United States
Environmental Protection
Agency
Robert S. Kerr Environmental Resean
Laboratory
Ada OK 74820
Research and Development
EPA-600/S2-83-008 Apr. 1983
Project Summary
Economic Benefits of Controlling
Water Pollution in an Irrigated
River Basin: Methodology and
Application
Yoseph Gutema and Norman K. Whittlesey
The primary objective of this study
was to develop an analytical procedure
for estimating benefits of water
pollution abatement in a multiple use
river setting. The setting for the analysis
was the Yakima River Basin of South-
Central Washington State.
An analytical model consisting of a
water quality submodel and an
economic submodel was developed.
The water quality submodel consisted
of three elements: parameters
(dissolved oxygen, temperature,
sediment, etc.), water quality index
functions, and an aggregation rule.
Each water quality parameter affects
one or more of the physical, chemical,
biological, or aesthetic characteristics
of water. The water quality index
functions translated the measured
levels of parameters into numerical
values of quality for specific water uses.
The aggregation rule combined the
numerical values of water quality into
an overall water quality index for each
use.
The economic submodel viewed water
as a multiple use resource, with each use
having its own quality requirements.
The submodel consisted of two types of
value functions, willingness to pay for
water quality improvements, and
minimum acceptable compensation for
water quality degradation.
The analytical model was tested and
demonstrated by assuming to improve
each water quality parameter as it
became limiting until the river reached a
hypothetical state of perfection for all
uses. Next, the model was used to
consider three programs of water
quality improvement: stream flow
augmentation, reduced sediment
levels, and reduced nitrate levels. The
estimated social benefits from flow
stream augmentation exceeded the
social benefits derived from programs
reducing sediment or nitrate levels.
Stream flow augmentation actually led
to improvements in all water quality
parameters due to the dilution effect of
the added water quantity. For both
stream flow augmentation and reduced
nitrate levels, the annual benefits fell
short of estimated annual costs. No
measures of cost were available for the
sediment control program. These
findings imply that present water
quality standards may be too high, and
achieving these standards may not be
economically efficient. However, lower
standards of water quality may be
economically efficient to achieve.
This Project Summary was developed
by EPA's Robert S. Kerr Environmental
Research Laboratory. Ada, OK, to
announce key findings of the research
project that is fully documented in a
separate report of the same title (see
Project Report ordering information at
back).
Introduction
In recent years, water pollution control
has become a significant activity
throughout the world, particularly in the
developed countries. The United Nations
has designated the decade of the 1980s
as the International Drinking Water
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Supply and Sanitation Decade. Several
nations have committed themselves to
better water quality in the years ahead
and have adopted water quality
improvements as national goals.
In the United States, reducing the
amount of pollution from irrigation return
flows is a national goal (P.L. 92-500 and
P.L 95-217). Federal, state, and local
governments spend billions of dollars to
improve the quality of water receiving
residuals from numerous sources,
including irrigation return flows. The
different water uses (household, agricul-
ture, industry, fisheries, power genera-
tion, recreation, andothers)andthe ever-
increasing population are placing greater
demands on both quantity and quality of
water. The time has come to incorporate
water quality as a legitimate economic
concern. This study develops a conceptual
framework for estimating the economic
benefits (social value) of abating water
pollution in an irrigated river basin.
Economic Aspects of
the Problem
Improving the quality of water receiv-
ing irrigation return flows or any other
form of pollution is not a costless
endeavor. Such costs may take many
forms including foregone agricultural
production. Water quality improvement is
an economic problem requiring
individuals and society to make choices
among economic alternatives. Not
improving the quality of water also has
social costs in terms of foregone
opportunities and associated disutilities.
Water quality management is an
economic problem because it requires
individuals and society to make choices
about resource allocation. To make
rational choices about water quality
improvements, individuals and society
need information on the magnitude of
benefits and costs of water quality
improvements. Without this information,
it is impossible to say a priori whether
society is providing too much or too little
water quality improvements for its
members.
Despite the increasing effortto improve
water quality, information on the
magnitude of benefits from water quality
improvements has been scarce.
Technical and empirical problems have
contributed to the scarcity of benefit
estimates for water quality improvements.
The economic literature does not specify
what technique should be used to
quantitatively measure water quality.
Also, the lack of markets for water quality
presents conceptual problems in
determining the value of water quality
improvements.
Traditional economic analysis usually
deals with homogeneous goods and the
question of quality seldom arises.
Quantification problems are confounded
by the fact that water quality also has
attributes of a public good. Quality
improvements, once made, are equally
available to all water users. Hence, they
cannot be exclusively provided to people
who are prepared to pay for them without
incurring costs to exclude nonpayers. The
costs required to exclude those unwilling
to pay for the services may exceed the
revenues generated by exclusion.
Despite the lack of quantitative
measures for water quality and market
prices for its value, society still demands
cleaner water. There is a genuine need
for the development of a conceptual
framework that (1) provides a scheme for
quantifying water quality and (2) does not
rely on the availability of market prices for
water quality in order to estimate the
benefits (social value) that society
attaches to cleaner water. This study is
an attempt to develop such an approach.
Objectives of the Study
This study addressed the problem of
measuring the benefits of water quality
improvements (pollution abatement) in a
multiple use river setting. Three objec-
tives guided the research effort. The first
objective of the study was to review the
literature for relevant theory, methodol-
ogy, and analytical procedures for esti-
mating the benefits of pollution abate-
ment in a multiple use river setting. The
second objective was to develop an
analytical procedure for estimating
benefits guided by information from the
literature review. The third objective was
to apply the methodology developed to a
case study in the Yakima River Basin of
South-Central Washington State, where
irrigation return flows are the main
source of water pollution in the Yakima
River.
The Analytical Model
An analytical model consisting of a
water quality submodel and an economic
submodel was specified for estimating
benefits of water pollution abatement.
The water quality submodel determined
the overall quality of a given body of water
for different uses. It consisted of three
elements, parameters, water quality
index functions, and an aggregation rule.
The parameters defined water quality as
a multidimensional vector, with each
component representing some aspect of
the physical, chemical, biological, and
aesthetic characteristics of water. The
water quality index functions translated
the measured levels of parameters into
numerical values of quality which water
users could understand. The chosen
minimum operator aggregation rule
provided a way for combining the
numerical index values of water quality
and parameters into an aggregate water
quality index for each water use.
The economic submodel derived the
values of water quality changes for
different uses and users, and viewed
water as a multiple use resource, with
each water use having its own water
quality requirements. Individuals were
assumed to derive satisfaction from the
characteristics of water quality such as
clarity, odor, taste, etc. A water quality
control program might change the
magnitude of one or more of these
characteristics to affect the value of that
water for individual users.
The economic submodel consisted of
two types of value functions derived from
a survey of water users. One function
related the water users' willingness to
pay for water quality improvement to
water quality levels. The other function
measured the water users' minimum
acceptable compensation for degradation
in water quality.
The Empirical Application
The Yakima Basin of South-Central
Washington State was chosen as a study
area for testing and demonstrating the
application of the procedure developed.
Three water uses (irrigation, recreation,
and sport fishing) and eight water quality
characteristics (suspended and settleable
solids, fecal coliform bacteria, dissolved
oxygen, water temperature, nitrates,
phosphates, stream flow, and turbidity)
were selected to demonstrate the
application of the analytical model.
Based on the review of scientific
literature and interviews with
knowledgeable researchers, the charac-
teristics of water quality considered to be
important are (1) for agricultural water
uses, sediment, water temperature, and
stream flow; (2) for recreational water
uses, fecal bacteria count, water
temperature, stream flow, nitrates,
phosphates, and instream turbidity; and
(3) for fishing use, fecal coliform bacteria
count, dissolved oxygen, stream flow,
water temperature, nitrates, phosphates,
and turbidity.
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The model was tested and demon-
strated with a series of assumed water
quality improvement programs in which
the limiting water quality characteristics
for each type of water use were sequen-
tially eased. The model was then applied
to three typical water quality improve-
ment programs: flow augmentation,
reduced sediment levels, and reduced
nitrate levels. For the stream flow
augmentation and nitrate reduction
policies, estimates of the social cost of
achieving acceptable water quality levels
were available for the Yakima River from
previous studies, allowing a comparison
with estimates of benefits for these
programs.
Results
Sequentially easing the limiting water
quality characteristics or parameters for
each of the three water uses until the
water quality was near perfection for all
uses yielded additional benefits
exceeding $2.5 million annually, based
on the willingness to pay measure.
Recreationists and fishermen received
over 90 percent of these benefits.
The social benefits derived from
increasing stream flow 151 percent over
current levels were estimated to be $2.3
million annually, based on water users'
willingness to pay. The annual social
benefits from reducing nitrate
concentration in the lower Yakima River
68 percent from its current level were
found to be $1.2 million, using the same
measure of value. The total benefits from
reducing sediment levels 85 percent and
turbidity levels 70 percent amounted to
only $0.7 million annually. Previous
studies had estimated that programs to
increase stream flow or to reduce nitrate
levels could each cost as much as $12
million annually. Hence, the cost of these
programs greatly exceeded their
estimated benefits, at least if carried to
the level of quality considered in this
analysis.
Conclusions
The additional social benefits from
stream flow augmentation were
substantially less than the social costs
incurred in augmenting the flow.
Similarly, the additional social costs
from reducing the concentration of
nitrates 68 percent outweighed the social
benefits by a factor of approximately 10:1.
These findings imply that water quality
standards may be too high, and achieving
these standards may not be worthwhile
from the standpoint of economic
efficiency. Probably, the marginal social
costs and benefits of pollution abatement
could be equated at lower levels of water
quality. In any case, water quality
standards should be set where marginal
social benefits from water quality im-
provement equal marginal social costs of
such improvements.
Limitations of this Study
This study suffers from two major
weaknesses due to data limitations. First,
this study ignored the possibility of
interactions that may exist among
pollutants that are simultaneously
present in water. The interactions existing
between pollutants may be antagonistic
or synergistic. In the empirical water
quality submodel it was assumed that the
effect of one pollutant was independent
of the others. A search of the authoritative
works on water quality revealed very little
on the nature of interactions that may
exist among pollutants. It was often
difficult to even find a quantifiable effect
of one pollutant on water uses and users.
As more information on interactions
among water quality parameters becomes
available, it can be incorporated into this
analysis.
The second weakness of this study is
that the empirical measures of benefit
from pollution abatement did not account
for non-user benefits (e.g., option value)
and secondary benefits. To this extent,
the estimated social benefit of water
pollution abatement in the lower Yakima
Basin are too low.
However, the major purpose of this
study was to provide a procedure for
relating the physical, chemical,
biological, and economic aspects of water
quality to one another for better resource
management. This procedure has been
demonstrated, but some significant im-
provements remain to be accomplished.
Despite these limitations, the
procedure developed in this study for
quantifying water quality and estimating
monetary benefits of water quality
improvements has numerous potential
users, including local, state, and federal
agencies responsible for water quality
management. Also, individuals and
institutions may be interested in this
work for the general conceptual
framework that is provided in addressing
other similar situations.
Recommendations
More research should be undertaken to
investigate the effect of different
pollutants on water use and users. There
is insufficient scientific information on
damages caused by water pollutants and
the effects of the interaction of water
pollutants upon water quality. The lack of
basic scientific data on pollutant
damages stands in the way of sound
economic analysis and decision-making
about water quality management.
Two aspects of the procedure
developed in this study need improve-
ments. The water quality index functions
need refinement to more accurately relate
levels of water quality parameters to the
usefulness of the water. Also, better
means should be devised for obtaining
information from water users about their
perceptions of and reactions to changes
in water quality. In addition, all of the
points described as limitations to this
study could be improved with more and
better research efforts.
Yoseph Gutema and Norman K. Whittlesey are with Washington State University,
Pullman. WA 99164.
Jamas P. Law, Jr., is the EPA Project Officer (see below).
The complete report, entitled "Economic Benefits of Controlling Water Pollution
in an Irrigated River Basin: Methodology and Application," (Order No. PB 83-
164 756; Cost: $17.50, subject to change) will be available only from:
National Technical Information Service
5285 Port Royal Road
Springfield, VA 22161
Telephone: 703-487-4650
The EPA Project Officer can be contacted at:
Robert S. Kerr Environmental Research Laboratory
U.S. Environmental Protection Agency
P.O.Box 1198
Ada, OK, 74820
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United States
Environmental Protection
Agency
Center for Environmental Research
Information
Cincinnati OH 45268
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Fees Paid
Environmental
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Agency
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Penalty for Private Use $300
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