The True Value of Water: Finding the Non-Market Value of ......UNCLASSIFIED / FOUO 06 OCT 2017 Leadership. Energy. Execution. 1 The True Value of Water: Finding the Non-Market Value

Leadership. Energy. Execution.UNCLASSIFIED / FOUO 106 OCT 2017

The True Value of Water: Finding the Non-Market Value of

Water to the Army

Mission Resilience & Sustainability Training

Presented By:Dr. Ray Quay, Arizona State University

Trey Lewis, OCAR ARIMDDr. Marc Kodack, Water Program Manager, Office of DASA- E&S

Moderated By:Kate McMordie Stoughton, PNNL


Speakers

Dr. Marc Kodack• Water Program Manager• Office of Deputy Assistant Secretary of the

Army for Energy and Sustainability (DASA-E&S)

Dr. Ray Quay• Research Professional – Decision Center

for a Desert City• Arizona State University

Trey Lewis• Water Program Coordinator• Army Reserve Installation Management Directorate


Learning Objectives

• The session will address these questions:• What are the challenges and risks facing water supplies now

and in the future?

• What causes the cost of water to not match the value of water?

• What are some currently available tools for calculating non-market values of water?

• What are examples of Army projects that have successfully used non-market valuation?


Dr. Ray Quay

Decision Center for a Desert City

Arizona State University


Trey Lewis

Army Reserve Installation

Management Directorate


PRICE

QUANTITY

Equilibrium

Supply

Demand

Economics 101


PRICE

QUANTITY

Supply < Demand

= Higher Price

Supply

Demand

Economics 101

Supply

Shortfall


PRICE

QUANTITY

Supply

Demand

World Series Tickets

Lower “Willingness

to Pay”

Higher “Willingness

to Pay”

$50,000

$50

1 100,000


PRICE

QUANTITY

Equilibrium

Marginal

Cost

Marginal

Benefit

Economics 101


PRICE

QUANTITY

Equilibrium

Cost1

Marginal

Benefit

Economics 101

Cost Artificially Low =

Overproduction/Overuse

Cost2

Assumption: this is the full and

complete cost for the product


Common Pool Goods

Excludable Non-excludable

Rivalrous Private Goods

(food, clothes, cars, parking

spaces)

Common Pool Goods

(fish stocks, timber, coal,

water)

Non-rivalrous Club Goods

(movie theater, private

park, satellite television)

Public Goods

(public television, air,

national defense)

Source: Wikipedia

RIVALROUS – If I use it, you can’t use it (and vice versa)

EXCLUDABLE – Can control who uses the resource


Water as Goods

Excludable Non-Excludable

Rivalrous

Non-

Rivalrous

Bottled

Water

Lake

Michigan

Swimming

Pool

Treating

Water


Externalities

• Externalities – “the positive or negative consequences of economic

activities on unrelated third parties” (Quickonomics.com)

POSITIVE NEGATIVE

https://www.flickr.com/photos/barbourians/8479006257http://maxpixel.freegreatpicture.com/Butterfly-Insect-Spring-Flower-Garden-1939278


Non-Market Valuation

• REVEALED, DIRECT COSTS: How much do you pay for a gallon of water

from your utility?

• REVEALED, INDIRECT COSTS: If I gave you $1,000 to prepare for an

emergency, how much would you spend on each item (one of which is

“ensuring access to clean water”?

• STATED, DIRECT COSTS: How much is having clean water worth to you?

• STATED, INDIRECT COSTS: Rank the importance of these choices

contingent on this scenario…

RevealedPreferences

Stated Preferences

Direct Costs

Competitive Market PricesSimulated Market Prices

Contingent valuation - Open-ended response format

Indirect Costs

Household production function modelsTime AllocationRandom utility and travel costAverting behaviorHedonics (i.e. home prices)Production function modelsReferendum votes

Contingent Valuation- Discrete-choice and interval

response formats


Real World Examples

• LEED TRIPLE BOTTOM LINE LCCA

• FORT RILEY STUDY


LEED Triple Bottom CBA


LEED Triple Bottom Line CBA

• Combines cost-benefit analysis (CBA), triple bottom line accounting and

life cycle cost assessment (LCCA)

• Eligible for a LEED Pilot Credit

• Must be used in evaluating at least six LEED credits

• AutoCase for Buildings and Autocase for Sites

• DoD Examples

• U.S. Defense Health Agency

• USAG Humphreys (S. Korea)

• Fort Belvoir Hospital

• Fort Bliss Hospital

• JB Pearl Harbor-Hickam


Autocase for Buildings

• Utilizes location-based data

• Relies on data readily available during a LEED credit submission

• Provides the cost and benefit of the

LEED credits pursued over the lifetime

of the facility

• Accuracy unclear when modeling

projects on existing facilities

• Needs further study


Autocase for Sites

• “Models the impacts for 25+ storm water design options, including

bioretention, swales, and permeable pavement”


Autocase Screenshot


Autocase Screenshot


Autocase Screenshot


Autocase Screenshot


Autocase Screenshot


Autocase Screenshot


Autocase Screenshot


Autocase Screenshot


Autocase Screenshot


Autocase Screenshot


Fort Riley Study

https://www.epa.gov/sites/production/files/styles/medium/public/2015-09/containment_ft_riley.jpg

• 2014 study funded by ODASA-E&S

• PROJECT: Take wastewater from

before WWTP, divert some to a

smaller MBR and use it at the

Installation Vehicle Wash Facility

(IVWF)

• Would eliminate the need for

potable water use at the IVWF

• Provide 4,000 gallons per day

(GPD)

• Initial SIR: 0.34

• Final SIR: 0.52 (53% increase)

Fort Riley Water Challenges

• Growing water demand

• Increased risk of drought

• Disputed surface water rights in

the Lower Republican basin

• Aging distribution system

• Forecasted climate effects

• Water recharge shorage


Fort Riley Study Methods

• Steps:

1. Identified Project Type (Used matrix)

2. Identified Relevant Benefits and Costs

3. Chose Appropriate NMV Methods

• Substitute Cost Method

• Indicator Method

• Benefit Transfer Method

4. Completed NMV Analysis and Incorporate into CBA


Fort Riley Study Results



CONCLUSION 1. NMV Methods have the potential to provide important insight into the full range of benefits from Army infrastructure projects by providing a more comprehensive picture of the value of internal and external project effects.

RECOMMENDATION: • Further development to:

1. Understand best application2. Increase awareness of usefulness

3. Improve process of data identification4. Reduce complexity

CONCLUSION 2. Additional refinement and simplification of NMV methods is needed for practical Army applications.

RECOMMENDATION: 1. Further refindment of the proposed framework2. Complete additional demonstrations to understand data

availability and NMVRECOMMENDATION: Army consider a future project to establish an Army-wide water demand curve



CONCLUSION 3. Further use of NMV methods is hampered by a lack of awareness about their usefulness, prompting some stakeholders to remain unconvinced that the methods should be used.

RECOMMENDATION: Army develop detailed guidance and procedures to implement use of NMV methods, including suggestions on the most potentially promising infrastructure project applications for water and energy.

RECOMMENDATION: Army undertake education and training efforts for appropriate installation and

budget personnel to increase awareness and practical understanding of the usefulness of NMV methods and how they can be applied effectively.

CONCLUSION 4. Routine use of NMV methods for water project justification faces the important barrier of a lack of easy access to data needed to perform NMV analysis.

RECOMMENDATION: Army investigate a variety of approaches to develop more readily accessible

and possibly standardized data sources such as look-up tables for commonly used parameter values, e.g. water distribution system characteristics and cost data.


Fort Riley Study

• 2014 pilot study funded by ODASA-E&S

• “the Army seeks to identify, evaluate, and test acceptable methods

that incorporate the full range of benefits into Army cost-benefit

analyses (CBAs).”

• “ODASA(E&S) is interested in understanding the value of proposed

infrastructure projects that reduce mission risk associated with energy

and water supply disruptions and decrease costs associated with

environmental-related impacts and liabilities.“

• DIG DEEPER:

http://www.asaie.army.mil/Public/ES/doc/NMV%20FINAL%20REPORT%2

0Sept%202014.pdf

http://www.asaie.army.mil/Public/ES/doc/NMV FINAL REPORT Sept 2014.pdf


Dr. Marc Kodack

Office of the Deputy Assistant Secretary

of the Army for Energy & Sustainability

Documents

The True Value of Water: Finding the Non-Market Value of ......UNCLASSIFIED / FOUO 06 OCT 2017 Leadership. Energy. Execution. 1 The True Value of Water: Finding the Non-Market Value