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Valuing Ground Water: Economic Concepts and Approaches Valuing Ground Water Economic Concepts and Approaches Committee on Valuing Ground Water Water Science and Technology Board Commission on Geosciences, Environment, and Resources National Research Council NATIONAL ACADEMY PRESS Washington, D.C. 1997
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Valuing Ground Water: Economic Concepts and Approaches NATIONAL ACADEMY PRESS 2101 Constitution Avenue, NW Washington, DC 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. Support for this project was provided by the U.S. Department of Energy, U.S. Environmental Protection Agency Grant No. C-R-823279-01-3, U.S. Department of Defense/Defense Supply Service Grant No. DASW01-95-M-6159, and the National Water Research Institute. Library of Congress Cataloging-in-Publication Data Valuing ground water : economic concepts and approaches / Committee on Valuing Ground Water, Water Science and Technology Board, Commission on Geosciences, Environment, and Resources, National Research Council. p. cm. Includes bibliographical references and index. ISBN 0-309-05640-3 1. Groundwater—Valuation. I. National Research Council (U.S.). Committee on Valuing Ground Water. HD1691.V35 1997 333.91′04—dc21 97-4837 Valuing Ground Water: Economic Concepts and Approaches is available from the National Academy Press, 2101 Constitution Ave., NW, Box 285, Washington, DC 204185 (1-800-824-6242; http://www.nap.edu). Cover art by Y. David Chung. Chung is a graduate of the Corcoran School of Art in Washington, D.C. He has exhibited his work throughout the country, including the Whitney Museum in New York, the Washington Project for the Arts in Washington, D.C., and the Williams College Museum of Art in Williamstown, Massachusetts. Copyright 1997 by the National Academy of Sciences. All rights reserved. Printed in the United States of America
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Valuing Ground Water: Economic Concepts and Approaches COMMITTEE ON VALUING GROUND WATER LARRY W. CANTER, Chair, University of Oklahoma, Norman CHARLES W. ABDALLA, Pennsylvania State University, University Park RICHARD M. ADAMS, Oregon State University, Corvallis J. DAVID AIKEN, University of Nebraska, Lincoln SANDRA O. ARCHIBALD, Hubert H. Humphrey Institute of Public Affairs, Minneapolis, Minnesota SUSAN CAPALBO, Montana State University, Bozeman PATRICK A. DOMENICO, Texas A&M University, College Station ( from September 1994 to November 1995) PETER G. HUBBELL, Water Resources Associates, Inc., Tampa, Florida KATHARINE L. JACOBS, Arizona Department of Water Resources, Tucson AARON MILLS, University of Virginia, Charlottesville WILLIAM R. MILLS, JR., Orange County Water District, Fountain Valley, California PAUL ROBERTS, Standford University, California THOMAS C. SCHELLING, University of Maryland, College Park THEODORE TOMASI, University of Delaware, Newark WSTB Liaison HENRY J. VAUX, JR., University of California, Riverside Staff STEPHEN D. PARKER, Study Director (September 1994 through January 1996) SHEILA D. DAVID, Study Director (January 1996 through April 1997) ETAN GUMERMAN, Project Coordinator (September 1994 through October 1996) MARY BETH MORRIS, Senior Project Assistant (September 1994 through July 1996) ELLEN A. DE GUZMAN, Project Assistant (July 1996 through April 1997) Consultant JOEL DARMSTADTER, Resources for the Future (September 1994 through June 1996)
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Valuing Ground Water: Economic Concepts and Approaches WATER SCIENCE AND TECHNOLOGY BOARD DAVID L. FREYBERG, Chair, Stanford University, California BRUCE E. RITTMANN, Vice Chair, Northwestern University, Evanston, Illinois LINDA ABRIOLA, University of Michigan, Ann Arbor JOHN BRISCOE, The World Bank, Washington, D.C. WILLIAM M. EICHBAUM, The World Wildlife Fund, Washington, D.C. WILFORD R. GARDNER, University of California, Berkeley EVILLE GORHAM, University of Minnesota, St. Paul THOMAS M. HELLMAN, Bristol-Myers Squibb Company, New York, New York CHARLES D. D. HOWARD, Charles Howard and Associates, Ltd., Victoria, British Columbia CAROL A. JOHNSTON, University of Minnesota, Duluth WILLIAM M. LEWIS, JR., University of Colorado, Boulder JOHN W. MORRIS, J. W. Morris, Ltd., Arlington, Virginia CHARLES R. O'MELIA, The Johns Hopkins University, Baltimore, Maryland REBECCA T. PARKIN, American Public Health Association, Washington, D.C. IGNACIO RODRIGUEZ-ITURBE, Texas A&M University, College Station FRANK W. SCHWARTZ, Ohio State University, Columbus HENRY J. VAUX, JR., University of California, Riverside Staff STEPHEN D. PARKER, Director SHEILA D. DAVID, Senior Staff Officer CHRIS ELFRING, Senior Staff Officer JACQUELINE A. MACDONALD, Senior Staff Officer GARY D. KRAUSS, Staff Officer JEANNE AQUILINO, Administrative Associate ANITA A. HALL, Administrative Assistant ANGELA F. BRUBAKER, Research Assistant ELLEN A. DE GUZMAN, Project Assistant
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Valuing Ground Water: Economic Concepts and Approaches COMMISSION ON GEOSCIENCES, ENVIRONMENT, AND RESOURCES GEORGE M. HORNBERGER, Chair, University of Virginia, Charlottesville PATRICK R. ATKINS, Aluminum Company of America, Pittsburgh, Pennsylvania JAMES P. BRUCE, Canadian Climate Program Board, Ottawa, Ontario WILLIAM L. FISHER, University of Texas, Austin JERRY F. FRANKLIN, University of Washington, Seattle THOMAS E. GRAEDEL, Yale University, New Haven, Connecticut DEBRA KNOPMAN, Progressive Foundation, Washington, D.C. KAI N. LEE, Williams College, Williamstown, Massachusetts PERRY L. McCARTY, Stanford University, California JUDITH E. McDOWELL, Woods Hole Oceanographic Institution, Massachusetts RICHARD A. MESERVE, Covington & Burling, Washington, D.C. S. GEORGE PHILANDER, Princeton University, New Jersey RAYMOND A. PRICE, Queen's University at Kingston, Ontario THOMAS C. SCHELLING, University of Maryland, College Park ELLEN SILBERGELD, University of Maryland Medical School, Baltimore VICTORIA J. TSCHINKEL, Landers and Parsons, Tallahassee, Florida E-AN ZEN, University of Maryland, College Park Staff STEPHEN RATTIEN, Executive Director STEPHEN D. PARKER, Associate Executive Director MORGAN GOPNIK, Assistant Executive Director GREGORY SYMMES, Reports Officer SANDI FITZPATRICK, Administrative Associate MARQUITA SMITH, Administrative Assistant/Technology Analyst
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Valuing Ground Water: Economic Concepts and Approaches The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. William A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. William A. Wulf are chairman and vice chairman, respectively, of the National Research Council.
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Valuing Ground Water: Economic Concepts and Approaches Preface Ground water, while providing much of the nation's supplies of water for domestic, industrial, and agricultural purposes, is surprisingly underappreciated and usually undervalued. Water managers at various levels of government are faced with an array of decisions involving development, protection, and/or remediation of ground water resources. Examples of questions basic to such decisions at the local level include: Should ground water be used singly or in conjunction with surface water supplies to meet increasing water usage requirements? Should a comprehensive water conservation program be implemented in order to extend the availability of ground water and minimize or preclude ground water depletion? Examples of questions basic to decisions at the state or federal level include: Are the benefits of ground water protection programs greater than their costs, and how should such wellhead protection efforts be funded? How should ground water remediation projects be prioritized given that the costs of remedial actions typically far exceed available funding? Should the value of ground water resources be considered in deciding if remediation efforts should be undertaken at a site? Valuation of ground water resources is critical in determining an efficient outcome in each of these examples as well as many other ground water development, protection, and/or remediation projects, programs, or policy decisions. However, the ground water resource, a nonmarket good, is difficult to value;
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Valuing Ground Water: Economic Concepts and Approaches and, as a result, economic valuation and future considerations have historically played almost no part in decision-making. The fundamental need to value natural resources was recognized in a 1990 report of the Science Advisory Board (SAB) of the U.S. Environmental Protection Agency (EPA, 1990). Based on the review of comparative risk assessments of environmental problems, a committee of 39 distinguished scientists, engineers, and other experts drawn from academia, state government, industry, and public interest groups developed ten recommendations; of relevance to this report is Recommendation 10—EPA should develop improved methods to value natural resources and to account for long-term environmental effects in its economic analyses (EPA, 1990). In 1994 the U.S. Environmental Protection Agency requested that the National Research Council (NRC) appoint a committee to study approaches to assessing the future economic value of ground water, and the economic impact of the contamination or depletion of these resources. This committee was appointed in 1994 under the auspices of the NRC's Water Science and Technology Board. The committee was charged to: review and critique various approaches for estimating the future value of uncontaminated ground water in both practice and in theory; identify areas in which existing approaches require further development and promising new approaches which might be developed; delineate the circumstances under which various approaches would be preferred in practice for various applications of decision-making regarding long-term resource use and management; outline legislative and policy considerations in connection with the use and implementation of recommended approaches, and related research needs; and illustrate, through real or hypothetical case examples, how recommended procedures would be applied in practice for representative applications. Due to the relevance of the committee charge to other public interest groups and agencies, three other sponsors provided financial support for this NRC study in addition to EPA: the National Water Research Institute, the U.S. Department of Defense, and the U.S. Department of Energy. The focus of the study on ground water valuation and the composition of the committee established the need for economists to work with ground water experts. Disciplines represented on the committee included agricultural economics, environmental engineering, hydrogeology, microbiology, public policy, resource economics, and water law. The members were drawn from academia, private consultants, and water management positions in local government. While the assignment was challenging, the committee quickly agreed on three matters that provided its starting points. First, an interdisciplinary approach is necessary for ground water valuation studies. Second, when valuing ground water, the in situ and ecological services must be recognized along with the more
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Valuing Ground Water: Economic Concepts and Approaches obvious extractive services. Finally, it was recognized that common terminology was not available as a foundation for this study. Thus concepts and principles from environmental economics and ground water management had to be appropriately integrated to provide a basis for the work of the committee. The committee has completed its task and, in so doing, has received considerable assistance from the NRC staff. Accordingly, on behalf of the committee, I wish to express our thanks to the following persons: Sheila David, Study Director; Etan Gumerman, Project Coordinator; Mary Beth Morris, Project Assistant; Ellen de Guzman, Project Assistant; Joel Darmstadter, Consultant; and Steve Parker, Director of the Water Science and Technology Board (WSTB). In addition, Henry Vaux, WSTB member and liaison to this committee, provided both helpful guidance and technical input. Finally, I wish to express my appreciation to all committee members for their willingness to discuss new concepts from an interdisciplinary perspective, to prepare and revise materials for this report, and to strive for consensus-building on key issues. We have all learned from this process! Larry W. Canter, Chairman Reference U.S. EPA, 1990. Reducing Risk: Setting Priorities and Strategies for Environmental Protection, Science Advisory Board, Relative Risk Reduction Strategies Committee, U.S. EPA, Washington, D.C.
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Valuing Ground Water: Economic Concepts and Approaches Contents EXECUTIVE SUMMARY 1 1 INTRODUCTION AND BACKGROUND 13 The Ground Water Valuation Dilemma in Brief, 13 Context for Ground Water Valuation, 14 The Role of the NRC, 28 References, 29 2 GROUND WATER RESOURCES: HYDROLOGY, ECOLOGY, AND ECONOMICS 31 Hydrological Concepts, 31 The Economics of Ground Water Use, 37 Ground Water Quality, 41 Recommendations, 45 References, 46 3 A FRAMEWORK FOR THE VALUATION OF GROUND WATER 47 Some Preliminaries, 48 Services Provided by Ground Water, 58 The Conceptual Framework, 60 Recommendations, 65 References, 66
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Valuing Ground Water: Economic Concepts and Approaches 4 ECONOMIC VALUATION OF GROUND WATER 68 History of Economic Valuation of Natural/Environmental Resources, 68 The Economic Approach to Valuation, 70 Methods for Estimating the Economic Value of Natural/Environmental Resources, 73 Current Knowledge of Ground Water Values, 86 Conclusions and Recommendations, 99 References, 101 5 LEGAL CONSIDERATIONS, VALUATION, AND GROUND WATER POLICY 105 Valuation and Ground Water Allocation, 106 Valuation and Ground Water Quality Protection, 114 Changing Environmental Priorities: Policy Dimensions of Ground Water Valuation, 118 Legal Issues in Redefining Ground Water Rights, 121 Reducing Risk and Valuing Ground Water, 122 Research Needs, 122 Recommendations, 125 References, 125 6 CASE STUDIES 127 Challenges in Water Quality Management, Treasure Valley, Oregon, 130 Competing Uses of an Aquifer, Laurel Ridge, Pennsylvania, 133 The Buffer Value of Ground Water, Albuquerque, New Mexico, 136 The Buffer Value of Ground Water, Arvin-Edison Water Storage District, Southern California, 140 The Value of Averting Sea Water Intrusion, Orange County, California, 142 Incorporating the Value of Ground Water in Superfund Decision-Making, Woburn, Massachusetts, 149 Applying Ground Water Valuation Techniques, Tucson, Arizona, 153 Lessons Learned, 164 APPENDIXES A GLOSSARY 169 B A PORTION OF A SAMPLE CONTINGENT VALUE METHOD QUESTIONNAIRE 174 C BIOGRAPHICAL SKETCHES OF COMMITTEE MEMBERS 177 INDEX 183
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Valuing Ground Water: Economic Concepts and Approaches Valuing ground Water
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