Cost-Benefit AnalysisA tool for making economic trade-offs

of environmental changes

Prioritizing between hydro power and wild salmon in the Umeå and Vindeln river system

Background for the CBA

• The cost to reach different environmental objectives and achieve different environmental improvements can often be large.

• Society’s resources are limited.• Hence it is important with tools to prioritize between efforts to achieve a

sound management of society’s limited resources.• A CBA calculates and compares benefits and costs for firms and

individuals who are affected by a certain project to assess the the social net benefits of it.

Based on study of wild salmon in the Umeå and Vindeln river system

References:

Håkansson, C., Johansson, P-O. & Kriström B (2005): Salmon and Hydropower: Dynamic Cost-Benefit Analysis, in The Theory and Practice of Environmental and Resource Economics – Essays in Honour of Karl-Gustaf Löfgren. Eds: Aronsson, T.,Axelsson, R. & Brännlund R., Edwar Elgar, UK.

Håkansson, C. (2009): Costs and Benefits of Improving Wild Salmon Passage in a Regulated River. Journal of Environmental Planning and Management, Vol. 52, pp. 345-363.

CBA to efforts to improve the migration of wild salmon in a regulated river

• Many river who exit in the Baltic Sea have lost their natural stock of wild salmon due to human interference.• Remaining stocks are reduced

• From its home river the salmon migrate into the sea at the age of 1-4 years. There they will stay for up to 3 years until they return to spawn.

• A problem are hydro power plants which block the migration of the salmon to the spawning grounds.

• The volume of water through the plant and the volume through the old river bed is decided by electricity production requirements.• If a small share goes through the old river bed the salmon can’t find the right

way to the fish ladder.• According to Lundqvist et al. (2005) 70% of the salmon can’t find the way.

The studied area in the Umeå/Vindeln river system

”Laxhoppet”

Old river bed

Fish ladder Salmon jump

CV-study to estimate willingness-to-pay (WTP)

• In the autumn of 2004 a mail survey was sent to 1192 Swedes, of which 59% responded• 2 strata: northern and southern Sweden, which was then divided into 5 groups

who got different versions of the WTP question

• Respondents were asked about their WTP for an increase in the number of wild salmon that migrate in the Vindeln river each year through the construction of a new and more efficient fish ladder• Responses could be stated as an interval or a single number• Intervals give an opportunity to express uncertainty

• Payment was in the form of a one time payment in the form of a tax• Does the method to increase wild salmon matter for WTP?

Versions of the WTP question

As a baseline about 3000 salmon migrate up the fish ladder

Versions of the WTP question

Increase in the number of salmon that pass the fish ladder

Implementation time

1 +1000 Same year

2 +3000 Same year

3 +6000 Same year

4 +6000 In 10 years

5 +6000 In 5 years

Results

• Ensuring that the wild salmon continues to exist is more important than reaching a certain stock (WTP did not vary much between the different groups)

• The study captures existence values and non-use values (since most respondents seldom or never visits the Vindeln river).

Northern Sweden (Kronor)

Version WTP question WTPL Mean WTP WTPR

1 34 50 73

2 37 49 77

3 19 35 42

4 33 44 86

5 35 52 96

Mean 1-5 31 51 74

Southern Sweden (Kronor)

Version WTP question WTPL Mean WTP WTPR

1 52 57 109

2 26 45 54

3 27 33 83

4 24 32 62

5 23 25 51

Mean 1-5 30 43 73

Costs

• To increase the number of salmon that reach the spawning grounds every year from 3000 to 4000 about 50-100 m3 water per second would have to be diverted from electricity production.• During the salmon spawning season about 569 m3 of water per second pass

through the turbines and about430 m3 during the year on average.

• The reduction in electricity production caused by diverting more water to the old river bed from May 15 to October 1.• About 4,5% of the annual production

• Uncertainties: • Number of years water is redirected• Cost per kWh• Discount rate

Total results

• Total benefits: 96 – 517 million kronor

• Total costs: 114 – 2101 million kronor

• Net: -2005 – 403 million kronor

Conclusions

• A project to increase the number of salmon migrating to the spawning grounds in the Vindeln river from 3000 to 4000 per year would be socially profitable if the benefits exceeded the costs.

• The willingness-to-pay consists largely of non-use values and would have been smaller if only use values had been estimated.

• Large uncertainty concerning the cost side compared with the benefit side.