Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

determine directly the willingness-to-pay. Other methods can be adopted, which may be found inliterature.b) Water supply projects, with the aim of protecting the resources of high quality and environmental value.Some projects aim at avoiding over-exploitation or some water sources and at identifying alternatives.An example is the replacement of water extracted from coastal aquifers, which have become salty dueto pumping excessive volumes of resource, with water produced from other sources, such asdesalination, wastewater reuse, surface water sources, etc. The benefit (or non use value) is given bythe water preserved for other uses, current or future. The possible alternative uses of the saved waterhave to be accurately identified and, for each of them, the related potential demands quantified.When this is done, the benefits can be valued by means of water accounting prices as in the previouscase.c) The main benefit of the interventions aimed at limiting water leaks is the reduced volume of waterused for supplying the networks compared to an equal or greater quantity of distributed water.Examples are projects for network rehabilitation or, more in general, of ‘water asset management’. Asin the previous case, the benefit is given by the water preserved for other uses, to be quantified assaid above.d) For any intervention, that is intended to guarantee the availability of drinking resources in areas withsanitary problems, and where water sources are polluted, the benefit may be directly estimated byvaluing the deaths and illnesses that can be avoided by means of an efficient water supply service. Tomake an economic valuation, it is necessary to refer on one hand (illnesses) to the total cost ofhospital or out-patient treatments and to the income loss due to possible absence from work, and onthe other hand (deaths) to the statistical life value quantified on the basis of the average income andresidual life expectancy or with other methods.e) The social benefits of sewer and depurator projects may be evaluated on the basis of the potentialdemand for sewage, that will be fulfilled by the investment and estimated according to an adequateaccounting price 34 . Alternatively, if possible, direct valuation may be applied to benefits such as:- The value of the illnesses and deaths avoided thanks to an efficient drains service (see above);- The value derived from preserving or improving the quality of the water bodies or the lands inwhich the waste water discharges and the related environment. This value is made up of both ‘use’and ‘non-use’ values (see the diagram below).f) For ‘white’ or mixed drains projects, the benefit is the damage avoided to land, real estate and otherstructures due to potential flooding or unregulated rainwater, valorised on the basis of the costs forrecovery and maintenance (avoided costs).In any case, if no standard economic appraisal method is applicable for the specific project, it is possibleto resort to comparisons with any similar project, that may have been developed in a context as close aspossible to the one in the affected area. Obviously, in the case of projects that have multiple objectivesand, therefore, derive from a combination of two or more of the categories above, the benefits are givenby a proper combination of those described above.For any project, the positive or negative externalities due to the impact of the infrastructure’s constructionand the use of the water resources, have to be carefully taken into account, as far as possible, by means ofa quantitative approach. Various methods exist for the valuation of environmental costs and benefits andthese can be found in the literature (see Annex F) 35 .As mentioned in Chapter 2, taxes and subsidies should usually be treated as transfers within society andshould therefore be excluded from the estimation of economic costs. However, in the water service34Basically the same as the demand for water, applying an appropriate reduction factor of the flow rates waste water discharged in the seweragenetwork (as an as an example from literature: 0,8).35See, as example, Pearce D., Atkinson G. and Mourato S. ‘Cost-Benefit Analysis and the Environment: Recent Developments’ (2005).100