6—
Case Studies

This report has emphasized the importance of valuing ground water resources and suggested a framework and valuation methods that could be used to quantify the economic values associated with a suite of ground water services. This chapter provides brief descriptions of seven existing situations that highlight the importance of valuing ground water resources. These case studies also include some information on applicable valuation methods. The chapter offers some insight into the difficulties that water managers (and policy-makers in general) face in attempting to translate recommendations regarding valuation methods into usable estimates of ground water values. Such difficulties can derive from institutional constraints or conflicts in specific locales; political considerations; terminology and conceptual problems related to communicating information; and uncertainties associated with technical analyses, determination of effects, and economic assumptions.

These site-specific studies are brief and are not intended to offer solutions for any other case. Instead, these examples demonstrate that valuing ground water resources is not a recipe that can simply be followed at any site. The planning and implementation of economic valuation studies requires the interdisciplinary efforts of economists, engineers, scientists, and policy-makers. These studies show that although a complete accounting for all components of the TEV of ground water is often impossible to obtain, quantifying some components can provide information to improve decision-making and increase the efficiency of the use of scarce ground water resources. Table 6.1 summarizes the theme of each case study.

The first case study illustrates the link between surface water use and the



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Valuing Ground Water: Economic Concepts and Approaches 6— Case Studies This report has emphasized the importance of valuing ground water resources and suggested a framework and valuation methods that could be used to quantify the economic values associated with a suite of ground water services. This chapter provides brief descriptions of seven existing situations that highlight the importance of valuing ground water resources. These case studies also include some information on applicable valuation methods. The chapter offers some insight into the difficulties that water managers (and policy-makers in general) face in attempting to translate recommendations regarding valuation methods into usable estimates of ground water values. Such difficulties can derive from institutional constraints or conflicts in specific locales; political considerations; terminology and conceptual problems related to communicating information; and uncertainties associated with technical analyses, determination of effects, and economic assumptions. These site-specific studies are brief and are not intended to offer solutions for any other case. Instead, these examples demonstrate that valuing ground water resources is not a recipe that can simply be followed at any site. The planning and implementation of economic valuation studies requires the interdisciplinary efforts of economists, engineers, scientists, and policy-makers. These studies show that although a complete accounting for all components of the TEV of ground water is often impossible to obtain, quantifying some components can provide information to improve decision-making and increase the efficiency of the use of scarce ground water resources. Table 6.1 summarizes the theme of each case study. The first case study illustrates the link between surface water use and the

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Valuing Ground Water: Economic Concepts and Approaches TABLE 6.1 Comparative Information on Seven Case Studies Case Study Theme Comments Treasure Valley, oregon Linkage between surface water usage for agriculture and the value of ground water services whose quantity and quality may be influenced by agricultural practices. Illustrates importance of ground water valuation in designing allocative and management policies for the conjunctive use of surface and ground water. Laurel Ridge, Pennsylvania Use conflicts that may arise among local governmental agencies coordinating various combined uses of surface and ground water. Illustrates need for systems approach in defining hydrogeology, surface and ground water resources, and competing uses within a multi-institutional framework in a local geographical area. Albuquerque, New Mexico Development of long-term water use strategy for a city that relies on ground water for its water supply; also includes buffer value of ground water. Includes information on both use and nonuse value of ground water and how this can be incorporated in long-term water supply planning in an area where ground water mining occurs. Arvin-Edison, California Buffer value of ground water in an area subject to periodic droughts. Demonstrates buffer benefits of a ground water resource in an agricultural area. Orange County, California Use of ground water recharge in a coastal area to avert sea water intrusion in a viable ground water basin. Addresses the value of ground water in storage as a deterrent to sea water intrusion. Woburn, Massachusetts Incorporation of the value of ground water in deciding on remediation for a Superfund site. Illustrates numerous uncertainties associated with local hydrogeological conditions, pollutant transport, the effectiveness of remediation strategies, and direct and perceived health consequences of drinking contaminated ground water. Tucson, Arizona Planning for application of valuation framework to decisions for meeting water demand; options addressed are ground water recharge and/or surface water treatment. Illustrates the variety of considerations associated with a ground water valuation study, including the need to incorporate engineering estimates along with valuation methods; also focuses attention on the importance of substitute water supplies.

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Valuing Ground Water: Economic Concepts and Approaches quantity and quality of ground water in the Treasure Valley area of eastern Oregon and southwestern Idaho. In this setting, which is typical of many areas in the West, agriculture relies primarily on surface water supplies, and ground water is used mainly for human and industrial consumption. The presence of pollutants from agriculture in an aquifer reduces the value of the ground water for human consumption and poses challenges for water resource managers. Without estimates of the value of the services associated with unpolluted ground water, managers may design allocation and management policies that could lead to suboptimal use of both the scarce ground water and the surface water supplies. The Laurel Ridge, Pennsylvania, case study is an example of competing uses of an aquifer and the interplay between ground water and surface water supplies. In this area the user conflicts are between development (mining) and tourism and among the many fragmented local governments whose jurisdictions overlay the watershed. Economic valuation is a crucial component to achieving a more systematic approach to planning in this watershed. The next two case studies deal with the buffer value of ground water. In Albuquerque, New Mexico, ground water is the primary source for municipal water supply, although the city also has rights to surface water from nearby rivers. Recent concerns with both the size of the aquifer and increased population growth along with ground water mining have initiated a series of engineering and economic studies to assess the long-term strategies for water use. This example provides concrete evidence of the role that economic values can play in formulating policy alternatives for water use management. The Arvin-Edison Water Storage District in southern California is another example of a buffer value success story, where the surplus water from wet years is being used to recharge the aquifer. This water management system in the Bakersfield area has been in place for nearly 30 years and by some estimates has generated millions of dollars in net returns to agricultural interests that would have been foregone during critically dry years. The second California example deals with the issue of irreversibilities associated with the intrusion of sea water in the ground water basin underlying Orange County, in southern California. Loss of the basin to sea water intrusion would require the Orange County Water District to rely more heavily on imported water and would preclude the use of the aquifer for water storage. Knowing the value of the ground water was clearly an important component in the decision to construct and operate Water Factory 21 (an advanced wastewater treatment plant) and two water injection projects. Combinations of imported water and highly treated municipal wastewater are recharged as a barrier to sea water intrusion. The sixth case study, a Superfund example, illustrates the importance of ground water valuation to federal regulations regarding remediation of contaminated aquifers. Policy decisions on the extent to which ground water remediation should be pursued need to be based on a careful assessment of the costs and benefits of proposed actions. The benefits of restoring the quality of a contami-

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Valuing Ground Water: Economic Concepts and Approaches nated aquifer will be reflected in the potential gains or value of improvements to the ground water resource and will be site-specific. The empirical findings of this Woburn, Massachusetts, case study refute conventional wisdom concerning the economic efficiency of ground water remediation at Superfund sites for the sole purpose of restoring drinking water supplies (i.e., that the costs of remediation far outweigh the benefits). In some cases ground water remediation can be the efficient alternative; it should not be dismissed without conducting a cost-benefit analysis. This case study also highlights the complexities involved in conducting an empirical analysis of the value of restoring ground water resources and the impacts of uncertainties in the economic and physical dimensions, and in potential health consequences, and the public response to ground water usage. The final case study concerns the potential application of the valuation framework described in Chapter 3 and some valuation methods described in Chapter 4. Options in this Tucson, Arizona, case include ground water recharge using Central Arizona Project (CAP) water or treatment of CAP water prior to usage. This study provides information on the types of methods that could be used to value a complete suite of ground water services for both options. CHALLENGES IN WATER QUALITY MANAGEMENT Treasure Valley, Oregon Background The Treasure Valley of eastern Oregon and southwestern Idaho is high desert (10 inches of precipitation on average per year) that is intensively irrigated using surface water from the Owyhee, Malheur, and Snake Rivers. All the water of the Owyhee and Malheur Rivers (tributaries of the Snake River) is diverted to irrigation. Stream flow below the diversions is maintained by irrigation return flows and recharge from a shallow aquifer supported in part by irrigation recharge (Gannett, 1990). Crop agriculture in the area is characterized by a range of high valued crops including potatoes, sugar beets, and onions, as well as cereal grains and hay. In the Oregon portion of the valley, approximately 180,000 acres are in irrigated crop production (Schneider, 1992). The primary source of water irrigation is from federal (U.S. Bureau of Reclamation) reservoirs and distribution systems. In terms of total agricultural sales, animal agriculture (cattle and dairy) accounts for 36 percent of sales, onions 25 percent, potatoes 11 percent, sugar beets 9 percent, cereal grains 9 percent, and the remaining crops 10 percent. Ground water is used largely for industrial or human consumption. Between 1983 and 1986, the Oregon Department of Environmental Quality (ODEQ) tested water wells in the study area. Elevated nitrate levels were found in 67 percent of the wells tested; 35 percent of the wells exceeded the federal drinking water

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Valuing Ground Water: Economic Concepts and Approaches standard for public water supplies of 10 mg/l. In 1989 ODEQ declared Malheur County a ground water management area and ordered that ground water nitrate levels be 7 mg/l or less by the year 2000. The ODEQ and local water quality management groups have identified agriculture as the primary contributor to ground water nitrates. Pesticides (dacthal) associated with onion production have also been found in test wells. Valuation/Management Issues The geohydrological link between surface water applications and ground water quality and quantity found in Treasure Valley is typical of many ground water situations in the West. Specifically, percolation of irrigation water serves to recharge the ground water aquifer (and in this case surface water percolation augments the natural flow in the aquifer). This ground water recharge/augmentation process serves a number of beneficial purposes. For example, recharge increases seepage from the aquifer into lowlan ds, creating wetlands for wildlife. Irrigation returns, whether through surface runoff or through eventual seepage of ground water to the Snake River and its tributaries, helps to stabilize stream flows. However, unwelcome consequences may accompany this recharge, including the elevated levels of agricultural pollutants of concern to the ODEQ. Ground water is the primary source of water for household and industrial uses around Ontario, Oregon, located near the center of the valley (Gannett, 1990). The presence of pollutants from agriculture, with associated health concerns, reduces the value of water for human consumption. Pollutants in ground water also degrade water quality in streams, with possible adverse consequences for fish and wildlife. Given present concerns about endangered salmon fisheries in the Snake River (the U.S. Fish and Wildlife Service have listed Snake River sockeye and chinook salmon as endangered), water quality has assumed increased importance. A number of strategies to reduce the amount of agricultural effluents reaching the aquifer have been proposed. A feature common to most strategies is ''better" irrigation water management, which implies less total water application per acre and hence less deep percolation. Such practices, however, also reduce the volume of water moving into the aquifer. This in turn affects the volume of seepage into wetlands and return flows to rivers. Further, if irrigation water "saved" by improved irrigation management is used to expand irrigated acreage, the total return flow and hence stream flow may be markedly reduced. Reduction in stream flow and wetlands will exacerbate some wildlife problems. Assessment of the Value of Ground Water The interplay of surface water use, ground water quality, and, ultimately, stream flow, creates challenges for public water resource managers as they try to

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Valuing Ground Water: Economic Concepts and Approaches achieve multiple objectives. Institutional constraints, including the nature of water rights (prior appropriation doctrine) and below-cost pricing of water in public supply projects, further complicates water management. A plan that achieved optimal use across all water resources in the basin would likely vary dramatically from the use pattern typically observed in such settings. Assessment of the values from one type of water resource, such as ground water, in isolation will lead to suboptimal resource use. To date, the benefits of ground water quality or ground water services in general have not been estimated for this area because of the focus on human health issues. Specifically, federal and state regulations require that water quality in the aquifer be brought into compliance with state water-quality standards. Economic analysis has been limited to assessment of the consequences to farmers of meeting the standards (Fleming et al., 1995; Connor et al., 1995). An understanding of the values of ground water could aid in comprehensive management of water. Against this backdrop of complex geohydrologic linkages, institutional constrains, and a regulatory mandate to improve water quality, it is instructive to consider whether the valuation techniques discussed in Chapter 3 can be used to estimate the value (benefits) of the ground water services provided here. The answer is a qualified yes. For example, the value of unpolluted ground water for household uses can be estimated through expenditures on averting behavior, such as purchase of bottled water or purification systems. Values of stream flow for recreational fishing can be estimated through travel cost procedures. Direct elicitation of nonuse values to maintain or enhance a species (e.g., existence values) could be estimated by the contingent valuation method, although the costs of performing defensible CVM surveys are quite high. Similarly, TCM or CVM can be used to determine the value of ground water recharge of wetlands for both use and nonuse services the wetlands provide. A compilation of these use and nonuse values would supply information on the trade-offs between management goals across water users, including protection of ground water services. References Connor, J. D., G. M. Perry, and R. M. Adams. 1995. Cost-effective abatement of multiple production externalities . Water Resources Research 31:1789-1796. Fleming, R. A., R. M. Adams, and C. S. Kim. 1995. Regulating groundwater pollution: Effects of geophysical response assumptions on economic efficiency. Water Resources Research 31:1069-1076. Gannett, M. W. 1990. Hydrogeology of the Ontario Area, Malheur County, Oregon. Ground water Report 34. Salem: Oregon Department of Water Resources. Scneider, G. 1992. Malheur County Agriculture. Ontario: Oregon State University Extension Service.

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Valuing Ground Water: Economic Concepts and Approaches COMPETING USES OF AN AQUIFER Laurel Ridge, Pennsylvania* Background Laurel Ridge covers 330 square miles in southwestern Pennsylvania. The generally forested, mountainous topography forms a distinct break with the surrounding plateau lowlands. An estimated 15 million tourists visit Laurel Ridge each year. Recreational activities such as hunting, fishing, boating, and skiing are supported by abundant, clean water and large holdings of public land (41 percent of the area). The dominant land uses of Laurel Ridge, such as recreation, water supply, wildlife habitat, and forestry, contrast with those of the peripheral lowlands, which are largely devoted to agricultural pursuits and coal mining. While tourism is an invaluable resource to communities within the area, high rates of unemployment and slow growth in other economic sectors persist. This area also has the highest acidic deposition in Pennsylvania. The Allegheny and Pottsville rock units are influenced by acid deposition and yield ground water high in hydrogen ion concentration and dissolved aluminum. Buffering from the Mauch Chunk/Burgoon aquifer and its discharges into area streams help support aquatic life (Beck et al., 1975). Pennsylvania government is fragmented. With over 2,500 minor civil divisions, the state ranks second in the nation in terms of the number of local government divisions. The Laurel Ridge region reflects this fragmentation: parts of four counties (Somerset, Cambria, Fayette, and Westmoreland) come together along the historic ridge-line boundary; within these counties, 22 townships and two boroughs form an intricate web of administrative jurisdictions. Thus the natural resources of the Laurel Ridge are not managed as a cohesive region. Ecosystem Characteristics The Mauch Chunk/Burgoon aquifer is the only source of high-quality ground water in the Laurel Ridge. It supplies most of the total public and domestic water supply and provides base flow to many of the region's exceptional surface waters. Compliance with the 1986 amendments to the federal Safe Drinking Water Act requires that all surface water used as drinking water for public water systems be filtered. From 1990 to 1995, some 30 high-yield municipal water wells were drilled in the area. The aquifer supplies high-quality upland streams through *   William Delavan, Graduate Research Assistant, and Charles Abdalla, Associate Professor, Department of Agricultural Economics and Rural Sociology, Pennsylvania State University, prepared this case study. Information in this case study was obtained through personal interviews with faculty at Pennsylvania State University and with Pennsylvania Department of Environmental Protection staff.

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Valuing Ground Water: Economic Concepts and Approaches artesian head-water springs. The effect of this development on streams has raised concerns about both the quantity of water withdrawn and the impact on water quality. Specifically, changes in withdrawal patterns have threatened aquatic environments that support fish and other organisms. Water quality is further affected by a combination of geographic and geologic factors that create in one of the highest rain acidities in the country. Water Users and Use Conflicts The rapid development of the aquifer, the lack of rules to allocate ground water among competing uses, and, in most cases, the absence of local water management and planning has led to a situation where it seems the person with the biggest pump or deepest well wins. Currently, there is little economic incentive for users to conserve. Since regulation is likely to occur in the future, users who establish an early claim to the resource stand to win by drilling before regulations are developed and carried out. There are several conflicting interests. The legacy of coal mines is prevalent throughout Pennsylvania. On both sides of the ridge in the lowlands there is degradation from coal mining; the aquifer is thus threatened on its boundaries. Assigning responsibility for past damage from coal mining is problematic from both a political and economic standpoint. The region is home to two destination resorts whose ground water withdrawals are generally substantial from late November to early April. The resorts have recently established golf courses that have increased off season withdrawals. A rise in the number of second homes on the ridge ("suburbanization") has multiplied water demand. The impacts of the resorts' usage are not well understood. Some parties argue that efforts to recycle runoff and sewage serve to increase or maintain ground water levels by replacing water on the ridge, in effect performing an environmental service. Others deny this claim and fear that the resorts' usage threatens water quality down slope. Furthermore, the ground water pumping may move waters out of areas favorable toward fish stocks and recharges areas unfavorable to fish stocks, compromising wildlife habitat. The resorts have a significant economic impact in providing employment as well as an influx of tourist dollars. Are the benefits of development greater than the costs in terms of resource degradation and other foregone opportunities? If, on the other hand, development inspires resource decisions that have high costs or are irreversible, such as ground water contamination by toxics, the sustainability of the local economy and its ecological systems is called into doubt. If, on the other hand, restrictive regulations or the absence of a plan to provide for long-term water and sewer requirements inhibits development, then attempts to attract new industry and lower the unemployment rate will be stymied.

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Valuing Ground Water: Economic Concepts and Approaches Issues Related to Economic Valuation Efforts to understand the physical systems of the watershed must be combined with equal efforts to measure how people value these systems. Policy-makers must address four issues: How much water is safely available from this aquifer system, and are there areas where the aquifer is potentially overdeveloped? What is the impact of ground water withdrawals on the quality and base flow of the upland surface water systems fed by Laurel Hill Spring? How can economic values for different uses be measured so that decision-makers may adequately take into account competing uses? Can effective watershed management increase the potential for optimizing the different uses? What is the best way to develop institutions to help carry out comprehensive planning? Economic Values and Decision-Making Regional watershed organizations have stepped up to meet these challenges, but their efforts may be insufficient to educate the public and measure and map resources. Even armed with accurate knowledge of ground water functions, policy-makers face complex decisions. The fragmented nature of municipal government in Pennsylvania poses serious challenges to intercommunity communication and cooperation, challenges that may be overcome only by a more systematic watershed approach to planning and policy implementation. In April 1992, the Laurel Ridge Forum was created in recognition of the region's vast public holdings, outstanding natural resources, and recreational opportunities. Composed of members from state and local government, business, and water suppliers, the forum focuses on future development in the area. Water rights conflicts between residents and second-home owners are at the center of the development debate. Research is beginning to define the physical impact of recreational uses and the extent of past degradation from coal and limestone mining, brine disposal, and road salting. Economic valuation is necessary to interpret how different members of the community value these environmental changes. New or different institutional arrangements among the layers of government could facilitate the comprehensive and systematic management of natural resources. The Laurel Ridge Forum's Coordinated Resource Management Plan (CRMP) attempts to deal with governmental fragmentation. Decision-makers must identify and study alternative policies for effectively managing these water resources. It might make sense, for example, to manage the watershed as well as the basin as a whole. As research defines the aquifer's physical limits and capabilities, stakeholders and decision-makers must continue to ask questions about the economic value of ground water. Specifically, they

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Valuing Ground Water: Economic Concepts and Approaches need to better understand and quantify the economic benefits of protecting the aquifer from depletion or degradation. The Laurel Ridge area offers a unique and challenging context for ground water valuation. Rapid development and competing interests have brought the water issue to the forefront, forcing increased efforts to understand and measure water resources and begin constructive public debate. Economic values will allow local officials to make more informed decisions relative to resource use by helping them gauge the community's values regarding water resources and the trade-offs between protecting these resources and economic development. Economic valuation coupled with a comprehensive systems approach to the watershed should guide decision-makers toward effective water resource management choices. Reference Beck, M, G. Cannelos, J. Clark, W. Curry, and C. Loehr. 1975. The Laural Hill Study: An Application of the Public Trust Doctrine to Pennsylvania Land Use Planning in an Area of Critical State and Local Concern. Department of Landscape Architecture and Regional Planning. Philadelphia: University of Pennsylvania. THE BUFFER VALUE OF GROUND WATER Albuquerque, New Mexico Background The city of Albuquerque, New Mexico, like many other rapidly growing metropolitan areas in the arid Southwest, draws much of its municipal water supply from ground water. Unlike most other cities, however, Albuquerque does have rights to surface water supplies from the nearby middle Rio Grande and to waters from the Colorado River basin (San Juan and Chamba Rivers) that are diverted to the Rio Grande basin. The city's historical reliance on pumping ground water in lieu of accessing available surface water reflects a mix of geohydrological, institutional, and cultural forces. These forces are changing and call into question the economic and physical sustainability of Albuquerque's water use patterns. In response to concerns over the long-term viability of ground water pumping, the city commissioned a series of engineering and economic valuation studies to assist managers in developing sustainable management strategies (CH2M-Hill, 1995; Boyle Engineering, 1995; Brown et al., 1995). In addition, other agencies involved in water issues in the area have issued or commissioned studies pertaining to water (Middle Rio Grande Conservancy District, 1993; EcoNorthwest, 1996). Albuquerque's strategies for water use, as described in

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Valuing Ground Water: Economic Concepts and Approaches these studies, provide examples of the role economic values can play in assisting policy formation. The middle Rio Grande valley has been inhabited and intensively farmed by Native Americans for at least 500 years. In addition to providing a stable water supply for irrigation, the riparian, tree-lined areas, or bosque, along the River were important to Native Americans for wood for fuel and shelter as well as cultural and spiritual purposes. Hence, communities (pueblos) sprang up at points on or near the River and its tributaries. Europeans were also attracted to the riverine environment of the Rio Grande valley and established settlements on the sites of present-day cities such as Albuquerque. As settlement progressed and the region grew, residents encountered new water issues. Competition among states (Colorado, New Mexico, and Texas) and between the United States and Mexico for the scarce surface water supplies of the basin resulted in a series of compacts and agreements allocating water among the parties. Albuquerque was given rights to 48,000 acre-feet of water from the Rio Grande and 22,000 acre-feet of imported water from the Colorado River basin. Total surface allocations in the middle Rio Grande basin exceed 350,000 acre-feet; they are used primarily for irrigated agriculture. While agriculture relies heavily on surface water, the settlements in the valley, including Albuquerque, have relied heavily on ground water to meet the needs of the increasing population. Albuquerque sank deep wells as early as 1910 to secure municipal water. This use of ground water was motivated in part by the high quality of ground water, the steady supply (even in years of drought) and the belief that the aquifer supply was large and recharge rapid. Rapid recharge of the aquifer from the River led city water managers to believe that they were simply pumping their surface water allocation, albeit with a slight lag time. Present Situation Recent geohydrological information that challenges past assumptions, increased competition for water, continuing population pressures, and concerns over the environmental health of riverine habitat in the middle Rio Grande valley cast doubt on the wisdom of Albuquerque's reliance on ground water. Perhaps the most important development was a 1993 U.S. Geological Survey study that revealed that the aquifer was not as large as originally believed nor is recharge (from surface flows) as rapid as assumed. This meant that Albuquerque was not using its surface water supplies but was instead mining or overdrafting its ground water. Inventory information also suggested that if Albuquerque continued to rely on the aquifer to meet its urban needs, the aquifer would be economically exhausted by 2060. During this same time period, the U.S. Fish and Wildlife Service (USFWS) listed the Rio Grande silvery minnow, found in the middle Rio Grande, as an endangered species. To ensure survival, the USFWS proposed

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Valuing Ground Water: Economic Concepts and Approaches fore important to identify the value of the changes in service flows that would be provided to decide whether the additional expense is justified. Unlike native ground water, surface water tends to contain pathogens, some of which are difficult to remove. CAP water has roughly twice the total dissolved solids (TDS) and salinity of the local ground water, and it contains organic precursors that can, in combination with chlorine, cause formation of trihalomethanes, a group of chemicals known as carcinogens. Depending on the contact time and travel through aquifer materials, the recharge process may reduce the organics and disease-causing organisms (bacteria and viruses), but it does not affect the salinity and hardness of the water. Therefore, recharge of untreated CAP water is likely to influence the quality of the water in the aquifer. To the degree that this same water is recovered for delivery to municipal customers, costs for end users will increase, because higher salinity and hardness translate into the need to replace appliances more frequently and increase the maintenance of irrigation and cooling systems. Depending on the location of the recharge, impact on water quality may not be substantial. For example, there are areas in the AMA where the end users may not experience negative effects from the higher salinity (agriculture usually has few problems with 700 mg/l TDS). However, it is important to note that the salt load brought in with the CAP water will be distributed in the vicinity of the recharge facilities and could migrate over time to surrounding aquifer materials unless the withdrawal facilities are in the same location. Recharge will have a positive effect on extractive values if the water is recharged in the vicinity of wells supporting extractive uses. However, several of the prime recharge locations are not near the central Tucson wellfield. The treatment option requires the development of an advanced water treatment facility, probably nanofiltration or reverse osmosis, to remove the salts, organics and solids as required by Proposition 200. Aside from the capital cost of the facility, which is several hundred million dollars, a major concern is disposal of the brine stream. Depending on how this salt-laden wastewater is directed, the effect on ground water service flows varies. The brine stream from such plants is normally discharged into surface water or injected into deep wells. Neither of these options is available in Tucson. The most likely disposal alternative is evaporation ponds, with the sludge deposited in lined landfills. The advanced treatment option provides the highest-quality water for municipal uses. It would not affect the quality or quantity of water for agriculture or mining. Direct delivery has many benefits, since it leaves the ground water in place and should allow for at least partial recovery of all of Tucson's wellfields. Advanced treatment will limit the avoidance costs of many municipal end users, who would otherwise buy bottled water, resort to point-of-use treatment devices, or replace their appliances more frequently as a result of using CAP water either directly or after recharge. Membrane treatment will also eliminate the possibility of Cryptosporidium or Giardia outbreaks, if the treated water is blended with

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Valuing Ground Water: Economic Concepts and Approaches ground water rather than surface water before delivery to customers. Blending of membrane-treated water is generally recommended to improve the taste, reduce corrosiveness, and reduce costs. Depending on the brine stream disposal method (most likely through evaporation ponds), there could be localized impacts on water quality in the aquifer. Another option is to deliver the brine to existing wastewater treatment plants, to be blended with less salty effluent before discharge. This would result in high salinity downstream from the wastewater facilities. The ground water quality in these areas could be degraded, affecting service flows. Incremental Changes in In Situ Service Flows In situ service flows can be categorized as use and nonuse. For Tucson, in situ uses include use of the stock to: (1) assimilate contaminated runoff from extractive uses and attenuate existing areas of ground water contamination; (2) buffer future drought on the Colorado River system in a conjunctive use scheme; and (3) support the soil structure in the aquifer and prevent subsidence. Additional in situ services include: existence value (based on a desire to protect the aquifer as part of the natural system); bequest value (the intent to protect water for future generations); and ecological services in which ground water supports surface water flows and riparian habitat. Recharge Effects If recharge is used to limit water-level declines in areas that are prone to compaction, it will help support in situ uses. There are two ways to limit the subsidence potential in the central Tucson wellfield: reduce the amount of future pumping there by withdrawing ground water elsewhere and recharging within the central wellfield. The former is easier in this case, since Proposition 200 precludes an effective way to recharge in the central basin (injection recharge). Surface recharge in areas of subsidence can actually accelerate subsidence, since its weight adds stress to the aquifer materials. Recharge results in the storage of water for future use, which increases the buffer value of the aquifer. If the water is available for future generations, then it supports the bequest value as well. Those who stress the existence value of the aquifer would likely prefer that higher-quality ground water be maintained rather than degraded by CAP water through recharge. However, it is not clear what the quantity/quality trade-off is for existence value. If recharge occurs in the vicinity of streambeds, it is likely to support riparian habitat or provide for an expansion of habitat values. Recharge facilities can easily be designed with a habitat/recreation component, guaranteeing a positive impact on ecological values. However, there are costs associated with increasing habitat values, particularly if threatened or endangered species become a compo-

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Valuing Ground Water: Economic Concepts and Approaches nent of the new habitat. The costs are associated with endangered species regulations, which could require permanent maintenance of the artificially created habitat to protect a particular species. This introduces a cost associated with irreversibility—the decision to recharge could be legally required to continue even if another water use option were more desirable from other perspectives. Advanced Treatment Effects Substitution of treated surface supplies for pumped ground water means that most of the wellfields in the vicinity of key riparian areas would not be used often. In addition, the regional water tables should rise in the wellfields because of natural recharge. Both of these occurrences should increase the quantity of water available for ecological service flows. The direct delivery option with advanced treatment protects both the quality (depending on the disposal of the brine stream) and the quantity of water in the aquifer. The buffer value of ground water would be the highest in this option, since there will definitely be future supply shortages, during which consumers will rely on ground water. By ending the current pumping in the central wellfield, additional subsidence is likely to be avoided. Ground water will be available for future generations, and those who value existence of the aquifer would have the quality as well as the quantity protected (at least in theory). Valuing Changes in Extractive Service Flows Incremental Extraction Costs (Marginal Benefits of Quality Changes) . In the Tucson example, the difference in the extractive service flows between the two options is related primarily to the reduced pumping costs and the reduced number of wells required to serve the community, as well as the water-quality issues caused by recharge of untreated CAP water that occurs in the one option. If the recharge does not occur in the vicinity of existing wellfields, water levels will continue to decline in those areas. Lowering the water level has two economic effects: it increases the amount of energy required to pump each acre-foot of water, and it results in the need to drill more wells since the most productive part of the aquifer may be exhausted. Direct delivery after treatment eliminates these costs because there would be little dependence on ground water as a supply except during infrequent CAP shortages and canal shutdowns. The only methods identified for evaluating the change in services related to pumping costs for extractive purposes were standard engineering analysis techniques—increased energy costs associated with increased head and well drilling and system extension costs. The major issues associated with this type of analysis are uncertainty and discounting. It is unclear how productive deeper parts of the aquifer will be and how many wells will be required to replace the capacity of the existing high-capacity wells. The time element is also uncertain; it is not

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Valuing Ground Water: Economic Concepts and Approaches known how many years will pass before expanded infrastructure is required to maintain current production levels. Since the growth rate on the city's system is 1-2 percent per year and long-term outages may occur on the CAP canal, pumping capacity must be expanded to meet the increased demand as well. Incremental Quality Costs (Marginal Benefits of Quality Changes). There is an additional reduction in service flows as the water level drops (assuming that recharge does not occur in the vicinity of production wells). The water that is withdrawn at greater depth in the Tucson basin is higher in salinity and TDS. This lower quality, like that of CAP water, will increase costs for end users in the residential, commercial, and industrial sectors. Households and firms may buy bottled water or in-home treatment devices (avoidance costs) or replace appliances more frequently. Industries and individuals with private wells will be similarly affected. These costs do not occur in the case of the direct delivery with advanced treatment option. Possible techniques to evaluate the costs associated with reduced water quality include the averting behavior method and the contingent valuation method. To the extent that wellhead treatment or well replacement is required, standard engineering techniques must be used. Opportunity Costs (Marginal User Costs). Ground water in the Tucson area is essentially a stock resource, since it is not naturally replenished at a high rate. Using a unit of ground water today means that it will not be available for future use. Methods that can be used to measure this ''dynamic" opportunity cost include dynamic programming and intertemporal (optimal) control techniques. Although these methods are limited to measuring use values, they may be valuable in evaluating alternative options. Valuing Changes in In Situ Service Flows Subsidence Avoidance. The risk of subsidence is high in the central Tucson basin, where 60 percent of the city's water supply is currently pumped. In the recharge option, some pumping in the central wellfield would continue without replenishment in the same location. Subsidence costs include disruption of all utilities (sewer, water, electric, gas, etc.); damage to roads and buildings; and a possible permanent reduction in storage capacity of the aquifer. The direct delivery with treatment option eliminates the pumpage in the central wellfield, thereby essentially eliminating the possibility of increasing the rate of subsidence. There are two techniques that can be used to measure the benefits associated with subsidence reduction. To the extent that utilities must be repaired or rerouted and roads and buildings must be repaired, standard production cost estimates can be prepared. The other method is the hedonic price (property value) method, since some areas are at considerable risk of subsidence and others are

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Valuing Ground Water: Economic Concepts and Approaches unlikely to experience any damage. Differences in market prices across these zones may begin to reflect these costs. The degree of uncertainty associated with predicting substidence damage is high. It is unclear how long it will take after an aquifer is dewatered for the compaction to occur. It is also unclear whether the whole basin will settle as a unit or whether it will settle differentially, causing subsidence cracks and substantially more damage. The normal pattern is that the cracking occurs near the edge of the basin, and downtown Tucson is near the base of the Tucson mountains. A risk/probability assessment may be required. Reservoir Function. In some aquifers subsidence causes irreversible damage to the water-holding capacity because rewetting these areas fails to have any rebound effect. The irreversible aspects of subsidence need to be taken into account, at least from a qualitative perspective. Engineering analyses can be used to compare lost storage capacity to the costs of alternative storage facilities, such as reservoirs. Buffer Value. A ground water value that is lost under the recharge option is the ability to buffer the effect of drought on the CAP system. This value is not as high in the recharge option, since all customers are receiving pumped ground water and continuous delivery is not critical. If a direct delivery option were selected in the future, however, the buffer value of the aquifer would have been lost if most of the ground water supply in the vicinity of the wells had been removed. Methods associated with estimating buffer value, such as intertemporal optimization, may be applied (Tsur and Graham-Tomasi, 1991). Existence Value. Certain values associated with maintaining the ground water aquifer intact are unrelated to any function or service the aquifer provides. This value is difficult to describe, so methods of estimating it are limited. The most likely technique to establish this value is the contingent valuation method. Habitat Values Related to Water Quantity. Higher water levels in the vicinity of some proposed recharge sites are likely to enhance habitat values. In addition, recharge sites can be designed with habitat enhancement as a component. However, in comparing the two options, it should be noted that it may be possible to create habitat using the brine stream from the advanced treatment facility. The options for improving local habitat due to recharge are offset by the probability that existing mature riparian habitat (such as the Tanque Verde Creek area) in the Tuscon basin could be destroyed by continued pumping of the ground water. Because impacts on habitat are visible only in limited areas, the hedonic price method (based on differences in property values) may be useful. Other

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Valuing Ground Water: Economic Concepts and Approaches methods that can be employed for evaluating the recreational/aesthetic values of habitat include contingent valuation and travel cost. Sources of uncertainty include lack of definitive information about the relationship of ground water level and habitat quality, the length of time it will take for dewatering to occur, and the limited number of remaining high-quality habitats to evaluate. Habitat Values Related to Water Quality. The recharge of untreated CAP water will increase the aquifer salinity in the vicinity of the recharge site and in areas that are down-gradient from the recharge site. It is unclear whether the increased salt levels will have any negative effect on the development or maintenance of high-quality ecosystems. However, it is unlikely that salinity and TDS concentrations in the CAP will have a measurable effect on mature vegetation. If it can be demonstrated that mature riparian vegetation or mammals and birds are affected, it is possible that salt-avoidance ecological values can be measured using the contingent valuation or travel cost method. Conclusions Based on this descriptive approach for applying the valuation framework presented in Chapter 3, the following conclusions can be drawn: The treatment option is likely to have a higher benefit/cost ratio when the TEV of ground water is considered. Engineering analyses (changes in production costs) may continue to be used to establish costs where extractive services are a large component of cost, so long as costs are assessed at both the household level and the utility level. Quality issues may represent a more crucial impact on service flows than do quantity issues. There are any number of scientific and economic uncertainties associated with the use of ground water valuation methods. References Arizona Department of Water Resources. 1995. Proposal to Increase the Use of Colorado River Water in the State of Arizona. Arizona Department of Water Resources, Tucson, Arizona. Arizona Department of Water Resources. 1996. State of the AMA: Tucson Active Management Area. Arizona Department of Water Resources, Tucson, Arizona. Hanson, R. T., and J. F. Benedict. 1994. Simulation of ground water flow and potential land subsidence, Upper Santa Cruz Basin, Arizona. U.S. Geological Survey Water Resources Investigations Report 93-4196. Tsur, Y., and T. Graham-Tomasi. 1991. The buffer value of ground water with stochastic surface water supplies. Journal of Environmental Economics and Management (21):201-224.

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Valuing Ground Water: Economic Concepts and Approaches LESSONS LEARNED Even though the case studies presented in this chapter are diverse, they share themes that provide the basis for observations and lessons. Each study involves unique hydrogeological features, ground water quality, uses of the resource, institutional requirements and constraints, and political contexts. Although the principles of the valuation framework described in Chapter 3 can be transferred, then, limited opportunities exist for transfer of benefits in subsequent studies. The case studies clearly demonstrate a range of ground water services even if comprehensive valuation studies have not yet been accomplished. Trade-offs in decision-making can be made based on descriptive (qualitative) information about this range. Clearly, quantification of the values of such services would provide more complete information for decision-making. These case studies highlighted the extractive value (service) of ground water. Several studies, however, recognized other services and TEV, and some focused on changes in value at the margin. Accordingly, ground water valuation studies should consider all components of TEV even though not all can currently be quantified. This approach would provide more complete information for subsequent decisions. Several cases illustrate the classic natural resource scarcity phenomenon where market indicators have been given only limited consideration relative to depletion. A price regime that more nearly mimics the market appears to be at least one of the ingredients of more rational water management. If that course is to prove fruitful for the long run, we probably must find a way to unbundle water demand and supply among such major extractive uses as drinking, bathing, laundry, lawn watering, and car washing—the variety of water uses likely to be valued very differently. Unbundling could involve dual water systems, or a single system with special treatment measures for drinking water, or creative water use accounting schemes. Some of the case studies identified concerns associated with human health risks from extractive uses of contaminated ground water. These concerns underscore the importance of carefully designed epidemiological studies, though even these are scarcely conclusive by themselves. Further, in the absence of epidemiological studies or information, debate will continue regarding actual and perceived health risks associated with degraded ground water. Ecological services provided by ground water are recognized in several cases; however, there appears to be a dearth of information on how to quantify and value ecological benefits. This need can be further emphasized by considering the contributions of ground water to the base flow of streams, maintenance of wetlands and their associated hydrological and biological functions, and the provision of riparian habitat.

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Valuing Ground Water: Economic Concepts and Approaches Technical and economic uncertainties must be recognized in efforts to develop site-specific ground water valuation information. Each of the case studies provides illustrations of such uncertainties. For example, in ground water valuation studies for Superfund sites, stochastic modeling of the contamination problem and potential effectiveness of cleanup measures should be used to develop ranges of resultant information that can be viewed as a type of "sensitivity analysis." Decision-makers should also consider the possible influences of uncertainties and nondelineated costs and benefits (of ground water services) as they interpret information. Ground water valuation studies must recognize the importance and limitations of the institutional and political context, which can lead to conflicts in conducting valuation studies and interpreting their results and influence on subsequent policies and decisions. Planning and implementation of valuation studies require the interdisciplinary efforts of hydrogeologists, engineers, environmental scientists, and economists, who must be able to interact with and learn from related disciplines.

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Valuing Ground Water: Economic Concepts and Approaches Appendixes

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