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An Economic Framework for Evaluating Benefits and Costs of Water Reuse

Project: 03-06
Type: Decision Making Tool
Year Released: 2006

Program: Principal
Funding Partners: Bureau of Reclamation, California State Water Resources Control Board, Southwest Florida Water Management District, Inland Empire Utilities Agency (CA), Santa Clara Valley Water District (CA), Las Vegas Valley Water District (NV)
Total Investment: $230,000 (Cash)

Principal Investigator: Robert S. Raucher, Ph.D., Stratus Consulting Inc.

Background

The financial costs of constructing and operating water reuse or desalination projects are often relatively high compared to the cost of using more traditional sources of water. Thus, it is important to have a reasonably complete recognition and accounting of the full range of benefits of such projects to determine whether the benefits outweigh the costs. These needs served as the impetus for this research report, which includes the essential components of an economic framework identified by an expert panel convened as part of this project.

Goals and Objectives

The project provides an economic framework to help water managers conduct a benefit-cost analysis that identifies, estimates, and effectively communicates the full range of benefits and costs associated with water reuse or related activities.

Research Approach

Task 1. Identify and describe the full range of tangible and intangible benefits derived from water reuse projects including, but not limited to: water supply, supply reliability, reduction/elimination of treated wastewater effluent disposal, infrastructure savings including reduced maintenance and deferred construction of new facilities, increased public health protection, environmental enhancement, increased inland surface water flows, reduced environmental impacts, local autonomy in water supply and land use planning, regional and local economic development, and recreational uses. Consider wastewater and water reuse projects of various sizes to ensure adequate consideration of a range of potential benefits and impacts.

Task 2. Develop approaches for valuing the tangible and intangible benefits of water reuse projects.

Task 3. Suggest approaches to bring stakeholders together to identify benefits and assess the value of water reuse projects.

Task 4. Quantify the benefits and impacts identified in the previous tasks through measurable units. Where possible, provide a range of measurements that can be considered to evaluate each benefit and provide a rationale for selecting among alternative units.

Task 5. Assign monetary value to the measured benefits to allow for comprehensive comparison of economic impacts of alternative water, wastewater and water supply projects. Use a variety of monetization techniques including but not limited to market price, least-cost alternative and appropriate forms of contingent valuation and provide a rationale for selecting appropriate monetization strategies for each impact or benefit. Where possible, develop approaches to quantify the cost and benefits of reuse projects in a way that provides community planners with the tools to more accurately depict the financial, environmental, and social impacts of these projects. For benefits that resist quantification or monetization, develop qualitative approaches that can suggest a range of quantified or monetized values.

Task 6. Involve appropriate stakeholders in the identification, assessment and monetization tasks, and develop approaches that local agencies can adopt to bring stakeholders together to identify benefits and assess the value of their water reuse projects.

Task 7. Create a spreadsheet model for use by local planners that accepts key variables for water, wastewater and water reuse projects and provide appropriate monetary values for cumulative benefits and costs. Develop sources of baseline data and a bibliography of current references to support the performance of cost-benefit analyses by community planners.

Task 8. Provide a means for assessing the value of assessed benefits to various stakeholders and determine approaches to distribute benefits among agencies, including those that do not currently bear the costs of reuse projects. These approaches will help accrue benefits to the appropriate agencies.

Findings and Conclusions

This research report develops an economic framework that is a tool to help water agencies and other water sector professionals conduct a benefit–cost analysis (BCA) of reuse or desalination investments. The economic framework is designed to help water managers (1) identify, (2) estimate (to the degree feasible and meaningful), and (3) effectively communicate the full range of benefits associated with water reuse projects or related activities. This report supplies templates (and a computerized spreadsheet version) to help guide users through the exercise. Illustrative examples also are provided for several water reuse projects.

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