Environmental valuation and the economic level of leakage
Introduction
Leakage from the mains distribution system remains a significant challenge to the UK water industry. The published summary statistics indicate the scale of the problem (Table 1). The average leakage in England and Wales in 1999/2000 was 143 l per property per day (Ofwat, 2000): for a yardstick, this can be compared with the estimated per capita consumption of about 150 l per day (Ofwat, 1999, Ofwat, 2000). Leakage reduction targets have been in operation since 1997, initially using levels established by companies and, since 1998, using mandatory targets set by the industry regulator. The resulting efforts have brought about a discernible reduction in leakage compared with the figures for the early 1990s (Table 1). Since zero leakage is not a plausible goal, the concept of an economic level of leakage (ELL) was developed to determine an economically acceptable level of water loss. The ELL is used as the basis for the regulator's mandatory leakage targets, where appropriate (Ofwat, 1999). Recently, environmental and other social costs and benefits have been required to be included in ELL calculations.
The published literature on environmental costing for the ELL is of two distinct types. There is a small core of reports and publications intended for use by the water industry which offer worked examples and guidance on how to incorporate environmental costs in calculations of the ELL. The second category of literature is the large body of published papers, few dealing specifically with the ELL, that examine in considerable technical detail methods of assigning a value, usually monetary, to environmental attributes. In general, these papers address the complexity and uncertainty of environmental valuation from an academic perspective. This two-way division is problematic when, in the extreme case, the user confronts divergent advice. The aim of the present paper is to bring together and compare the publications originating from the water industry, with reference, where appropriate, to the findings of the wider literature. Following a brief summary of the historical development of the ELL concept, the principal generic methods of costing environmental impacts (EIs) are described. The process of incorporating environmental costs and benefits in an economic analysis of project options is reviewed and discussed.
Section snippets
The economic level of leakage
The ideas behind the ELL have developed in scope, sophistication and complexity during the last decade. Table 2 outlines the progress of this development. Initially, focus was placed on comparing the cost of water with the cost of working to reduce leakage (Cole, 1961; Gledhill, 1957; UKWIR/WRc, 1994). Typical strategies for reducing leakage from the distribution network include pressure reduction, replacing aging mains, establishing suitably sized metering areas, repairing reported leaks, and
Economic methods of environmental costing
Economic valuation of the environment attempts to elicit people's preferences concerning possible changes in the environment, relative to its current condition, and to express these preferences in, usually, monetary terms. It does not determine the value of the environment per se. In deriving the (total) economic value of the environment, distinction is drawn between values associated with the `use' of an environmental attribute, for example use of a river for angling, and the `non-use' value
Incorporating environmental costs in ELL analyses
The incorporation of EI within an economic analysis of a project involves five stages (World Bank, 1997, World Bank, 1998):
(i) identification of the EI of the project;
(ii) measurement of the magnitude of the EI;
(iii) valuation of the EI;
(iv) inclusion of EI values in the economic analysis;
(v) post-analysis monitoring.
Discussion
Examination of the available methods of environmental valuation leads to the conclusion that, as some analysts readily acknowledge (see, for example, ENDS, 1998; Stedman, 1997), all the techniques are, to a greater or lesser degree, flawed. This has two corollaries, both with significant implications for any requirement that environmental costings be included in a mandatory ELL assessment. First, different analysts can apply different methods to the same situation and obtain different outcomes.
Conclusions
Requirements that environmental valuations be incorporated within comparative analyses of project options in the water industry are becoming increasingly established. Environmental costs and benefits are mandatory in calculations of the ELL in England and Wales. However, all methods of environmental valuation are subject to a degree of uncertainty, debate and disagreement. Thus, a basis for criticising the formulation or implementation of any environmental valuation can, in general, be
Acknowledgements
This work has been funded jointly by Thames Water Utilities Ltd. and the Engineering and Physical Sciences Research Council (EPSRC). The opinions expressed in this paper do not necessarily reflect the views of the sponsoring organisations.
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