Economic analysis of options and alternatives
In order to carry out an effective TDA and to design a SAP that is likely to be approved, there is a need to have at least an approximation of the economic value of the goods and services of the water system. Therefore, a good economic analysis is highly beneficial for the TDA/SAP process – although the detail of this analysis will depend on the complexity of the project and the time and budget available. Consequently, it may be necessary to plan this activity according the resources and capacity in the participating countries. To this end, there are three general approaches that can be used:
The first option (cost effectiveness) is by far the most straightforward to use but is ultimately judgement based.
Cost benefit analysis (CBA) is more difficult to develop, particularly in regions where data is scarce. However, it is a mature approach used by many governments and businesses to evaluate the desirability of a given policy. Consequently, there are many methodologies that can be used that are likely to be country specific.
The economic valuation of goods and services is the most complex approach and is less mature than CBA but does attempt to provide an empirical account of the value of the services and amenities or of the benefits and costs of proposed action in a way that CBA doesn’t. However, understanding the economic valuation of goods and services is only a first step in the process.Taking full account of these values requires a more integrated decision-making approach than has commonly been the case to date, particularly because economic benefits derived from water ecosystem services will affect many different decision makers (See Box 11).
Box 11: The challenge of economic valuation of goods and services in an integrated decision-making approach
Improving the state of water systems can have a positive effect on poverty alleviation, by ensuring food, water and energy security. By addressing several policy objectives, it creates a more robust foundation for management action to protect and enhance water and wetland ecosystem services. It can help with meeting the MDGs and also the Rio+20 endorsement that access to water is a human right and be a core element of local, regional and international development cooperation.
It is important to prioritise the protection of these ecosystems and restore them where possible. Further loss of such systems is very likely to lead to a net loss in ecosystem services and economic value to local communities and will have a negative impact on human well-being.
Engagement with people is critical in transforming the management approach. Understanding ecosystem values often requires discussion with communities to determine the services derived from water and wetlands, not least taking account of traditional knowledge. Such knowledge is often also critical for developing good management solutions to protect and enhance ecosystem services. Awareness raising and education is also crucial for the transition. It can help with water and wetland protection and improvement, since it increases acceptance and participation. This is critical for stakeholder buy in and for transition management. It is important to be able demonstrate that the transition is one to an overall improvement for all.
Collective action between governments, business, NGOs, local communities and indigenous peoples is needed to ensure the long-term sustainability of water and wetlands, and the global economy. Given the increasing human population and its dependence on water and wetlands, full recognition of the values and benefits of nature is a pressing imperative.
Whichever approach is used, it is likely that the project will need to hire particular expertise to undertake this process in each country. Examples of good practice in International Waters are shown are shown here, together with links to useful supporting information.