United States
Environmental Protection
Agency
EPA/600/R-16/036
March 2016
www.epa.gov/ord
Economic Tools
for Managing
Nitrogen
in Coastal
Watersheds
Sheri Jewhurst, U.S. Environmental Protection Agency,
Region 2, NY, NY
Marisa Mazzotta, U.S. EPA
Office of Research and Development
Atlantic Ecology Division,
US Environmental Protection Agency
Office of Research and Development
National Health and Environmental Effects Research Laboratory
Atlantic Ecology Division,
Narragansett, Rl 02882

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EPA
United States
Environmental Protection
Agency
EPA/600/R-16/036
March 2016
www.epa.gov/ord
Economic Tools for Managing Nitrogen
in Coastal Watersheds
Sheri Jewhurst
US Environmental Protection Agency
Region 2, NY, NY
Marisa Mazzotta
U.S. EPA Office of Research and Development
Atlantic Ecology Division, Narragansett, Rl
US Environmental Protection Agency
Office of Research and Development
National Health and Environmental Effects Research Laboratory
Atlantic Ecology Division,
Narragansett, Rl 02882

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Economic Tools for Managing Nitrogen in Coastal Watersheds
Notice and Disclaimer
This project was supported in part by funding through EPA's Regional Research Partnership Program.
Although the research described in this report has been funded by the U.S. Environmental Protection
Agency, it has not been subjected to Agency review. Therefore, it does not necessarily reflect the views
of the Agency. This is contribution number ORD-015903 of the Atlantic Ecology Division, National Health
and Environmental Effects Research Laboratory, Office of Research and Development,
U.S. Environmental Protection Agency.
Acknowledgements
We would like to thank the watershed managers who participated in this research and provided the
basis for the environmental questions and economic needs covered here. We would also like to thank
Kate Mulvaney for helpful comments on qualitative research, and our reviewers Richard Winfield, Jim
Latimer, and Matt Heberling. Many of the photos included in this document are from the US
Environmental Protection Agency's National Estuary Program website located at www.epa.gov/nep.
Cover photo by Joe Bailey
ii

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Table of Contents
Table of Contents
Acknowledgements	ii
I.	Introduction	1
II.	Terminology Review	3
Economic Impacts and Contributions	3
Economic Value	4
Understanding "Benefits"	5
Ecosystem Services	6
A Note on Intrinsic Values	7
III.	Results of Discussions with Watershed Managers	9
Overall Context of Study Participants' Watersheds	9
Study Participants	9
Management Contexts	9
Public Concerns	10
Economic Analyses Conducted by Participants	10
What questions were watershed managers trying to answer with economic analyses?	10
Who was the intended user of existing economic analyses?	11
By whom was the analysis done, and how was the methodology chosen?	11
Were there adequate data to perform the analysis, and how were data gaps addressed?	11
How and where were the results of the analyses presented?	12
Did the economic analyses meet their intended uses, and how are they now being used?	12
What are some of the barriers to using economic analyses, and what could make them
more useful?	12
How did managers address uncertainty in the results of the economic analyses?	13
What prevents watershed managers from obtaining additional economic information
they need?	13
IV.	Watershed Management Questions and Economic Analyses That Can Be Applied	15
The Questions:	15
The Approach: Cost-effectiveness Analysis	16
The Questions:	19
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¦wi Economic Tools for Managing Nitrogen in Coastal Watersheds
The Approaches: Economic Contribution Analysis and Economic Impact Analysis	20
Economic Contribution Analysis	20
Economic Impact Analysis	20
The Questions:	21
The Approaches: Economic Benefits Analysis and Benefit-Cost Analysis	21
Considerations with regard to benefit-cost analysis	22
The "Total Value" Method (and why it makes economists crazy)	23
V.	Summary and Recommendations	27
VI.	References	29
iv

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I, Introduction
¦ »<• :
Photo by John Repoza
I. Introduction
WATERSHED MANAGERS are interested in using economics to communicate the value of estuarine
resources to the wider community, determine the most cost-effective means to reduce nitrogen
pollution, and evaluate the benefits of taking action to improve coastal ecosystems. We spoke to
coastal watershed managers who had commissioned economic studies and found that they were largely
satisfied with the information and their ability to communicate the importance of coastal ecosystems.
However, while managers were able to use these studies as communication tools, methods used in
some studies were inconsistent with what some economists consider best practices. In addition, many
watershed managers are grappling with how to implement nitrogen management activities in a way
that is both cost-effective and achieves environmental goals, while maintaining public support.
These and other issues led to this project. Our primary intent is to provide information to watershed
managers and others interested in watershed management - such as National Estuary Programs, local
governments, or nongovernmental organizations - on economic tools for managing nitrogen in coastal
watersheds. Our second intent is to inform economists and other analysts who are interested in
assisting them in meeting their needs.
In order to learn more about how economics has been used by watershed managers and the purposes
for conducting studies, we interviewed staff at eight coastal watershed management entities. The
interviews focused on management questions related to nitrogen in estuaries and the economic
analyses that have been done or could be done to assist in nitrogen management.1 The research was
conducted via one-hour structured telephone discussions. In these discussions, we asked managers
about their needs with regard to nitrogen management and the use of economic analyses, and found
that many estuarine watershed managers are grappling with similar questions.
1 This project was conducted as part of the US Environmental Protection Agency's (EPA) Regional Research
Partnership Program, which provides short-term training opportunities for regional technical staff to travel to
Office of Research and Development (ORD) labs/centers and work with ORD scientists on projects that are top
regional priorities. Under this project, Sheri Jewhurst, the Region 2 participant, conducted the interviews described
here, and compiled information relevant to answering managers' questions regarding their needs for economics.
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Economic Tools for Managing Nitrogen in Coastal Watersheds
Participants in this study emphasized that using economic analysis to measure the value of coastal
resources and ecosystems is an excellent means to communicate the links between these systems
and communities, businesses, and the local economy. Participants also expressed interest in examining
the cost-effectiveness of various nitrogen management activities, such as best management practices
(BMPs), over a specific geographic area in order to achieve a predetermined goal, such as a total
maximum daily load (TMDL). Further, as progress is made in reducing nitrogen and measuring the
environmental improvements from pollution control investments, watershed managers are considering
larger questions about the societal benefit from these investments.
This document highlights the common themes and questions identified by those participating in this
study, and provides basic information on how their nitrogen management questions may be answered
using economic analyses. Based on the specific needs, different economic methods may be used: cost-
effectiveness analysis, economic contribution analysis, economic impact analysis, or economic benefits
analysis. Each of these approaches provides different types of information, useful for different purposes.
This document is not intended to provide a complete explanation of all methodologies and variables
that could be used when evaluating complex decisions, but to provide an overview of common
questions and the appropriate types of analyses to answer each question. For those wanting more
detail, we provide references to more detailed sources of information.
In Section II, we provide a brief overview of some common economic terms that are often
misunderstood by non-economists. In Section III, we present results of discussions with watershed
managers, highlighting common themes. While the interview sample is not sufficient to extrapolate
to all estuary management contexts, it included people from 6 of the 9 National Estuary Programs that
have conducted economic analyses that we identified at the time of this research, plus two county-level
organizations involved in watershed management. There are 28 National Estuary Programs nationwide.
We suggest that these themes are best used as a starting point for future research. In Section IV,
we discuss the specific types of economic analyses that answer the major management and policy
questions watershed managers are asking, and why they are appropriate to address those issues.
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II. Terminology Review
Photo by Dotty Motta, NEP
II. Terminology Review
DEMONSTRATING THAT environmental resources have value to many people is one of the major reasons
watershed managers have conducted economic analyses. The terms 'economic impact/ 'economic
contribution/ 'economic value/ 'economic benefit/ and 'ecosystem services' are sometimes used
interchangeably to describe the benefits quantified by economic analyses, but these terms refer to very
different things. Understanding the differences can help managers decide what type of analysis is most
useful for their purposes, and can clarify how to best present the results to the public. It is important to
recognize that measuring each of these requires specific types of metrics, which are often very different,
and that each provides a different result with appropriate uses. In this section, we go over some of the
differences between the vernacular use of words like "value" and "benefit", and what those words
mean when conducting economic analyses. For a more detailed list of definitions related to evaluating
ecosystem services, see Munns et al. (2015).
Economic Impacts and Contributions
Commonly, when people think of economics and economic values, what they are thinking of is either
economic impacts or economic contributions. Both of these are measures of economic activity, or how
money flows in a local or regional economy, and both economic contributions and economic impacts
measure the effects of an industry, event, or policy on the local economy. Both types of measure look at
business revenues in a region that can be attributed to a specific sector, such as water-dependent
businesses. The difference is that economic contributions are measures of an existing proportion of the
local economy, and economic impacts are measures of new revenues brought to the local economy or
revenues retained in the local economy that would otherwise be lost (Watson et al., 2007). For example,
currently-existing water-based businesses will contribute a certain amount to the local economy - an
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- - - - Economic Tools for Managing Nitrogen in Coastal Watersheds
economic contribution. A policy to improve water quality might either prevent some of these businesses
from leaving or attract new businesses to the area - an economic impact.
Economic Value
The term "value" as used by economists does not mean the same thing as it does in regular
conversation. To most people, the word "value" is synonymous with significance. Ecologists and other
scientists may consider ecosystems to be valuable because they provide habitat for certain species
or serve a role in biological processes. The term "economic value" is used by economists to refer to a
measure of social welfare. It is an anthropocentric (human-centered) measure of value, defined in terms
of tradeoffs that people are willing to make.
An economist would say that unless there are people who would be willing to pay a certain amount
(or trade something else of value, such as time or another valued item), for an ecosystem to serve
specific functions, those functions of the ecosystem do not have a measurable economic value (Lipton
et al., 1995). To further illustrate how economists think about value, consider what it means to call
something "a good value" in everyday conversation. This implies that you paid less for something than
you thought it was worth. The difference between what you would have paid (your willingness to pay)
and what you actually paid is how economists measure economic value (Pendleton, 2008).
People usually do not pay for most environmental resources because they are provided freely by nature.
Yet, they still make decisions requiring tradeoffs between changes in ecosystems and other valued
things. Economists refer to values for things that are important to people, but are not purchased or sold
for money, as non-market values. There are several categories of non-market values for environmental
resources, which capture various aspects of the environmental and economic picture. Depending on the
goals of the analysis and available data, an economic analysis can include some or all of the following
categories of non-market values.
"Direct use values refer to ecosystem goods and services that are used directly by human
beings. They include the value of consumptive uses such as harvesting of food products,
timber for fuel or construction, and medicinal products and hunting of animals for
consumption; and the value of non-consumptive uses such as the enjoyment of
recreational and cultural activities that do not require harvesting of products. Direct use
values are most often enjoyed by people visiting or residing in the ecosystem itself.
Indirect use values are derived from ecosystem services that provide benefits outside
the ecosystem itself. Examples include natural water filtration which often benefits
people far downstream, the storm protection function of mangrove forests which
benefits costal properties and infrastructure, and carbon sequestration which benefits
the entire global community by abating climate change.
Option values are derived from preserving the option to use in the future ecosystem
goods and services that may not be used at present, either by oneself (option value) or
by others/heirs (bequest value). Provisioning, regulating, and cultural services may all
form part of option value to the extent that they are not used now but may be used in
the future.
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II. Terminology Review
Non-use values refer to the enjoyment people may experience simply by knowing that
a resource exists even if they never expect to use that resource directly themselves. This
kind of value is usually known as existence value (or, sometimes, passive use value)
(The World Bank, 2004, pp. 9 - 10)."
All of these categories of value are likely to be important in evaluating the benefits of protecting
watershed resources. Many watershed management analyses focus most heavily on use values
because consumptive uses, such as harvesting fish or timber, or non-consumptive uses, such as
recreation, are the most salient aspects of value resulting from environmental management and are
seen as contributing directly to local economies. However, many people have non-use values for coastal
resources, and these values can be large. Non-use values are often more difficult to estimate, requiring
surveys of the public. Current state-of-the art approaches to measuring non-market values focus on
Total Economic Value (TEV), which is a sum of all the types of value listed above - use values, option
values, and non-use values. Determining the appropriate way to incorporate all of the important
aspects of value for your needs should be discussed with a qualified economist conducting your study,
contingent upon the question you are trying to address as well as the availability of quality data and
information to estimate values.
Understanding "Benefits"
Economists generally do not distinguish between the terms
"benefits" and "economic value," but see them as
synonymous ways of referring to the welfare an individual or
society derives from a particular thing, such as clean water in
an estuary (Barbier et al., 2011; Watson et al., 2007).
Willingness to pay is the preferred measure of benefit
because it theoretically assumes that individuals will use the
dollars at their disposal to maximize their well-being by
spending it on the things that make them happiest (or,
in economic terms, maximize their welfare or maximize their
utility). Monetary measures of economic benefits enable
decision makers to decide how to manage resources by
comparing the benefits received under different management
scenarios using a common metric.
Economic benefits are generally aggregated for a population in order to conduct a benefit-cost analysis
of the change resulting from an explicit action, such as a management action that would reduce
nitrogen loading. To calculate total benefits from an action, economists would first calculate the
economic benefits received by each member of the population who benefits (both consumers and
producers) and then aggregate across people to derive total benefits (Pendleton, 2008).
Here's an example that shows how values, willingness to pay, and measuring benefits all fit together.
It's taken from Lipton et al. (1995, p. 13):
For watershed managers, it
is important to know that
the word "benefit" as used
in an economic context is a
measure of welfare that
depends on an individual's
willingness to pay (or trade)
for something.
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Economic Tools for Managing Nitrogen in Coastal Watersheds
"Economic Value Based on Net Willingness to Pay (WTP)
Consider the case in which only one unit of a certain market good, oysters, is produced at
a cost of $1 per dozen and sold at a price of $8. If the purchaser had been willing to pay
$10, the net benefit of a dozen oysters to this consumer would be $2 ($10 less $8) —• this
amount is called consumer surplus. At $8 a dozen, the producer earns $7 from the sale
(the selling price minus the production price), so the net benefit of the good to the
producer is $7 (called producer surplus). The total economic value of a dozen oysters is
thus $9 ($2 net benefit to the consumer plus $7 net benefit to the producer). If for some
reason the producer was denied the opportunity to produce and sell oysters (say because
of a moratorium on fishing) — and the consumer was denied the opportunity to buy and
consume oysters — the total loss to these individuals would be $9
The nuances of how to calculate benefits in the form of economic values (social welfare) from complex
environmental systems are extremely detailed. There are innumerable ecosystem functions that can
provide benefits to individuals and society. Which ones to include and how to evaluate them should be
determined by a qualified economist when scoping an economic analysis. For watershed managers, it is
important to know that the word "benefit" as used in an economic context is a measure of welfare that
depends on an individual's willingness to pay (or trade) for something. That "something" is often
ecosystem services.
Ecosystem Services
There are many different types of ecosystem services that can be evaluated in a given policy context.
The term "ecosystem services" is often used in a way that is analogous with "benefits" (whether
correctly or incorrectly) because ecosystem services are often the means by which the ecosystem
provides benefits (Barbier et al., 2011). The definition of benefits as synonymous with economic value,
and the definition of benefits as synonymous with ecosystem services are commonly used in research
literature and in practice. It is important to clarify terminology when developing and reporting a study.
According to the US Environmental Protection Agency (2009, p. 12),
"Ecosystem services are the direct or indirect contributions that ecosystems make to the well-
being of human populations. Ecosystem processes and functions contribute to the provision of
ecosystem services, but they are not synonymous with ecosystem services. Ecosystem
processes and functions describe biophysical relationships that exist whether or not humans
benefit from them. These relationships generate ecosystem services only if they contribute to
human well-being, defined broadly to include both physical well-being and psychological
gratification. Thus, ecosystem services cannot be defined independently of human values."
Barbier et al. (2011) provide a review of estuarine and coastal ecosystem services, ecological factors that
are important in their provision, and their values.
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II. Terminology Review
A Note on Intrinsic Values
Many people would agree that ecosystems have
value beyond strictly anthropocentric economic
values. Such values are often referred to as
intrinsic values. People who feel strongly about
intrinsic values often object to evaluating
environmental decisions using monetary values
(Justus et al., 2009; Maguire and Justus, 2008;
Mazzotta and Kline, 1995; Reyers et al., 2012).
Economists recognize that economic values may
not be the sole metric for decision-making, but
should be considered within a broader social
discourse that includes consideration of things
like equity, fairness, or precautionary principles
(Arrow et al., 1996). Economic values are an
explicit way to evaluate, quantify and present
the trade-offs that people are actually willing to
make to protect or clean up the environment.
Ultimately, people have to pay for these
actions, either individually or through
government spending. Understanding what
people are willing to pay for, and how much
they are willing to pay, can help decision
makers and managers be more effective and
efficient in carrying out actions, and can inform
the larger public debate about environmental
regulation and management.
Economic values
are an explicit way
to evaluate, quantify
and present the trade-offs
that people are actually
willing to make
to protect or clean up
the environment.
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III. Results of Discussions with Watershed Managers
Photo by John Repoza
III. Results of Discussions with Watershed Managers
The FOLLOWING information was extracted from the one-hour structured discussions with watershed
managers, conducted in the summer of 2015. Those who were contacted for this research are located in
estuaries that have already completed or are currently engaging in some form of economic analysis.
Overall Context of Study Participants' Watersheds
Study Participants
Of the eight organizations participating in the study, six have a coordination and facilitation role but
no direct regulatory authority. Among other things, this role can include providing technical and
scientific support, developing plans to address water quality impairments, facilitating consortiums
for pollution management, and coordinating overall voluntary watershed management activities.
Two participants have regulatory authority within an estuary and are responsible for promoting
environmental protection, environmental planning, implementing public health laws, and dealing
with issues of water supply and wastewater management.
Management Contexts
These organizations are working within a wide range of policy contexts. In some contexts point sources
dominate, while in others nonpoint sources are the main issue. Some estuaries have TMDLs and/or
nutrient criteria which provide endpoints for management, while others do not.
In areas where point sources dominate, point source permits are the main regulatory driver for nitrogen
reduction activities. Where nitrogen loading is point-source dominated, most watershed managers
expressed that permit limits have been an effective means to address nitrogen loading.
Where nitrogen loading is nonpoint-source dominated, managers expressed interest in better
understanding the relative contributions of different nonpoint sources. For example, where onsite septic
systems, residential fertilizers, and agricultural fertilizers all contribute to nitrogen loading, watershed
managers want to understand how much of the load is coming from each of these sources. Since
nonpoint source reduction activities are largely voluntary and spread out over the watershed, this
information would help to target management activities to address the most dominant sources.
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Economic Tools for Managing Nitrogen in Coastal Watersheds
Public Concerns
Most participants indicated that, in their estuary, the public is most concerned about visual impacts and
the overall perception that the water is "dirty." Visible impacts include algal blooms, floatables, debris,
and seaweed. Other concerns include the loss of cultural and lifestyle assets, such as fishing and
shellfishing. Several participants noted that those people who have lived in the watershed for many
years seem to have a sense that the coastal environment has declined, and understand that there is a
problem or that things "aren't what they used to be." In other areas, there have been fish kills, wildlife
mortality events, and algal blooms that have called the public's attention to water quality issues.
Economic Analyses Conducted by Participants
The following questions explore the intent, purpose, and scoping of economic analyses that have been
conducted by participants. Not all of the economic analyses were conducted with specific focus on
nitrogen management, therefore the information presented applies broadly to economic analyses
in general.
What questions were watershed managers trying to answer with economic analyses?
For many participants who have conducted economic analyses, the impetus for the analyses centered
on demonstrating that the estuary provided real, tangible contributions to society, the economy, and
the local community. Watershed managers wanted to use this information to inspire people to
appreciate the value of the ecosystem and to promote stewardship.
There was also desire to justify the large investments being made in water quality improvement and
nitrogen management. Regional management plans such as National Estuary Programs' Comprehensive
Conservation and Management Plans (CCMPs) often call for very large investments by many partners.
Having information that illustrates that there are economic benefits to healthy estuarine resources and
that waterways contribute to the local economy could help justify some of these costs to policymakers
and the public.
Economic analysis was also seen to make an abstract principle, such as nitrogen pollution, more
relatable to the general public and policymakers by illustrating the connections between water quality
and community assets (i.e. home value, recreational opportunities, ecotourism, etc.). Knowing "what
the estuary was worth" to the local economy could also identify what sectors of the economy and
community are driving that value and benefiting most from environmental improvement. This analysis
could also identify what sectors of the economy and community would be most interested in possibly
undertaking and financing management actions.
In other cases, watershed managers were interested in updating previous economic analyses now that
conditions have changed and economic tools have improved. Note that updating old economic analyses
using newer information and methodologies will not necessarily result in an accurate assessment of the
increase or decrease in value resulting from water quality improvements. This is because newer
calculations of value may be done in different ways and incorporate different variables, so that results
may not be comparable. Please see the sections on the "total value" method and benefit-cost analysis
for further information.
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III. Results of Discussions with Watershed Managers
Who was the intended user of existing economic analyses?
Participants identified policymakers, board members, National Estuary Program Management
Conference participants, and the broader public as recipients for this information.
By whom was the analysis done, and how was the methodology chosen?
In several cases, economic studies were conducted opportunistically based on existing data, tools, or
expertise already associated with the watershed management entity in question. This had an impact
on both the scope and best uses of the analyses done, as well as the selection of economic analysts and
approach taken. For example, some entities had existing partners with the capability or data to do an
economic analysis at a reasonable cost and took advantage of that opportunity. In other cases,
economic analyses were done by piggybacking on work previously completed by similar entities,
which lowered costs. It was also noted that using a methodology that had worked in another area of
the country enhanced acceptance of the new analysis' results.
While it is advantageous for watershed management entities to
be opportunistic and thrifty, considering the large cost of some
types of economic analyses, it seems that the scope of some
studies was largely dictated by what was being offered and what
was currently available, rather than the explicit expressed needs
of watershed managers. This is an interesting finding, as it
implies that economic analyses are not necessarily being
conducted through a process that begins with critical
management questions in mind. This often creates a dichotomy
between the economic information that watershed managers
believe they need (discussed later in the document), and the
economic information they are receiving from entities
conducting their studies. This is not to discourage watershed
managers from taking these opportunities to have economic
analyses done, nor does it make the information gleaned from
those studies less useful. It does highlight that there could be
better coordination when commissioning economic analyses in
order to ensure the analyses address the critical management
questions at hand.
Were there adequate data to perform the analysis, and how were data gaps addressed?
Many respondents described a need for more local economic data so that economic analyses could be
accurately utilized at a local scale. A clear need across the board is localized data that could feed into
improved economic analyses, such as site-specific valuations of natural resources and willingness to pay
studies. In particularly data-rich analyses, there was a vast and concerted data collection effort that
contacted numerous stakeholders to collect data. A lesson learned through these efforts was that local
data may be available, but without a central repository for those data, the necessary information on a
local scale can be difficult to find.
Available data had a large influence on the scope of the economic analyses done and the type of
analyses employed. For example, in an area with rich data on the local economy and water-dependent
A lesson learned
through these
efforts was that
local data may be
available, but
without a central
repository for
those data, the
necessary
information on a
local scale can be
difficult to find.
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Jlfir
Economic Tools for Managing Nitrogen in Coastal Watersheds
businesses, an economic impact study was done that examines the connection between the water
resources and the local environment. This type of assessment was selected because an economic impact
study draws on the type of data that were available in this region; but an economic impact study does
not provide the same type of information as an economic valuation for benefit-cost analysis and
therefore the results cannot be compared or used interchangeably.
How and where were the results of the analyses presented?
Results have been presented at internal meetings of the watershed management entity or through
presentations to community members. Monetary values from the studies have also been highlighted in
certain circumstances, such as when new projects or grant funding are announced. Having these values
to draw upon has brought interest in the natural environment from the business community, many of
whom were not interested in this subject until the economic valuation was done. The studies also have
given politicians and legislators numbers to draw upon when making the case for spending on the
environment.
Did the economic analyses meet their intended uses, and how are they now being used?
Participants believed that the various economic analyses conducted did answer the questions they were
asking, and overall were pleased with the results and their usefulness. As previously noted, one of the
needs identified by watershed managers was a way to communicate that our waterways make tangible
contributions to our communities and economies. All the studies discussed seemed to be successful for
this purpose, but care must be taken to communicate the values only in the context for which the
original study was intended. Extrapolating about the overall value to society or attempting to make
benefit-cost assumptions based on economic impact or contribution studies would be inappropriate
uses of the analyses.
Managers have used the analyses to talk about how environmental improvement can be compatible
with, or even lead to, increased economic activity in the community, and to increase people's level of
comfort with the fact that costly environmental improvement projects are also economically important.
The valuation numbers were used to introduce new bills, increase awareness of economic value,
increase discussion with other funding partners, create interest in doing more specific economic studies,
and get the public's attention by demonstrating that improving water quality is not an abstract exercise.
In one case, the cost per pound of nitrogen removed was factored into a ranking methodology for
proposed projects. Watershed managers have also used economic information to encourage residents
living along tidal creeks to make more environmentally conscious choices.
What are some of the barriers to using economic analyses, and what could make them
more useful?
Participants widely noted that it would be beneficial to have more local studies in order to confidently
portray information at a finer scale for local decision-makers. Participants also wanted to understand
how to enhance the thinking about funding mechanisms when economic analyses identified the sectors
of the community that benefit the most from environmental improvement. If the data could show
beneficiaries at a local scale, those groups could potentially be targeted for participation.
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III. Results of Discussions with Watershed Managers
Other comments included having the information in a short and accessible format that could be
digested by the public. Because most people are not well-versed in economics jargon, it is important to
have executive summaries and other abridged results in plain language so that the information is
actually usable.
How did managers address uncertainty in the results of the economic analyses?
Because most studies were not intended to guide specific decisions, but rather as a communication tool,
the level of uncertainty that was acceptable or not acceptable was not noted as a great concern. When
the methodology and data used were presented in a transparent fashion, it seems that there was little
issue with regard to uncertainty that might have limited the use of the analyses.
What prevents watershed managers from obtaining additional economic information
they need?
Not surprisingly, costs and availability of data are major limiting factors in obtaining the economic
information that watershed managers need. Data at the local scale are generally not organized in a
centralized database that allow local information to be located and used, and a complex and expensive
data collection effort would be required to conduct surveys of the population for specific economic
information.
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IV. Watershed Management Questions
Photo by John Repoza
IV. Watershed Management Questions and Economic Analyses That
Can Be Applied
This SECTION focuses on the main questions that managers expressed as important and would like to
address using economic analysis, and highlights the types of economic analysis that are most relevant
to each of the questions. We group the questions by those relevant to specific types of analysis, and
present details of the type of analysis relevant to each type of question. Because it is not appropriate
to add up or compare different types of values estimated with different approaches, it is important for
those considering an economic study to think carefully about the intended uses and outcomes. In some
cases, it may be useful to conduct more than one type of study.
The Questions:
What is the most cost-effective way to
implement management practices in order to
meet a TMDL or other predetermined endpoint?
What is the cost per pound of nitrogen removed
for a given management practice?
Using decision support tools, how can we
convert environmental and cost-effectiveness
data into actionable information for decision
makers and the public?
These first three questions were expressed as
an explicit need most frequently during this
research, and each would be addressed, at
least in part, through the methods of cost-
effectiveness analysis. When a predefined goal-
such as a TMDL, environmental endpoint, or
permit limit—is already in place, it is possible to
use cost-effectiveness analysis to evaluate
alternative ways to achieve that endpoint at
least cost. Cost-effectiveness analysis does not
require assessments of economic benefits to
society, although considering social costs, and
not just financial costs, requires analysis similar
to that used to estimate economic benefits.
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Economic Tools for Managing Nitrogen in Coastal Watersheds
Cost-effectiveness information is particularly important to watershed managers in nitrogen-impaired
watersheds where nonpoint sources are the major source of nitrogen. There are a wide variety of BMPs
that could be implemented. Choosing an appropriate matrix that will result in achievement of loading
goals and attainment of water quality standards at the least cost is a challenge. This is particularly acute
as watershed managers grapple with the extremely high cost of reducing nitrogen from sources like
onsite septic systems.
The first question listed above is the standard question of cost-effectiveness analysis, while the second
question is actually a subsidiary question that would need to be answered as part of the analysis to
answer the first question. In order to understand the most cost-effective approach, it is necessary to
understand the costs of different options that might be included in implementing an overall
management plan. The third question goes beyond the actual economic analysis to ask how to put the
information together into a decision support tool that managers and the public can use to compare
different options. This type of tool is sometimes developed by economists, but could require additional
specialized expertise to develop and implement, such as Geographic Information Systems (GIS) or
optimization capabilities. Since this document is focused on economics, we will not detail those
additional capacity needs here.
The Approach: Cost-effectiveness Analysis
Cost-effectiveness analysis does not compare monetary estimates of values or benefits to society but
instead assumes that those benefits have been deemed worthwhile to members of society (through the
public process of enacting a TMDL or similar regulatory or policy option). Therefore, cost-effectiveness
analysis assesses the least cost way to achieve an already-established goal, with the objective of
avoiding waste of public money. Once a regulatory driver such as a TMDL is in place, implementation of
that action proceeds based on regulatory requirements rather than the results of explicit benefit-cost
analysis. In essence, this approach assumes that the benefits of implementing the regulatory
requirement are greater than the costs. In order to actually quantify the benefits to society of TMDL
implementation vs. cost of TMDL implementation, a full benefit-cost analysis is required. Please see the
section describing benefit-cost analysis for more information.
Cost-effectiveness analysis focuses on selecting either the least costly way to achieve a specified
outcome, or the most beneficial way of spending a given budget (Balana et al., 2011; Halkos, 2013).
Since the combination of any number of management alternatives is expected to yield the same
endpoint, the most cost-effective means of achieving the outcome can be selected. While this may
sound relatively simple, it requires understanding the relevant set of options, the cost of each (over the
full time-span of the policy, program, or action), and the expected outcome from each feasible mix of
options. In the case of nitrogen management, this means that an outcome, such as a TMDL, must be
specified; and both the costs and effectiveness of the technologies or BMPs that might contribute to the
outcome must be quantified (see Brown Gaddis et al., 2007; Latimer and Charpentier, 2010 for examples
of nitrogen loading models).
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IV. Watershed Management Questions
The cost-effectiveness ratio CE, (cost effectiveness of implementation action i) is calculated using the
cost of implementation, C,, and effectiveness of implementation, E, (Boardman et al., 2001):
CEi = Ci/Ei
or, for a nitrogen management scenario (adapted from Wood, 2015 ):
CE, = Estimated costs of management action, including operation and maintenance /
Nitrogen mitigation potential of management action.
In a situation where the desired effectiveness level is fixed - such as when attempting to reach a TMDL-
the cost-effectiveness analysis is a cost minimization exercise. One consideration here is that this
analysis supposes that we do not value additional units of effectiveness (nitrogen reductions) over and
above the TMDL, even though in reality having additional nitrogen removed may be desirable. However,
the nature of this optimization analysis requires this constraint to be in place (Boardman et al., 2001).
Alternatively, instead of optimizing to minimize costs of reaching a particular goal, it is also possible to
maximize the effectiveness of management actions for a given cost. This would be applicable to
situations where grant funding has become available, or when a policymaker has budgeted a specified
amount for the management activity. The effectiveness to cost ratio can be calculated by flipping the
equation to calculate the effectiveness-cost ratio (EC,):
EC, = Ei/Ci
and then running the model to maximize effectiveness per unit of cost, as opposed to minimizing cost
per unit of effectiveness (Boardman et al., 2001).
Most cost-effectiveness analysis relies on mathematical programming and optimization models to select
the optimal mix of technologies. These methods require specific technical skills beyond the data-
gathering and formatting skills needed to understand effectiveness and costs of each option. In the case
of nitrogen management, we need some very specific pieces of information that go into the cost-
effectiveness equation:
1.	A reliable goal or endpoint
In the equations provided above, the goal or endpoint lets us know what constraints to place on
the model used in order to minimize costs or maximize effectiveness. While TMDLs and permit
limits are intended to provide an allowable nitrogen load that would theoretically meet water
quality standards, additional information on the environmental response associated with
reductions in nitrogen would enhance confidence that environmental goals would actually
be reached. For practical purposes, watershed managers must proceed with implementation
without this increased certainty or it would be impossible to move forward, so they must
assume that existing TMDLs or other goals are accurate endpoints.
2.	Data on the pollution reduction potential (effectiveness) of various management activities
Each available technology, such as nitrogen removal systems for wastewater or specific
agricultural BMPs like conservation tillage, must be evaluated for effectiveness. Depending
on the technology or BMP, there is more or less uncertainty surrounding such effectiveness
estimates. This uncertainty may be incorporated into the model to provide for a margin of safety
on the choice of technologies. While effectiveness analyses have been conducted some
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Economic Tools for Managing Nitrogen in Coastal Watersheds
watersheds (for example,The Center for Watershed Protection, 2013), effectiveness data may
not be directly transferrable outside the original geographic area due to differing environmental
conditions impacting the efficacy of nitrogen removal. For technology-based nitrogen removal
such as innovative and advanced onsite wastewater treatment systems, demonstration projects
such as the Massachusetts Alternative Septic System Test Center (Barnstable County Department
of Health and Environment, 2016) and the recent septic demonstration pilot program as part
of the Reclaim Our Water Initiative in Suffolk County, New York (Suffolk County, 2014), can
demonstrate nitrogen removal potential. Having a standardized way to transfer the nitrogen
reductions demonstrated in one location to another location is highly desirable, as the
demonstration sites may take many years of monitoring before an actionable reduction level
is agreed upon.
3. An understanding of the costs of implementing various management practices
The relevant costs to consider include not only the installation cost of nitrogen-removing
technologies or BMPs, but also their operation and maintenance costs and average lifespan.
Costs in future years must be discounted and annualized (Wood, 2015) to arrive at an
estimated annual cost for each technology, which means that an appropriate discount rate
must be selected (see U.S. EPA, 2010, for a discussion of discount rates ). This analysis does not
necessarily include potential costs that would result from failures due to unforeseen
circumstances, such as the impacts of climate change, although these may be an important
additional consideration depending on the geographic area (Halkos, 2013).
A very complex but highly desirable approach (according to many watershed managers interviewed
for this study) is a nitrogen management tool that would integrate the cost-effectiveness analysis with
geospatial information. This would allow watershed managers to consider cost-effective locations for
implementation of management actions. Developing such a tool requires a thorough understanding of
the hydrologic transport of nutrients in the area and the biochemical processes that may be impacting
nitrogen delivery to the estuary. In order to decide which technologies and BMPs should be considered
in the cost-effectiveness analysis, watershed managers would also want to know where the nitrogen
sources are and how much each source contributes. There are levels of uncertainty with regard to
hydrologic and environmental modeling of nutrient transport, and any tools developed should carefully
consider the modeling and environmental data feeding in to them. To develop such a tool would require
expertise in a number of fields, including hydrology, GIS, and optimization. Further discussion is beyond
the scope of this document (see Cools et al., 2011; Gren et al., 2000 for examples).
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IV. Watershed Management Questions
The Questions:
How do we use economic
information as a
communication tool to
illustrate the importance of
water quality improvements
to a wider audience?
This is a broad question, asked by many managers. While this is
probably the most important overarching question for managers,
it does not directly lead to any one type of analysis. It might be
formulated in two different ways, based on the actual needs and
analyses conducted by the people we interviewed, leading to very
different types of analysis. The following questions are two ways
to frame this more general question of communicating the
importance of estuarine resources. Depending on how the
question is framed, there are several methodologies that provide
different measures and interpretations.
How do we impress upon the
local community the tangible
economic values related to
water quality, in the form of
money circulating through
the community?
This question would be addressed using economic impact or
economic contribution analysis.
How do we evaluate the social
benefits of protecting water
quality in the community in
a way that can be compared
to other social programs or
actions?
This question would be addressed using economic benefits
analysis.
How do we link the benefits of
water quality improvement to
business revenues, jobs, and
other measures that resonate
with residents, the business
community, and broader
stakeholder groups?
This question focuses on money flowing through the local
economy, and would be addressed using either economic impact
analysis or economic contribution analysis. Many economic
analyses that are being used by watershed managers were
intended to illustrate that estuarine resources provide real
economic impacts on or contributions to the community. There
are ways to do this that exclusively focus on businesses and
economic transactions related to a particular sector - in our case,
estuaries. These are economic contribution analysis and economic
impact analysis. These studies can illustrate that the coastal
environment contributes tangible values to a local economy.
However, they do not measure social welfare, because dollars
flowing in a local economy are dollars that do not go to other
local economies, and are thus transferred from one sector or
region to another.
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Economic Tools for Managing Nitrogen in Coastal Watersheds
The Approaches: Economic Contribution Analysis and Economic Impact Analysis
Economic Contribution Analysis
Economic Contribution Analysis uses current regional data to determine how much economic activity is
associated with a particular industry, event, or policy. An economic "contribution analysis may provide
evidence of how relatively large a sector is in the existing economy and how much economic activity is
being cycled through the economy by a given industry (Watson et al., 2007, p. 143)." For example, in our
case, it might add up all of the economic activity of estuary-dependent businesses, or of businesses that
depend on clean water in the estuary. Or, an economic contribution analysis might be conducted to
evaluate an event that occurs in the estuary to illustrate the contributions of such estuary-dependent
events to the local economy.
Economic contribution
analysis and economic
impact analysis enable
watershed managers
to demonstrate links
between a watershed and
the local economy without
dealing with the complex
world of valuation of
economic benefits.
An economic contribution analysis can show the relative size of a
particular sector compared to the whole economy of the state or
region, and therefore demonstrate the importance of that sector.
An economic contribution analysis does NOT consider the fact
that, if money were not spent in that sector (for example, a
waterfront restaurant) it might be spent elsewhere in the town
(such as an inland restaurant with no connection to the estuary).
Therefore, it doesn't measure changes to the local economy that
might occur if water quality improves. "The direct effect in a
contribution analysis includes purchases by local consumers and
non-local consumers and is neither a measure of changes to the
regional economic base nor a measure of the value added to the
region above what was paid to input suppliers (Watson et al.,
2007, p.143)."
Economic Impact Analysis
An economic impact analysis estimates the money flowing to a
local or regional economy from other geographic areas as a result
of environmental amenities such as a clean estuary. These studies focus exclusively on the revenues
brought into a region, or revenues that remain in the region that would otherwise be lost absent the
environmental resource (Watson et al., 2007). "This, obviously, is a much more complicated and
exclusive way to perform a regional economic analysis but one that really attempts to get at the net
effects of an industry, event, or policy on a region's economic base (Watson et al., 2007, p. 143)." See
Colgan (2013) for an example of an economic impact study for the America's Cup World Series in
Newport, Rhode Island.
Neither of these types of analysis measure social welfare as a result of the existence of environmental
resources. These methodologies enable watershed managers to demonstrate links between a
watershed and the local economy without dealing with the complex world of valuation of economic
benefits. For example, the Sarasota Bay Estuary Program conducted an economic impact analysis as part
of their economic valuation project (Hindsley and Morgan, 2014). For additional understandable and
brief information on economic contribution analysis and economic impact analysis, refer to Watson
et al. (2007).
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IV. Watershed Management Questions
The Questions:
What are the benefits of nitrogen
management and the associated
environmental improvement, compared
to the costs of implementing nitrogen
management practices?
If we spend a given number of dollars for
a given level of treatment, what is the
return on investment and increase in
benefits to society?
These questions are two different ways of framing
the benefit-cost question. To answer these
questions, a full benefit-cost analysis is required.
This requires a great deal of expertise, and it is
critically important that the individual or team
leading any economic analysis is highly trained. We
do not go into deep detail about how to conduct
these analyses because, within the scope of this
document, we can only scratch the surface of what
is needed
The Approaches: Economic Benefits Analysis and Benefit-Cost Analysis
Economic Benefits Analysis, also called economic valuation, can be used to estimate the economic value
of environmental resources and ecosystem services to individuals, and individual values may be added
up to calculate benefits to society at large. Valuation studies focus on determining what citizens would
be willing to pay for the goods and services provided by ecosystems, and are most appropriate for
evaluating the social benefits of management actions or policies. Economic benefits analysis can feed
into a full benefit-cost analysis, which is used to evaluate whether people's values for the benefits of
environmental protection outweigh the costs, including both monetary costs of implementation and
other social costs in the form of foregone opportunities.
A benefit-cost analysis defines a baseline condition and an
expected condition after a management action is taken or a policy
is implemented, and evaluates the value of the difference
between the two. Benefit-cost analysis is completed in many
steps requiring both economic and environmental information.
Here's a brief overview of what it would take to conduct a
benefit-cost analysis of nitrogen management (see Barbier et al.,
2011, for more detailed descriptions). Remember that in this
context the word "benefits" refers to the value that human beings
place on or receive from environmental quality and ecosystem
services, and benefits are quantified in terms of people's
willingness to pay for a change (or to avoid an unwanted change).
1.	Determine the level of environmental quality and/or ecosystem services provided by the
ecosystem under current nitrogen loading conditions (establish a baseline).
2.	Determine the expected nitrogen load reduction from a proposed management activity or suite
of activities. This requires scientific expertise and modeling of spatial and temporal aspects of
how actions lead to environmental changes over time and space within the study area.
3.	Determine the environmental change (and its trajectory over time) that would result from the
nitrogen load reduction as a result of the management activity.
The actual benefit of
the management action is
the value of the difference
between the
post-implementation
conditions and the
pre-implementation
conditions.
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2£5L5L Economic Tools for Managing Nitrogen in Coastal Watersheds
4.	Use appropriate economic valuation techniques to value the change in environmental quality
or ecosystem services. The actual benefit of the management action is the value of the difference
between the post-implementation conditions and the pre-implementation conditions. This is
typically expressed in annual values, related to the annual stream of environmental changes.
These values per year are then discounted to estimate a present value of benefits and/or an
annualized stream of benefits.
5.	Once benefits have been quantified, they can be compared to costs of actions, which include
initial implementation costs, operation and maintenance, and also what economists refer to as
"opportunity costs" - the social costs that might be incurred beyond expenses on the program
itself. For example, agricultural BMPs might take some agricultural land out of cultivation,
incurring a cost in the form of lost profits to farmers.
As you can see, a benefit-cost analysis of nitrogen management (or any other environmental policy)
is not strictly an economic exercise, but requires significant scientific expertise input from the affected
community to identify the relevant environmental quality measures or ecosystem services, their current
levels of provision, and the expected trajectory overtime. Additional science regarding environmental
responses to nitrogen reduction measures is particularly needed. If we do not have an established
environmental response relationship, it is difficult to determine the value of those improved conditions
because we won't know what they are (Kline et al., 2013).
Full benefit-cost analysis for nutrient management is not common, although many locations have
evaluated at least some of the benefits of nutrient reductions. On example of a place where the
increased value from nitrogen reduction is being estimated using economic tools is in Cape Cod, by the
Cape Cod Commission. So far, they have focused evaluating how reduced nitrogen loads may lead to an
increase in property values, which resonates greatly with the local community whose greatest asset is
most often their home (Ramachandran, 2015). Morgan and Owens (2001) conducted an analysis of
economic benefits from water quality improvements in the Chesapeake Bay from 1972 to 1996, to
evaluate the benefits to that point from the Clean Water Act.
These examples illustrate that economic analyses can be used to answer complex management
questions, such as whether or not implementing TMDLs result in greater benefits to the community
than costs, or how much reducing nitrogen will impact home values. They also illustrate that the type of
analysis that economists advocate focuses on evaluating the impact of a particular action and the value
of the resultant change.
Considerations with regard to benefit-cost analysis
As you might imagine, evaluating the complete suite of economic benefits from a change can be quite
difficult, especially for changes in environmental quality or ecosystem services that are difficult to
quantify or to relate to people's willingness to pay. Therefore, benefits analyses are often incomplete,
providing only a lower bound estimate of benefits. In many cases, non-use values may be larger than use
values but, because it is difficult and costly to estimate non-use values (since they can only be quantified
using surveys of the public), this large and important component of benefits is likely to be omitted.
Because the environmental changes in the resources that people directly use may be small relative to
the baseline, if we were to implement a very costly TMDL, it is possible that the economic analysis will
show that benefits do not outweigh the costs, or that benefits and costs are very close in magnitude.
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IV. Watershed Management Questions
Simply identifying and recognizing benefit streams may be able to
* . meet the need of demonstrating that environmental assets produce
tangible positive impacts, without all the complications of monetizing
that are included in a full scale benefit-cost analysis.
That is something one might want to bear in mind before embarking on an economic analysis. As
individuals who work in the environmental field, it is easy to assume that restoring our environment is
always worth the cost. However, when actually doing an economic analysis, values are aggregated
across the community and sometimes an economic analysis might show that environmental restoration
does not result in net benefits to society at large, at least in terms of those values that can be estimated
with a reasonable investment of effort. It also is important to remember that while benefit-cost analysis
provides a means of assessing the economic efficiency2 of actions, economic efficiency is not the only
criterion to consider when evaluating public policy. It is simply one piece of information to include in
public decision-making, along with other concerns such as equity, precaution, and the distribution of
costs and benefits.
Simply identifying and recognizing benefit streams may be able to meet the need of demonstrating that
environmental assets produce tangible positive impacts, without all the complications of monetizing
that are included in a full scale benefit-cost analysis. Referring to the first step in the summary of
benefit-cost analysis above, we see that it includes using both community input and values as well as
scientific information to determine which benefits are most relevant and most likely to be impacted by a
management action. Engaging with the community to identify benefit streams qualitatively could be a
manageable way to demonstrate that an ecosystem provides benefits without actually monetizing
them. Those identified benefit streams can be expounded upon in a full benefit-cost analysis when and
if resources for such a complicated exercise become available (Schuster and Doerr, 2015; The Nature
Conservancy, 2015).
The "Total Value" Method
(and why it makes economists crazy)
Before we close, we have to address a major sticking point that has emerged between what is
recommended by economists and some analyses that are occurring in the real world. This issue will
continue to come up between economists and non-economists attempting to use economic analyses
until there is mutual understanding regarding the what economists consider standard practice and how
that relates to the real-world needs of watershed managers.
One of the common methodologies employed by some environmental groups is the "total value"
method (not to be confused with the economic term "total economic value" or TEV). Total value studies
attempt to quantify the value of an ecosystem by estimating and monetizing the total flow of goods and
services from an ecosystem. This is typically done by adding up all the acres of each type of ecosystem,
2 Also referred to as "Pareto efficiency." As measured using benefit-cost analysis, an economically efficient
outcome has positive net social benefits. This means that those who are made better off could compensate those
who are made worse off so that, overall, society is better off (Boardman et al. 2001).
23

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Economic Tools for Managing Nitrogen in Coastal Watersheds
and multiplying by a value per acre for the services provided by that type of ecosystem (see, for
example, Batker et al., 2014; Costanza et al., 1997; Costanza et al., 2014). According to watershed
managers we spoke to who have used this method, it has been successful in demonstrating that
seemingly abstract assets in the environment actually contribute economic value to the community.
Unfortunately, from a traditional economics standpoint, this method is not generally recommended by
economists (Bockstael et al., 2000; Toman, 1998).
One issue that concerns economists about the total value method is that this method simply compares
the value of the current state of the ecosystem to a hypothetical case of the complete disappearance of
the ecosystem. Just demonstrating that an entire ecosystem is valuable in its current state does not
allow us to draw any further conclusions that would enable us to weigh different management options
to protect or improve that ecosystem (unless the option we're weighing is to prevent the total loss of a
site). We also cannot make the case that the calculated value of the benefits of an ecosystem is equal to
the dollar amount we should be spending per year on that ecosystem (Pagiola, 2008). An entire
ecosystem and all its benefits and services, in all likelihood, is not going to completely disappear (The
World Bank, 2004). It might be in better or worse condition, therefore providing more or less value and
benefits, but these "total value" analyses do not capture the values of policy-related changes, as the
following examples illustrate.
Economists' value measurement establishes a baseline of time, place, and context relative to people's
quality of life, and looks at the implications of a change resulting from a management action and how
willing people are to make sacrifices to accomplish this change. The total value approach omits the role
of people's choices as a key to understanding value.
Example #1:
Knowing that wetlands contribute $1 million in total flood protection benefits to a watershed does not
tell us whether converting a recreation beach to wetlands will be more or less beneficial to society than
leaving the beach alone. Maybe the nearby recreation beach is the most valuable asset to community
character! Or, perhaps the beach provides habitat for an endangered shorebird species, so that
protecting the beach may be more critical than creating a wetland that would support other important,
but less scarce, species. There is no way to make these types of tradeoff decisions simply by calculating
the value of existing services.
Example #2:
As a scientist, would you conclude that a community of insects is a healthy community by simply
observing that insects are there and counting them up? No! That would only tell you that insects exist,
and how many of them there are - nothing about how they were serving (benefiting) the broader
ecosystem. In order to determine whether or not that insect community is healthy (what its value is),
you would need to know what a representative healthy community consists of (establishing a baseline).
Then you would need to compare that baseline community and its functions with what you have at
hand. Economists apply this same concept to economic data, in that you can't estimate the value and
benefits of the environment without first establishing a realistic baseline to compare it to.
24

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IV. Watershed Management Questions
The issue of estimating the value of an ecosystem relative to the generally unrealistic baseline of total
loss of that ecosystem is only one issue with this approach (Bockstael et al., 2000; Masood and Garwin,
1998; Toman, 1998). Other issues include: the application of values calculated for marginal changes
(changes that measure the value of adding one additional unit of the resource) to large changes
associated with the presumed loss of an entire ecosystem; applying per-acre values from one location to
another without accounting for differences variables across locations and the people who benefit; and
the fact that only a subset of all relevant values can be included due to lack of existing data and the
difficulty of identifying and then valuing all of the relevant benefits an ecosystem provides. Even if we
assume that the resultant total value is a reasonable estimate, despite the missing and inaccurate
values, what is being compared is a situation which does not exist in reality.
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V. Summary and Recommendations
£
VV
Photo by Dotty Motta, NEP
V. Summary and Recommendations
WATERSHED MANAGERS would benefit from better access to trained economists who understand their
needs and can advise them in plain language about how to conduct valuation analyses. This document
can serve as a starting point for illustrating those needs to economists who may be interested in
pursuing relevant research and analysis. It also gives an overview of the types of economic analyses that
are appropriate to answering different questions that watershed managers might ask, providing
managers with a basis for evaluating economic proposals.
Watershed management requires balancing scientific, political, and social issues to solve environmental
problems. Watershed managers expressed a need for proactive support to achieve economic data goals.
Environmental economics is a broad and complicated field of study that requires a great deal of
expertise to execute properly. Consultation with several trained economists who understand the
watershed management needs prior to commissioning economic analysis will ensure adequate review of
methods and promote more accurate results. The simple solution is better communication before,
during, and after economic analyses are conducted, and a mutual understanding that both fields have to
make a concerted effort to communicate what is needed and to select appropriate and feasible
approaches to meet those needs.
Due to restrictions on data collection by government agencies, it is often difficult to obtain the local,
primary data that is required for many of these analyses. Agencies might explore ways to facilitate
better data collection on environmental economics topics so that both government and non-
government users can easily locate quality data, and therefore produce better studies. Adequate funds
also need to be available to conduct analyses using accepted methods, despite their great expense, so
that watershed managers can get the information they require.
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Economic Tools for Managing Nitrogen in Coastal Watersheds
Photo by John Repoza
For more information
Along with the sources referenced in the text, the following references provide additional detail on
the topics we've introduced in this document.
Compton, J. et al. 2011. Ecosystem services altered by human changes in the nitrogen cycle: a new
perspective for US decision making. Ecology Letters 14: 804-815.
Cowdin, S. 2008. Department of Water Resources Economic Analysis Guidebook, State of California
Department of Water Resources. Available at: http://www.water.ca.gov/economics/guidance.cfm
(accessed February 1, 2016).
Heberling, M., et al. 2010. A Framework Incorporating Community Preferences in Use Attainment
and Related Water Quality Decision-Making. USEPA, Cincinnati, OH, EPA/625/R-08/001.
NOAA Coastal Services Center, 2009. Introduction to Economics for Coastal Managers. Charleston,
SC. Available
at: https://coast.noaa.gov/digitalcoast/sites/default/files/files/1366310060/economics for coastal
managers.pdf (accessed February 1, 2016).
NOAA's Coastal and Ocean Economy site (https://coast.noaa.gov/digitalcoast/topic/
econom ) provides "community-based tools and data sets for documenting and
understanding coastal economic impacts."
Thurston, H., M. Heberling, and A. Schrecongost (eds). 2009. Environmental Economics for
Watershed Restoration. CRC Press, Boca Raton, FL.
UNEP-WCMC, 2011. Marine and Coastal Ecosystem Services: Valuation Methods and Their Practical
Application. UNEP-WCMC Biodiversity Series No. 33. 46 pp. Available
at: http://www.unep.org/dewa/Portals/67/pdf/Marine and Coastal Ecosvstem.pdf (accessed
February 1, 2016).
U.S. EPA, 2010. Guidelines for Preparing Economic Analyses. Washington, DC, U.S. Environmental
Protection Agency National Center for Environmental Economics. Available
at: http://vosemite.epa.aov/EE%5Cepa%5Ceed.nsf/webpaaes/Guidelines.html (accessed February 1, 2016).
Weisbrod, G. and Weisbrod, B. 1997. Measuring Economic Impacts of Projects and Programs,
Economic Development Research Group. Available at: http://vwvw.edrqroup.com/library/economic-
impact-analvsis/primer-measurina-impacts.html (accessed February 1, 2016).
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VI. References
Photo by John Repoza
VI. References
Arrow KJ, Cropper ML, Eads GC, Hahn RW, Lave LB, Noll RG, Portney PR, Russell M,
Schmaiensee R, and Smith VK. 1996. Is there a role for benefit-cost analysis in
environmental, health, and safety regulation? Science 272:221-222.
Balana BB, Vinten A, and Slee B. 2011. A review on cost-effectiveness analysis of agri-
environmental measures related to the EU WFD:Key issues, methods, and applications.
Ecological Economics 70:1021-1031.
Barbier EB, Hacker SD, Kennedy C, Koch EW, Stier AC, and Silliman BR. 2011. The value of
estuarine and coastal ecosystem services. Ecological Monographs 81:169-193.
Barnstable County Department of Health and Environment, 2016. Massachusetts Alternative
Septic System Test Center, http://www.barnstablecountyhealth.org/programs-and-
services/massachusetts-alternative-septic-system-test-center (accessed March 4, 2016).
Batker D, Christin Z, Cooley C, Graf W, Jones KB, Loomis J, and Pittman J. 2014. Nature's Value
in the Colorado River Basin. Earth Economics.
Board man AE, Greenber DH, Vinin AR, and Weimer DL. 2001. Cost-Benefit Analysis: Concepts
and Practice, 2nd Edition ed. Prentice Hall, Upper Saddle River, NJ.
Bockstael NE, Freeman AM, Kopp RJ, Portney PR, and Smith VK. 2000. On Measuring Economic
Values for Nature. Environmental Science and Technology 34:1384-1389.
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