Without condition" - basis of comparison
  difficult to specify -- usually cannot be "no
  action"

22
Beneficial Effects

• Avoided costs of safety-related rehabilitation
  and maintenance ()
• Engineering cost estimates
• Increased spawning and recruitment of migratory
  fish (?)
• Commercial and/or recreational value
• Highly uncertain
• Moderately far in the future
• May be dependent on other actions

23
Beneficial Effects (continued)

• Ecological and water quality benefits (?)
• Highly uncertain
• Far in the future
• May not be monetizable
• Aesthetic issues (?)
• May be offset by near-term undesirable effects
• May be controversial
• May not be monetizable

24
Adverse Effects

• Cost of removal and site rehabilitation()
• Engineering cost estimates
• Loss of beneficial services of dam()
• Hydroelectric generation, water supply
• Recreation, etc.
• Flood control
• But most dams proposed for removal no longer
  serve any economic purpose

25
Adverse Effects (continued)

• Changes in stream morphology from sediment flows
  (,?)
• Cost of engineering intervention
• Other costs may not be monetizable
• Ecologic effects of sediment flows and loss of
  pool (?)
• Medium-term future
• Highly uncertain
• May not be monetizable

26
Adverse Effects (continued)

• Impacts on nearby land uses (,?)
• Changes in property value
• Social effects
• Equity effects

27
Final Observations

• Except for isolated cases involving public
  safety, dam removal was once unthinkable. Now it
  is thinkable, but we are still learning how to
  think about it.
• Arguments of advocates have often been simplistic
  -- actual consequences of removal are many and
  complex.

28
Final Observations (continued)

• In general, the beneficial effects of removal are
  more difficult to identify and measure than are
  the adverse consequences. This is a major
  challenge for objective analysis.
• Dam removal efforts are accelerating development
  of rational policy is far behind.

29
Comparisons

• Original project analysis uses well developed
  methods, engineering cost estimates, market data
  modest role for nonmarket valuation
• Dam removal analysis includes items not
  previously evaluated, relies heavily on nonmarket
  valuation and nonmonetized values

30
Comparisons (continued)

• With/without comparisons difficult to define,
  since "without removal" may involve a
  significantly higher risk of dam failure
• Discounting remains an important issue, since
  some effects run far into the future
• May be intergenerational equity issues

31
Conclusions

• Compared to dam project evaluation, benefit cost
  analysis of dam removal, based on PG, involves
• New or unfamiliar valuation problems
• Greater reliance on nonmarket valuations, with
  attendant large error bars
• Ambiguity concerning effect identification
  (with/without)
• Possible intergenerational equity issues