Swedish Environmental Protection Agency Conference on environmental economics: Practical Application of Economics in the Environment Agency in England Dr Jonathan Fisher Economics Manager, Evidence Directorate, Environment Agency England and Wales 15 November 2012
Outline Environment Agency in England and Wales Economics team + priority work plan Selected recent Economic outputs Practical Application of economics: key issues Our approach to practical application of economics Analysis of costs and trade offs: key issues Assessing water benefits Particular wide ranging example of our applying Economic analysis for our Corporate plan in 2010
Environment Agency in England and Wales Budget: £1.1bn pa £0.7bn from central Govt; £0.4bn charges on regulated businesses. 11,000 Staff. Our work includes: Regulation of major industry Regulation of waste management Illegal wastes control Contaminated land investigation and remediation
Environment Agency in England and Wales: Work continued Competent Authority for implementing Water Framework Directive • Water resources • Water quality (Surface, ground, bathing) • Water related conservation and ecology • Fresh water fisheries and angling Flood and coastal risk management Navigation – asset mgt
Economics team’s priority work plan subjects: (12- 16 FTEs + £300k pa consultancy framework) Economic Environment Agency Activity output Water Water Water Flood risk Climate Corporate State of the Regulation Illegal Framework industry Resources mgt change plan Environment wastes Directive mgt adaptation √ √ √ √ √ √ √ Problem √ analysis instruments √ √ √ √ √ New √ approaches economic √ √ √ √ √ Economic √ √ √ analysis √ √ √ √ √ (√ ) Economic appraisal guidance √ √ √ √ √ Scrutinise contentious cases Research √ √ √ √ √ √ √ √ √ √ √ EA capacity building
Selected economic outputs European Association of Environmental and Resource Economists: 2007 Gothenburg: How improve work between practitioners and academics Principles for economics to aid environmental decision-making A strategy for a sustainable economic recovery in a decade of difficulty Flood risk management: £3.5bn costs of 2007 floods Long term Investment strategy Strategy for Thames Estuary up to 2100 Applicability of Real Options Analysis for appraising flood risk management and water resources investments
Selected economic outputs 2004 & 2006: Business as usual projections for agriculture I and II Challenges for applying CBA and environmental valuation to aid environmental decision-making in practice: review in 2008 Water 2004: 437 CBAs of water company environmental improvement schemes; and overall benefits assessment of water industry environment programme WFD: EU Wateco Guidance: Ribble Virtual case study on integrated appraisal 2010 Corporate plan and spending review analysis
Practical Application of economics: Key issues Prioritise resources vs high and growing demand Need first secure defence vs strong pressure on economic qus from business groups Timeliness – Long lead time for delivery Fit for purpose: Aid decision-making Focus on options and trade offs Proportionality Need proactively to seek efficient short cuts Consistency and coherence across activities Focused improvements in economic analysis Link with technical assessments
Figure 1: Building Blocks of Economic Analysis to deliver outcomes Benefits: £ and non-£ Institutional (Decision- making, Governance, competition/ markets, Costs of measures market failures); economic instruments and behaviour Quantify outcomes of options change Qualitative description of problem and impacts of options
Costs and trade offs = Most important Big concern over costs of regulations to business Pressure for de-regulation - or rather better regulation Government initiatives: Red Tape challenge => need greater justification Environment Agency initiatives How costs of env regs compare with other regs? Calls for clear long run environmental signals What does this mean in practice? How achieve? Evidence base for this (eg state of the environment) Water Framework Directive: Disproportionate Cost assessment: focus on measures of costs and affordability esp for water industry and agriculture
Analysing Costs and trade offs: Key issues Robust costing of options = key first priority Need technical scrutiny of industry claims about costs esp where over-estimation by pressure groups and monopoly water companies Highlight high and rising marginal costs Focus on key trade offs and choices between options => Benefits qu “Is an option worth the extra costs”?
Water Benefits Strategy Short run (2012/13): Make best use of available benefits estimates Research to fill gaps where quickly possible Medium term (by 2014/15): Apply flexibly our benefits evidence and assess conflicting evidence from 3 rd parties Long term (from 2016 – 2019): evaluate experience develop new tailored studies for next round of River Basin Management Planning
Proposed Framework for Use of Comprehensive Assessment of water benefits For each Water body category Available evidence Changes in Changes in Environmental Options • Guidance water body pressures Outcomes • Valuations state Ecosystems • Beneficiary estimation Services Latest thinking Draft comprehensive framework for Catchment appraisals – Next Steps • Appraisal Summary Table (Qualitative – Quantitative – Monetary) + Guidance + Illustrations • Trial in pilot catchments for various water bodies by types (rural/urban) + review • Fit for purpose user friendly terminology 3 rd Party Evidence: Options, issues/problems Benefits, costs + affordability In-depth review: + Basic Appraisal contentious cases
Developing a Comprehensive Assessment of water benefits: Specifying o utcomes and aligning with available evidence Benefit Categories Environmental outcomes (from latest thinking + Ecosystems services) Market Benefits: • Water and waste water treatment costs Crops/ commercial fisheries + shellfisheries • Other market benefits Abstracted water/value of water • Bathing waters (tourism and economic development) Property prices/economic development/tourism Greenhouse gases and Air pollutants remediation Greenhouse gas values and air pollution costs Health Health benefits Bathing waters illness; chemicals Flood risks Flood risk impacts Sewer flooding Angling/ Contact recreation/boating Other Non-market Use benefits Informal bankside recreation Low flow alleviation Natural habitats, wildlife, inverts, fish Cultural Heritage Aesthetic Non-Market Non-use Water Benefits Spiritual Folklore Education Altruism Disaggregated benefits Distributional issues for specific target groups
Monetised Non-market Benefit values: Initial DRAFT work in progress Table 1. Rivers – WTP (£/km/year) by River Basin District and status change, 2012 prices Bad to Poor Poor to Moderate Moderate to Good River Basin District Lower Central Upper Lower Central Upper Lower Central Upper Anglian 14.1 17.2 20.3 16.2 19.8 23.3 18.8 23.0 27.1 Dee 12.7 15.4 18.2 14.5 17.7 20.8 16.7 20.4 24.1 Humber 14.5 17.7 20.9 16.7 20.4 24.1 19.5 23.7 28.0 North West 15.3 18.6 22.0 17.6 21.5 25.4 20.6 25.1 29.6 Northumbria 12.0 14.7 17.4 13.7 16.8 19.8 15.8 19.3 22.8 Severn 13.0 15.8 18.7 14.8 18.1 21.3 17.2 20.9 24.7 Solway Tweed 8.9 10.9 12.9 9.9 12.1 14.3 11.3 13.7 16.2 South East 17.7 21.5 25.4 20.5 25.0 29.5 24.0 29.3 34.5 South West 11.2 13.6 16.1 12.7 15.5 18.2 14.6 17.8 20.9 Thames 25.0 30.4 35.8 29.4 35.8 42.2 34.7 42.3 49.8 Western Wales 10.3 12.6 14.9 11.7 14.2 16.8 13.3 16.3 19.2 E&W 14.3 17.4 20.5 16.4 20.0 23.6 19.1 23.2 27.4
Handling conflicting 3 rd party evidence Our ‘balanced’ CBA and Draft RBMP2 Vs Env NGOs re Other fuller benefits and non-£ items and considerations More ambitious measures Bullish assessment of market benefits Demand open slate reallocation of existing funds Vs Business re High costs and economic and social impacts of the controls (eg for farmers) and affordability Lower benefits estimates and concerns about customers’ affordability and income constraints Need means to reconcile differences to support balanced decisions
Costs & Benefits of Environment Agency Activities in 2010 Total benefits for Environment and Regulated Business (E&B) and Flood risk mgt (FCRM): £ 6.2bn pa 83% of benefits from Flood risk mgt • mostly (£3.3bn) from asset investments Benefit Cost Ratios* : EA: 5-6 (FCRM: 8, E&B: 1.7) These benefits estimates give valuable supplementary evidence on the VFM of our activities, but as yet they are not sufficiently comprehensive or robust to use directly for decision-making. * Includes support services
Expenditure & Benefits £m 1000 1500 2000 2500 3000 500 0 Planning and development control Capital Expenditure on Asset Management FCRM Total Annual Expenditure and Benefits Asset Maintenance Mapping and data Flood Forecasting Incident Management BCR Benefits Expenditure Non-monetised env benefits Habitats 0 2 4 6 8 10 12 14 Benefit Cost Ratio (BCR)
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