Econom nomic ic Tools ls for Envi vironmen onmental l Goods ds The Case of the Lower Snake River Dams Adam Domanski, Ph.D Senior Economist
Background Four hydropower dams constructed from 1955 to 1975: • Generate ~1,000 MW of electricity • Locks allow barge transportation upstream to Lewiston, Idaho • Irrigation withdrawals • Reservoir based recreation 2
Research Questions 1. Do the economic benefits of a world without the LSRD exceed the cost of getting there? 2. How would the regional economy respond to removal of the LSRD? Topic Areas: Grid Services • Irrigation • • Transportation Ecosystem Services • 3
Benefit Cost Analysis - Results Benefits of dam removal exceed the costs $12 Net Benefits and Costs of LSRD Removal, by Category $10 $8 Surplus Non-Use Value $8.65 Billion, PV 2.75% $6 $4 Break Even Non-Use Value → $2 $2.32 $1.04 $0 -$1.08 -$2.21 -$2 -$4 Grid Services Dam Removal Irrigation Transportation Use Value Potential Non- Use 4
Reaction 5
Approach Scenario • Dams removed in 2025 Benefits/costs evaluated through 2045 • Methodology Use best available quantitative information • • Results reported as net present value 2.75% discount rate (Bureau of Reclamation) • 7% discount rate (Office of Management and Budget) • Incorporated uncertainty into analysis • 6
Grid Services Price of power is low when output is high 60 360,000 LSRD Output and Real Prices, by Week, 2014-2018 50 300,000 40 240,000 Prices ($/MWh) Output (MWh) 30 180,000 20 120,000 10 60,000 0 - 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 Week Output (MWh) Price ($/MWh) 7
Grid Services Value of grid services exceeds production costs Grid Services Costs and Savings from LSRD Removal, by Category • Market values for Grid Services BPA LSRD Fish Annual Capital ancillary services & Value CO2 Cost Overhead Mitigation O&M Costs $2 capacity inferred from CA $1 • Carbon emissions for Billion, PV 2.75% $0 replacement power in -$1 CA; EPA carbon values -$2 • High value assumes -$3 clean energy replacement portfolio -$4 Annual LSRD Grid Services Value, by Component Annual Values for LSRD ($millions) Medium High: "Balanced Plus" Energy $202.40 Ancillary Services $3.00 Capacity $17.40 T otal Value of Grid Services $222.70 $464.00 * 8
Irrigation Limited water withdrawals from the LSR Irrigated and Non-Irrigated Agricultural Land in the LSR Basin • 41 surface water withdrawals • 84 potentially affected groundwater wells • LSR not a major region for irrigated agriculture • Any additional water moving downstream likely still used by WA agriculture 9
Irrigation Water supply infrastructure can be replaced • Cost to replace irrigation infrastructure due to change in water level: Surface diversions: $148 million o Groundwater wells: $12 million o • Unlikely all would need to be replaced, adapted • Opportunities to change farming activities, relocate operations * 10
Transportation LSR barges primarily carry agricultural products Average Downriver Barge Volumes, by Commodity and Year 3.5 Short Tons (millions) 3 2.5 2 1.5 1 0.5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Crude Materials Food & Farm Other • Other transport alternatives • Rail connections to west coast ports Truck transport to rail and barge • 11
Transportation Barge volumes increase downstream Average Downriver Barge Volumes, by River Reach 12
Transportation Barge volumes are below historical forecasts Historical and Forecasted Barge Volumes on the LSR, by Year 4500 4000 3500 3000 2500 2000 1500 1000 500 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Historical Forecast Actual 13
Transportation Dam removal will lead to mode substitution If barging services no long available on the Lower Snake River: Additional trucking of commodities to existing railroads • and remaining barging services near Tri-Cities • New infrastructure may be needed to support truck access, loading and transport by rail Drawdown of reservoirs may lead to compromises in • existing transport infrastructure (railroads, highways, bridges) 14
Transportation Multiple increased costs with dam removal Infrastructure • Mitigation and repair of existing rail, highway, and bridge infrastructure associated with geotechnical risk New infrastructure to support changing freight modal • demands Damage costs from increased truck traffic • Shippers/Growers Changes in shipping costs due to model shifting • Societal Changes in accident costs • • Changes in vehicle emissions 15
Transportation Increased costs do not offset Federal appropriations Transportation Costs and Savings from LSRD Removal, by Category Transportation Road Wear and Reduced Federal Costs Crash Costs CO2 Costs Tear Emissions Costs Appropriations $300 $250 $200 $150 Million, PV 2.75% $100 $50 $0 -$50 -$100 -$150 -$200 * 16
Ecosystem Services Wild salmonid populations are at historic lows Sockeye Chinook Steelhead Anadromous Fish Populations in the LSR Description Status 10 Year Average 2017 Adult Historical Adult Returns Returns Population Sockeye Endangered 1,133 228 150,000 Spring/Summer Chinook Threatened 79,704 36,309 140,000 Fall Chinook Threatened 35,510 26,430 500,000 Steelhead Threatened 158,913 76,798 114,800 Coho Not Listed 4,975 8,178 3,000 Pacific Lamprey Not Listed 79 346 10,000 17
Ecosystem Services Dam removal reduces extinction risk • Increased juvenile downstream survival (reduced predation, reduced transit time, improved water quality) • Increased in-stream spawning habitat for Fall Chinook (currently inundated) Benefits to Anadromous Fish Populations from LSRD Removal Effect Result • Improved fish passage • Decreased migration time for juvenile salmonids Direct Effect • New main-stem spawning habitat for fall Chinook • Return of LSR to natural river system • Increased population and reduced extinction risk for Ecological Implication endangered LSR fish stocks • Increased food supply for endangered Orcas Potential Downstream Ecological • Reduced culling of sea lions, seals, and birds Effects • Potential delisting of endangered LSR fish stocks 18
Ecosystem Services Non-use values represent social value for salmonids • A measure of the economic tradeoff that an individual is willing to make to assure the protection of a natural resource even if they will not visit or use the resource (Carson 2012) • Not revealed by choices in the marketplace (unlike many local public goods) (Krutilla 1967) • Must be measured using stated-preference survey-based approaches (Bowen 1943; Ciriacy-Wantrup 1947) • Stated preference surveys as questions that help to reveal the monetary tradeoff an individual would make concerning the value of goods or services 19
Ecosystem Services Non-use values are regularly used in policymaking 60% of of the estimates in the Environmental Values Reference Inventory (maintained by • Environment Canada and the U.S. EPA) come from contingent valuation surveys • U.S. EPA estimates of the benefits of the Clean Water Act (1994) are derived from contingent valuation surveys • Pennsylvania used contingent valuation in a benefit-cost analysis of additional incarceration versus rehabilitation programs for serious juvenile offenders (Nagin et al, 2006) Used to measure the value of developing vaccine policies in Africa (Jeuland et al, 2009) • • Measured willingness to pay higher water tariffs for less river pollution in Fuzhou, China (Jiang et al, 2011) • Measured willingness of the U.S. public to pay for climate change measures (Aldy et al, 2012) Used to estimate natural resource damages in the Exxon Valdez oil spill (1989), Montrose • Chemical contamination (2000), Oklahoma v Tyson (2010), Deepwater Horizon (2010) Used to evaluate the benefits of dam removal on the Elwha River (USBOR & NPS, 1996; • NOAA 2012) and the Klamath River (USBOR 2012). 20
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