Why environmental and social benefits should be included in cost-benefit analysis of infrastructure?

Abstract

A gradual increase in the importance of water environment infrastructure has provided an opportunity to bring in various initiatives for the supply of sewage. Such initiatives include the dissemination of public sewage systems and the use of subcontractors in management of sewage systems. However, despite the existence of various methods to increase the rate of sewage supply, there are few studies analyzing each alternative in terms of social, economic, and environmental aspects. Therefore, we investigated investment directions for water environment infrastructure facilities related to the supply of sewage treatment systems in rural areas through cost-benefit analysis. We analyzed the economic costs and social benefits of two sewage treatment systems: installation of a public sewage treatment system and utilization of a private sewage treatment system via service contract. When we considered only economic costs and benefits, the benefit-cost ratio for the public system (0.02) was smaller than that for the private system (0.264). However, the results of the two alternatives changed when we considered the social benefits to people in urban areas from establishment of public sewage treatment systems in rural areas. To be specific, by considering the social benefits for non-rural areas, this study found that the benefit-cost ratio for the public system increased to 0.267, which was higher than the ratio for the private system. Based on these results, we propose appropriate operations and management plans for supplying sewage treatment systems to rural areas. Further, this study indicates that policymakers who conduct cost-benefit analyses of infrastructure related to water environments should consider all social, environmental, and economic factors that can alter the analysis results.

Appendix 1

(1) Economic costs.

° Construction costs of sewage treatment facilities (alternative 1)

• Based on a 2006 dam-associated sewerage facility expansion project, we estimated the number of treatment facilities per treatment area (number of new facilities per area, 0.0339; number of existing facilities per area, 0.0107).

• Estimated capacity per treatment facility using the same data (90 m³/place).

• Estimated number of new facilities and existing facilities for 82 regions.

• Calculated construction cost per unit for a sewage treatment facility: $Y=43.528\ast {Q}^{0.6477}\ \left(Y:\mathrm{million}\ \mathrm{KRW},Q:\frac{{\mathrm{m}}^3}{\mathrm{day}}\right)$ (Ministry of Environment 2011).

• It was assumed that the cost of an existing treatment facility would be 30% that of a new treatment facility.

° Operating costs of sewage treatment facilities (alternative 1)

• Calculated operating cost per unit for a sewage treatment facility: $\mathrm{Y}=349.66\ast {Q}^{0.7931}\ \left(Y:\frac{\mathrm{thousand}\ \mathrm{KRW}}{\mathrm{year}}\ Q:\frac{{\mathrm{m}}^3}{\mathrm{day}}\right)$ (Ministry of Environment 2011).

° Pipeline construction costs (alternative 1)

• Estimated pipe extension per area of treatment facility (137 m/km²) based on a 2006 dam-associated sewerage facility expansion project.

• Estimated number of required pipe extensions for 82 regions.

• Applied construction costs of sewer pipe construction (plastic pile, 200 mm; asphalt, 444,940 KRW/m, Ministry of Environment 2014).

° Pipeline operating costs (alternative 1)

• Estimated number of required pipe extensions for 82 regions.

• Applied dredging costs (1140 KRW/year), pipeline repair costs (1335 KRW/year), and maintenance costs per meter (KRW/m/year).

° Septic tank closure costs (alternative 1)

• Calculated number of septic tanks in 82 regions (Ministry of Environment in Korea 2015c).

• Use calculation methods determining the amount of sewage generation and septic tank treatment target persons by building use (Ministry of Environment in Korea 2015d) and applied 170 L waste/person/day to calculate the septic tank capacity of individual areas.

• Use previous closure costs of septic tanks (62,000 KRW/m³).

° Septic tank consignment costs (alternative 2)

• Use previous consigned management costs for Seoul, Yeosu, Yongin, Gapyeong, and Icheon.

• Apply the average value (6,409,963,716 KRW/year).

(2) Social costs

• There are no expected environmental social conflict costs for supplying sewerage systems or consigned management of septic tanks.

(3) Economic benefits.

° Septic tank consignment costs (alternative 1)

• Use previous consigned management costs for Seoul, Yeosu, Yongin, Gapyeong, and Icheon.

• Apply the average value (6,409,963,716 KRW/year).