economic value of protecting the great lakes

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Economic Value of Protecting the Great Lakes Literature Review Report Submitted to Ontario Ministry of the Environment Submitted by Marbek in association with Informetrica Dr. Steven Renzetti Dr. Diane Dupont and Dr. Jim Bruce January 2010

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Executive Summary

Purpose and Scope This report provides a comprehensive review and synthesis of the literature relating to the economic benefits the Great Lakes provide to society. It provides a better understanding of the direct, indirect, option and non-use values associated with Great Lakes protection. The specific objectives are: To summarize relevant literature on the economic value of the goods and services

provided by Great Lakes; To explain main stressors to the Great Lakes ecosystem, and therefore impacts on the

goods and services provided; To discuss limitations and gaps of previous studies; To contextualize the value estimates by reviewing a select number of cost benefit analysis;

and To summarize economic valuation data that will contribute to stage two of this project. The report is concerned with the Ontario side of the Great Lakes. While defining the exact boundaries of this study is challenging, we focused on benefits that are directly related to the Great Lakes themselves. Literature directly related to this area is the most relevant and given the most emphasis. However, in the cases where there are little to no Great Lakes related literature, studies from other regions are included.

Methodology To conduct a proper cost benefit analysis, there is a need for a common valuation method1, a unifying framework, and a common metric. This report reviews and synthesizes the Great Lakes economic literature using the economic valuation method, according to the Total Economic Framework (TEV), and presenting the results in a common monetary metric. The Great Lakes provide a wide array of benefits to society. Valuing these benefits is a challenge. The economic valuation method relates all the benefits to human welfare measures. The economic valuation method was chosen over alternative approaches because it allows for a robust measurement and comparison of values and presents these values in terms that people are familiar with. Economic valuation is based on the notion of individual preferences, or what people want. The economic value of a good or service is the marginal willingness to trade that good or service for another. The Willingness-to-Pay (WTP) metric is a measure of the maximum amount that individuals are willing to exchange for a good or service. The WTP for a good or service is assumed to be the level of human welfare that is derived from this good or service. The type of benefits that the Great Lakes provide can be categorized using the TEV framework. The appeal of using the TEV framework is that it is both logical and comprehensive. The logical nature of the framework comes from its foundations in microeconomic theory and emphasis on marginal values while the comprehensiveness stems from its ability to include all aspects of the Great Lakes value. This framework considers that the benefits provided by the Great Lakes are

1 Here, valuation method is not meant in a specific sense (contingent valuation, hedonic price) but rather more

broadly (economic valuation versus deontological valuation)

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linked to direct-use values, indirect use values (specifically, ecosystem services), option values and non-use values. In addition to valuing these benefits, the value estimates need to be presented in a common metric so that values may be compared. In this literature review, Canadian dollars are used as the common currency so that values across goods and services can be easily compared. The value estimates in this report have been converted to 2009 Canadian dollars for ease of comparability. However, this simple conversion is not always appropriate for transferring values from one study for use in another, as in the case of Willingness to Pay (WTP) for example. Using these concepts, the TEV of the Great Lakes can be presented using a common method (economic valuation) and metric (dollars). In addition to the methodological approach taken in the literature review, it should be pointed out that the survey of the literature encompasses several different types of studies. These include peer-reviewed research studies, government reports and studies commissioned by industry and environmental NGO’s. Because of the paucity of empirical evidence regarding the Great Lakes’ contribution to the region’s economy, it was decided to include reports whose methods and estimates may not be entirely consistent with the TEV framework but that could be related in some way. Most importantly, a number of studies report water’s contribution to a particular sector in terms of users’ expenditures, tax revenues generated and jobs created. As pointed out later in this report, these studies provide information on the macroeconomic impact of water-related activities but do not directly provide estimates of the value of water use.

Using this Report Because of its unifying framework (TEV), common method (economic valuation) and metric (dollars), this report lays the foundation for future cost benefit analyses. The TEV framework is split into fourteen direct use, nine indirect use, and option and non-use values. Considerable variability exists between the quantified values of these different uses. For example, while the average value of water for hydropower production may be as low as $0.01 per cubic metre, the value of water may be $3.79 per cubic metre for each hectare in the agricultural production of a crop (in this case, ginseng). Different ecosystem services of various natural features also have variable values. The range of value estimates are shown in Exhibit 1. Note that this table is indicative only of literature findings; benefits cannot be compared across categories due to the use of different metrics ($/ fishing day, $/m3, $/hectare). Also, within benefit categories, in some cases, the estimates come from studies examining many different aspects of the issue and are therefore not directly comparable. Refer to the report and Appendix for a more detailed summary; to apply the literature findings, the source literature documents should be used.

Exhibit 1 Range of Value estimates for the Benefit Categories

Benefit Category Range of estimates

Residential Water $82-$314 for improvements in water quality

Recreational Fishing $9-$155 per fishing day

Hunting $3.79-$250.60 per hunting day

Industrial Water $0 to $1.50/m3

Heating and Cooling $0.39/m3

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Benefit Category Range of estimates

Agricultural Water $0.20-$3.47/m3/hectare

Commercial Fishing $1.95/kilogram

Recreational Boating $8.20-$43.27 for quality water suitable for boating

Beaches and Lakefront $26-$50 per day at the beach

Aesthetic and Amenity Values 1.9% to 4.7% increase in house prices

Wildlife Watching $4.14-$282.53 per wildlife watching day

Other Recreational/ Tourism Benefits $0.95-$383.16 per recreational activity day

Commercial Navigation -

Hydropower Production $0.01-$0.02/m3

Gas regulation $560-$1,392/hectare

Local Climate regulation -

Water regulation $1,628-$2,016/hectares

Disturbance prevention $444-$13,367/hectares

Water supply $45.45-$49,057.95/hectares

Soil retention $2.77-$42.85/ tonne

Waste treatment $68.99-$81.60 for setting aside available pollutant assimilative capacity

Nutrient cycling $3.20-$556/kilogram

Habitat, Refugium, Nursery $281.71-$6,234.14/hectare

Identifying this variability helps inform the debates on which benefits are the most important to society. Understanding the relative benefits is important when deciding where to invest public resources in the Great Lakes. Policy decisions can use these value estimates to estimate the benefits of preserving and restoring the Great Lakes basin. In addition, these benefit estimates will also help understand the costs (i.e. forgone benefits) of maintaining the status quo or allowing degradation to continue. The estimates reported can be used in further economic analysis studies using the benefit transfer technique. Although conducting primary research is clearly a “best” strategy, when this is not possible, benefit transfer can be used as a “second-best” strategy. In transferring the WTP findings, because the metric depends heavily on income, the estimates may need to be adjusted for income changes across regions and time. In addition, although important information such as assumptions, baseline conditions, limitations and context were presented along with the values, there is no substitute for reviewing the original studies from which these estimates are derived.

Table of Contents

1 Introduction .................................................................................................. 1

2 Economic Contribution of the Great Lakes to Society .................................... 3

3 Direct Uses 8

3.1 Extractive Uses .............................................................................................................. 8 3.2 Non-Extractive Uses .................................................................................................... 17

4 Ecosystem Services ..................................................................................... 27

5 Option and Non-Use Values ........................................................................ 41

5.1 Option Value ............................................................................................................... 41 5.2 Non-Use Value ............................................................................................................ 42

6 Current and Future Stressors ...................................................................... 46

6.1 Areas of Concern (AOC) .............................................................................................. 46 6.2 Population Growth ...................................................................................................... 47 6.3 Invasive Species .......................................................................................................... 48 6.4 Climate Change ........................................................................................................... 51

7 Discussion: Main Findings, Gaps and Implications ....................................... 54

7.1 General Issues ............................................................................................................. 54 7.2 Specific Issues ............................................................................................................. 55

8 References ................................................................................................. 64

Appendix A Review of Relevant Cost-Benefit Analysis Studies ................... A-1

Appendix B Summary Table of Secondary Data Collected .......................... B-1

List of Exhibits Exhibit 1 Range of Value estimates for the Benefit Categories .......................................................ii Exhibit 2 Total Economic Value of Natural Resources .................................................................... 4 Exhibit 3 List of Ecosystem functions, processes and services ....................................................... 5 Exhibit 4 Comparison of Values in the Literature for Residential Water ....................................... 9 Exhibit 5 Comparison of Values in the Literature for Recreational Fishing .................................. 11 Exhibit 6 Comparison of Values in the Literature for Hunting ..................................................... 12 Exhibit 7 Comparison of Values in the Literature for Industrial Water ........................................ 13 Exhibit 8 Comparison of Values in the Literature for Heating and Cooling .................................. 14 Exhibit 9 The total hectare of production in Ontario and value water for irrigation in the Big Creek watershed by major crop.................................................................................................... 15 Exhibit 10 Comparison of Values in the Literature for Agricultural Water .................................. 16 Exhibit 11 Comparison of Values in the Literature for Recreational Boating ............................... 19 Exhibit 12 Comparison of Value in Literature Beaches & Lakefront ............................................ 20 Exhibit 13 Average Value of Property and Natural Features Appreciation Impact ...................... 22 Exhibit 14 Comparison of Aesthetic and Amenity Values ............................................................ 23 Exhibit 15 Comparison of Values in the Literature for Wildlife Watching ................................... 24 Exhibit 16 Comparison of Values in the Literature for Other Recreation/Tourism Benefits ....... 25 Exhibit 17 Value of Water Levels to Commercial Navigation ....................................................... 26 Exhibit 18 Economic Losses due to air pollution in Ontario ......................................................... 27 Exhibit 19 The Value of Air Pollutants Removed by Tree Cover .................................................. 28 Exhibit 20 Comparison of Values in the Literature for Gas Regulation ........................................ 28 Exhibit 21 Comparison of Values in the Literature for Water Regulation .................................... 30 Exhibit 22 Comparison of Values in the Literature for Disturbance Prevention .......................... 31 Exhibit 23 Comparison of Values in the Literature for Water Supply .......................................... 32 Exhibit 24 Comparison of Values in the Literature for Soil Retention .......................................... 34 Exhibit 25 Comparison of Values in the Literature for Waste Treatment .................................... 37 Exhibit 26 Comparison of Values in the Literature for Nutrient Cycling ...................................... 38 Exhibit 27 Comparison of Values in the Literature for Habitat, Refugium and Nursery .............. 40 Exhibit 28 Total Annual Consumer Surplus from Recreation Use and Non-use Value to Colorado Households from Increments in Wilderness Designation, 1980 .................................................. 45 Exhibit 29 Comparison of values in AOC studies .......................................................................... 47 Exhibit 30 Population growth in the Great Lakes by drainage regions (thousands) .................... 47 Exhibit 31 Exotic species in the Great Lakes Basin ....................................................................... 49 Exhibit 32 Environmental and Economic impacts (damages and control costs) of invasive species in the Great Lakes Basin (in millions of USD) ................................................................................ 50 Exhibit 33 Average Impact on Water Levels, by Climate Change Scenario .................................. 51 Exhibit 34 presents the measures proposed in the GLRC strategy ............................................. A-3 Exhibit 35 Summary of Economic Benefits of Great Lakes Restoration Plan .............................. A-5 Exhibit 36 Remedial Efforts Considered for the Hamilton Harbour ............................................ A-7 Exhibit 37 Most significant sources of expenditure for Hamilton Harbour RAP ........................ A-7 Exhibit 38 Costs of Major Remedial Actions for Hamilton Harbour ............................................ A-8 Exhibit 39 Improved Opportunities and Actions Taken ............................................................... A-8 Exhibit 40 Estimated annual aggregate benefits of major remedial actions for Hamilton Harbour...................................................................................................................................................... A-9 Exhibit 41 Benefits Included in Study ........................................................................................ A-12 Exhibit 42 Harbour Remediation Projects Included in BENSIM (millions 2005 $CAD) .............. A-13 Exhibit 43 Total Benefits by Beneficiary (millions 2005 $CAD) ................................................. A-13 Exhibit 44 Current Municipal Water Conservation and Efficiency Programming in Ontario .... A-14 Exhibit 45 Cost-benefit results of the Skjern River project (in million of 2000 Danish Crowns (DKK) .......................................................................................................................................... A-15 Exhibit 46 Summary table of secondary data collected .............................................................. B-2

Economic Value of Protecting the Great Lakes - Literature Review Report

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1 Introduction The Great Lakes basin supports over 50% of Canada’s manufacturing output, 25% of Canada’s Agriculture and over $350 billion annually in Ontario–U.S. Trade (Environment Canada, 2009). The Lakes also supply services and amenities essential to the well-being of residents of the Great Lakes basin (such as water purification, climate regulation, waste assimilation, fish and animal habitat, recreation, etc). The actual economic benefits of these services and amenities are often underestimated as many non-market goods and services are not easily measured and hence, metrics for environmental and economic decisions are often skewed. Investment in the ecological health of the Great Lakes basin is pivotal to its long-term economic success. A recent U.S. study concluded that total returns on a $31 billion investment in the Great Lakes could be in the $95 to $119 billion range (Austin et al. (2007)). Key strategy teams were formed by the Great Lakes Regional Collaboration (GLRC) and recommendations were put forth for the following areas: aquatic invasive species; habitat/species; coastal health; areas of concern (AOC)/sediments; nonpoint pollution sources; toxic pollutants; indicators and information; and, sustainable development. Evaluation was carried out by assuming recommendations from these key strategy teams would be implemented in the Great Lakes. In the absence of a fully developed Great Lakes restoration plan, Canada requires a similar study to that of U.S. to guide Great Lakes policy and program development. The study outcomes will also provide key material for the forthcoming Canada-Ontario Agreement and Great Lakes Water Quality Agreement negotiations. This report presents a critical synthesis of the literature on the economic value of the goods and ecosystem services provided by the Great Lakes. It provides a better understanding of the direct, indirect, option and non-use values associated with Great Lakes protection. The specific objectives are: To summarize relevant literature on the economic value of the goods and services

provided by Great Lakes; To explain main stressors to the Great Lakes ecosystem, and therefore impacts on the

goods and services provided by the Great Lakes; To discuss limitations and gaps of previous studies; To contextualize the value estimates by reviewing a select number of cost benefit analysis;

and To summarize economic valuation data that will contribute to stage two of this project. This study focuses on the “benefits” side of our economic analysis. It provides a thorough review of the most up-to-date literature on the wide range of ecological goods and services provided by the Great Lakes. This report is accompanied by a second report that reviews Economic Impact Multipliers studies that are relevant to investments in Great Lakes protection and restoration measures. The “cost” side of our economic analysis will be initially examined in our Proposal Recommendations (Deliverable #3). As part of Deliverable #3, we will provide a preliminary assessment of the degree of information available with respect to costs of intervention strategies in key priority areas. To help give the reader an idea of how these benefit estimates can be used in a cost benefit analysis, several cost benefit analyses are reviewed. Although not meant to be a comprehensive review, this section will help contextualize the values presented below. In addition, potentially


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relevant intervention strategies are identified and listed. Due to the length of this section, this information is presented in Appendix A. This report is structured as follows: Section 2 is an introduction to the analytical approach, which is based on the total economic value framework; Sections 3 through 5 provide a synthesis of the literature with respect to the economic value of the Great Lakes; Section 6 discusses four important current and future stressors to the Great Lakes; and Section 7 discusses gaps and implications for further work. Appendix A reviews a number of cost benefit analyses and Appendix B provides a summary table of secondary data collected from the literature review, specifying economic values of environmental parameters examined.


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2 Economic Contribution of the Great Lakes to Society This report reviews and synthesizes the Great Lakes economic literature using the economic valuation method, according to the Total Economic Framework (TEV), and presenting the results in a common monetary metric. The Great Lakes provide a wide array of benefits to society. Valuing these benefits is a challenge. The economic valuation method relates all the benefits to human welfare measures. The economic valuation method was chosen over alternative approaches because it allows for a robust measurement and comparison of values and presents these values in terms that people are familiar with. Economic valuation is based on the notion of individual preferences, or what people want. The economic value of a good or service is the marginal willingness to trade that good or service for another. While some goods and services have market values, many goods and services are not normally traded in a market. Therefore, nonmarket valuation techniques and methods are required to value these benefits to society. These nonmarket valuation methods attempt to estimate the economic value of the various goods or services. The Willingness-to-Pay (WTP) metric is a measure of the maximum amount that individuals are willing to exchange for a good or service. The WTP for a good or service is therefore assumed to be the level of human welfare that is derived from this good or service. In addition, it is assumed that societal values are simply the aggregation of individual values. The type of benefits that the Great Lakes provide can be categorized using the TEV framework. The appeal of using the TEV framework is that it is both logical and comprehensive. The logical nature of the framework comes from its foundations in microeconomic theory and emphasis on marginal values while the comprehensiveness stems from its ability to include all aspects of the Great Lakes value. In addition, because this is the approach taken by economists in valuing environmental goods and services, the relevant literature can be consistently analyzed using this TEV framework. This framework considers that the benefits provided by the Great Lakes are linked to direct-use values, indirect use values (specifically, ecosystem services), option values and non-use values. Direct use values reflect the direct use of the resource, like fish, water and space for recreation, and water use by agricultural and industrial/commercial firms (Tietenberg, 2006). Indirect use values include ways in which the lakes benefit communities by providing services such as waste assimilation and flood control. These indirect use categories can also be thought of as ecosystem services.2 Option value refers to the option of using specific aspects of the Great Lakes in the future even if they are not being used today. Non-use values include existence and bequest values. Existence value recognizes that some Ontarians may be prepared to pay something for the protection of the Great Lakes, even if they do not currently use them for recreation, fishing or any other activity. Bequest value recognizes that decisions on the lakes should also take into

2 It is important to note that not all ecosystem services are indirect uses and not all indirect uses are ecosystem

services. Clearly, all the goods and services in the Great Lakes ultimately come from the ecosystem. In deciding the organization and wording of this report, we choose to name the indirect use value section as ecosystem services to communicate the more natural foundations of these services.


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account the value of leaving them undamaged for future generations. Exhibit 2 illustrates the type of values associated with the Great Lakes within the TEV framework. In addition to valuing these benefits, the value estimates need to be presented in a common metric so that values may be compared. In this literature review, dollars are used as the common numeraire so that values across goods and services can be easily compared. All values presented in this report have been converted to 2009 Canadian dollars, unless stated otherwise.3 Using these concepts, the TEV of the Great Lakes can be presented using a common method (economic valuation) and metric (dollars).

Exhibit 2 Total Economic Value of Natural Resources

(Adapted from van der Heide, 2005) In deciding the final categories to include in Exhibit 1, we had to ensure that all the goods and services reviewed are directly related to the Great Lakes. This decision-making process resulted in the direct use class of benefits being split into seven extractive and seven non-extractive categories. Of the thirteen ecosystem functions identified in Exhibit 2, ten are deemed to be directly relevant to the Great Lakes. Soil formation, pollination and biological control are three 3 This conversion was done using Statistics Canada data on the Canadian Price Index (v41693271) and the Canada-

US dollar average exchange rate (v37426). Data accessed from CANSIM using CHASS.

Residential Water Recreational

Fishing Hunting Industrial Water Heating and

Cooling (including thermal and nuclear)

Agricultural Water Commercial Fishing

Recreational Boating

Beaches and Lakefront

Aesthetic and Amenity Values

Wildlife Watching

Other Recreational/ Tourism Benefits

Commercial Navigation

Hydropower Production

Gas Regulation Local Climate

Regulation Water

Regulation Disturbance

Prevention Water Supply Soil Retention Waste treatment Nutrient Cycling Habitat,

Refugium and Nursery

Benefits others obtain from the Great Lakes in the future

Possibility of using the Great Lakes in the future

Intrinsic value of the Great Lakes resources


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ecological functions that occur in the Great Lakes basin, but are not directly related to the Great Lakes themselves. Therefore, these three functions are exluded from the literature review below. Many of the values that can be attributed to natural resources are often ignored in private valuations and even in the evaluation of public projects. Historically, the focus of governments has been on the far left branch of Exhibit 2, namely on consumptive, direct use values, for which market values are often readily available. In this study we attempt to gather information of indirect, option and existence values in addition to direct-use values to facilitate a more robust economic assessment of the value of the Great Lakes. The first step in gathering information relevant to these other ecological benefits is to identify and categorize these values. The study by de Groot et al. (2002) identifies four different categories of ecosystem functions (regulation, habitat, production, and information).4 Within each of these functions the authors identify a number of processes. While these functions and processes are necessary for life, it is the goods and services derived from them that are valuable to and valued by humans as benefits. For indirect uses, the two relevant ecosystem functions are regulation and habitat functions. Following de Groot et al. (2002), these two ecosystem functions along with their respective, ecosystem processes and services may be grouped according to the categories in Exhibit 3

Exhibit 3 List of Ecosystem functions, processes and services

Function Ecosystem Process Ecosystem Service

Regulation Function

Gas regulation

Role of ecosystems in bio-geochemical cycles (e.g. CO2/O2 balance, ozone layer)

UVb protection by ozone, maintenance of air quality

Climate regulation

Influence of land cover and biological mediated processes on climate

Maintenance of a favourable climate, carbon regulation, cloud formation

Disturbance prevention

Influence of ecosystem structure on environmental disturbances

Storm protection, flood control, drought recovery

Water regulation

Role of land cover in regulating runoff and river discharge;

Drainage, natural irrigation,

Water supply Filtering, retention and storage of fresh water

Provision of water by watersheds, reservoirs and aquifers

Soil retention Role of the vegetation root matrix and soil biota in soil retention

Prevention of soil loss/damage from erosion/siltation; storage of silt in lakes, and wetlands; maintenance of arable land

Soil formation Weathering of rock, accumulation of organic matter

Maintenance of productivity on arable land; maintenance of natural productive soils

Nutrient cycling Role of biota in storage and re-cycling of nutrients (e.g. nitrogen)

Maintenance of healthy soils and productive ecosystems; nitrogen fixation

Waste treatment

Role of vegetation and biota in removal or breakdown of xenic nutrients and compounds

Pollution control/detoxification, filtering of dust particles, abatement of noise pollution

4 Productive functions of the Great Lakes were covered in the Section 4. Information functions are covered in both

section 4 and section 6.


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Function Ecosystem Process Ecosystem Service

Pollination Role of biota in the movement of floral gametes

Pollination of wild plant species and crops

Biological control

Population and pest control Control of pests and diseases, reduction of herbivory (crop damage)

Habitat Function - Role of biodiversity to provide suitable living and reproductive space

Refugium function

Suitable living space for wild plants and animals

Biological and genetic diversity, habitat for migratory species

Nursery function

Suitable reproduction habitat Biological and genetic diversity, breeding grounds and nurseries for migratory species

(Adapted from de Groot et al. (2002)] While ecologists have been studying ecosystems services for a longtime now, economists have only recently been applying their techniques and methods in this area. There are clearly some benefits and drawbacks/challenges in valuing ecosystem services and incorporating them into a cost benefit analysis. The fundamental case for valuing ecosystem services is to contribute towards more effective decision-making regarding the natural environment. By including ecosystem services in policy appraisals, the full costs and benefits to the natural environment as well as human wellbeing can be determined and compared. Historically, because ecosystem services have not been valued, they have received an arbitrary value of zero in the public policy process. By placing a dollar measure on ecosystem services, the real value of these services can be communicated to the public and public decision makers in terms they are familiar with. In addition, monetizing ecosystem services allows important trade-offs to be compared more robustly, not only between these services and more traditional economic goods and services, but also between ecosystem services. Valuing ecosystem services is also challenging for a variety of reasons. The very act of valuing ecosystem services is controversial from both a philosophical and practical perspective (Toman (1998), Sagoff (2008)). While this section is not meant to provide a comprehensive overview of the topic, some important issues found in the literature should be stated. The first issue is the limitation of scientific knowledge of the complex interactions between ecological functions, processes and services. Similarly, because of the indirect nature of these functions and processes, the average citizen has difficulty in recognizing and valuing the services and goods that flow from the ecosystem. This makes stated preference approaches such as the contingent valuation method poorly suited for estimating the economic value of these goods and services. A further complicating factor is that such ecosystem services may cross geographical boundaries and involve both flows of services and goods, as well as stocks of services/goods. Another issue is the presence of fundamental uncertainties and irreversibility surrounding almost all estimates of ecosystem service values. Many ecosystem services are what economists call “lumpy” goods and these goods cannot be provided (and therefore priced) incrementally. Therefore another issue is that these types of goods are difficult to value marginally. Finally, economists make an important distinction between average and marginal values. Effective economic analysis balance marginal values in comparing small changes in ecosystem services while average values are used in examining small changes. Yet due to data limitations, much of the empirical literature uses average values as proxies for marginal values In addition to valuing specific ecosystem services, aggregating these values into one total measure also raises issues. Because different studies scope ecosystem services differently,


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there is a risk of double counting benefits when aggregating different valuation results into one total economic value. In addition, research has shown that simply summing the WTP for each individual ecosystem service may result in a value that is more than residents would pay for all the goods priced in one bundle (Hoehn and Randall (1989)). Known as the Independent-Valuation-Summation (IVS) bias, this causes an overestimation of benefits. In this case, the whole is smaller than its parts. They suggest that this bias may exist due to substitution effects between ecosystem services. These difficulties stated above are part of the reason that the total economic value of ecosystem services is largely unknown and is perhaps unknowable. The literature relating to ecosystem services reflects these challenges. Many evaluations of these benefits are done qualitatively rather than quantitatively. The community is realizing this fact and there is growing empirical literature concerning the nonmarket valuation of ecosystem services to prove it. We use the TEV framework to critically synthesize currently available information on the Great Lakes as follows: Section 3 includes Direct use values Section 4 includes Ecosystem Services Section 5 includes Option and Non-Use Values


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3 Direct Uses This section presents a critical assessment of the literature available pertaining to the direct use category of the Great Lakes. It includes direct use values where available. As outlined in the TEV Framework above, we include two categories of direct uses in our literature review: extractive and non-extractive uses. For example, while hunting removes wildfowl from the Great Lakes ecosystem and is therefore considered extractive, wildlife watching is a non-extractive use of the Great Lakes.

3.1 Extractive Uses Extractive uses pertain to those activities in the Great Lakes that result in water (or a commodity provided by the water) being withdrawn from a lake or river in the basin. These uses will involve differing degrees of return flow within the basin.

3.1.1 Residential Water The literature regarding water for residential purposes is difficult to categorize according to the TEV and ecosystem services framework. While the importance of drinking water surfaces in nearly every publication relating to protecting the Great Lakes, the literature relating to the exact value of drinking water to populations living in the Great Lakes is remarkably sparse. While the direct economic good received is drinking water, this good relies on the interconnected ecosystem services related to water supply and regulation. This section should be jointly read with these relevant sections to fully understand the value provided by the Great Lakes. In addition, this section does not include the output of residential water, namely wastewater, nor the damage that may arise from eutrophication. These categories of indirect uses are included in the Waste Treatment and Nutrient Cycling sections. Renzetti (1999) calculates residential water demands for cities in the Great Lakes and these could be used to estimate the value households assign to drinking water. Using Ontario municipal utility data from 1991, Renzetti (1999) shows that the value household’s assign to drinking water is well above the marginal price that they pay. This mismatch between price paid and the marginal WTP makes it difficult to measure the real value that household’s assign to residential water. However, this high WTP for residential water shows the important value of this good provided by the Great Lakes. In addition, our literature review did identify two studies that present estimates for drinking water that we have categorized in the direct-use category5 however neither is directly associated with drinking water sourced from the Great Lakes. While the two studies identified approach the valuation of drinking water similarly, the context under which individuals are asked to value drinking water differs with one study placing a WTP on the tradeoff between two health endpoints: bladder cancer and microbial disease (Adamowicz (2005)), and the other on the WTP for a hypothetical filter that is capable of removing agricultural based nitrates from the ground water (Crutchfield (1997)). The results of the first study found that the WTP for reductions in cancer is $168 per household per year, $226 per household per year for reduction in microbial disease cases, and $314 per household per year for a combined reduction in both bladder cancer and microbial disease.

5 For further discussion on water quality, drinking water and human health, refer to section 5.1.5 in the ecosystem

services category.


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The second study did not ask survey participants to assess a WTP for reduction in death, but rather the WTP for a hypothetical filter that was capable of reducing nitrates to the EPA minimum safety standards. The hypothetical situation supposed that current nitrate levels exceeded the EPA’s minimum standard by 50%. This study estimates that $82 to $109 per household per month is the WTP to reduce nitrate levels to the minimum EPA safety standard, and $82 to $128 for complete nitrate removal. The study also estimates the total benefits associated with safer drinking water and nitrate-free water by summing the individual household WTP estimates and multiplying by the percent of land considered at-risk for groundwater contamination6. It should be noted that neither one of these studies involves those that derive their drinking water from the Great Lakes; however the study by Adamowicz (2005) does contain information on the link between presence of trihalomethanes (THMs) in drinking water and increased cases of bladder cancer of those living around the Great Lakes. Finally, while not direct evidence of households’ valuation of improved water quality, it is instructive to note that, in 2007, water utilities in the Great Lakes basin reported operating and maintenance costs of approximately $260 million for treating 180.5 million cubic metres of raw intake water (Statistics Canada, 2009).

Exhibit 4 Comparison of Values in the Literature for Residential Water

Author, Year Range of Values Context

Adamowicz, 2005 $168 /household/year $226/household/year $314/household/year

WTP for reductions in cancer WTP for reductions in microbial cases WTP for reductions in both cancer and microbial cases

Renzetti, 1999 $1.07/m3 Marginal cost for Residential Supply

Crutchfield, 1997 $82-$109/ household /month $82-$128/ household /month

WTP to reduce nitrate levels to minimum safety standard WTP to render water nitrate free

3.1.2 Recreational Fishing

Recreational fishing refers to the value placed on this recreational activity by those who engage (or would engage) in the activity. In addition, there is a subsequent indirect economic benefit to the local economy as a result of their actions and spending. There are several empirical methods that have been applied to estimate the value of recreational fishing afforded by the Great Lakes. Likewise, there are several sources that deal with economic activity/benefits associated with recreational fishing activities in the Great Lakes. These studies present varying values and associated units, presenting ranges for individual fish species, all species considered the same, or all or nothing values for the fishery. What is most important to remember in extracting values from the literature is the context under which they are presented. A healthy percentage of the academic literature dealing with recreational fishing focuses on testing model development using data of previous surveys to investigate issues such as survey question sequencing, nested logit models, etc. Here it is noted that the values available in the literature and used to develop past economic studies on recreational fishing and the Great Lakes are developed using varying methodologies, often relying on dated data (for example, the study of the U.S., America’s North Coast Report, relies

6 These total benefits are the sum of benefits for the four study area regions throughout the U.S.: White River,

Central Nebraska, Lower Susquehanna, and Mid-Columbia Basin.


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on studies carried out in years 1992 -2003, however those studies themselves rely on data sets from the 1980’s and 1990’s). Recreational fishing benefits are very much related to expenditure by anglers when they decide to take a fishing trip. Their site choice, distance travelled, where they spend their money once there, the money spent on fuel (and a number of other variables) all contribute to the economic benefit associated with recreational fishing on the Great Lakes. The earlier literature focused more on the fuel and entrance fee-related costs to anglers, utilizing the travel-cost method to estimate the economic benefits afforded by the Great Lakes (relational to money spent on fuel and entrance-fees, in addition to money spent once at the fishing destination). We then notice literature begins to incorporate the effects of environmental factors, relating changes in environmental quality to changes in fish catch rates. It is also noted that surveys used in valuation techniques start to incorporate questions asking anglers their wiliness-to-pay for example, reduction in PCB levels of fish or an increased catch rate due to availability of fish. There are a number of publications that estimate the economic value of recreational fishing on the Great Lakes. For example, America’s North Coast Report (2007) impacts to fisheries of implementation of the GLRC plan would be in the $1.2 to $6.4 Billion (or higher) range. This estimate is based on the assumption that the GLRC plan would likely lead to increased fish abundance, relative to inaction. The U.S. study assumes that anglers value each one percent change in fish abundance at $0.18 to $0.36 per fishing day, an average of what was found in the literature for the Great Lakes. In addition to the estimate derived from marginal changes in fish abundance, the study also considers total surplus value loss, at $18 - $36 per angler day. There exist Canadian estimates for the economic value of recreation fishing on the Great Lakes, which are largely associated to travel and expenditures for fishing trips. The most relevant and recent source of data we identified comes from the Fisheries and Oceans Canada Survey of Recreational Fishing in Canada Selected Results for the Great Lakes Fishery for 2005. This survey estimates that $446 million was spent on durable goods used wholly or in part for recreational fishing on the Great Lakes, of which $244 million was directly attributed to recreational fishing activities and $230 million was spent in direct fishing expenditures such as transportation, food, lodging, etc7. Although this report does not present willingness-to-pay explicitly, it is a valuable source of information for current economic activity relating to recreational fishing on the Great Lakes. There are at least two studies that value recreational fishing on a site specific location in the Ontario side of the Great Lakes. The first investigates the WTP for improvements in fishing using relatively recent local data for Hamilton Harbour, Ontario, Canada (which is also an area of concern (AOC)) [Dupont, 2003]. The study uses the contingent valuation methodology (CVM). The study presents various WTP values in matrix form for three user categories (active user, potentially active user and passive user) for three recreation activities (swimming, boating and fishing)8. The fishing estimates range from $10.92 to $39.47 for unspecified improvements to recreational fishing. The second study estimates the average value of an angler day in the Credit Valley watershed using the travel cost approach (DSS Management Consultants Inc. (2008)). This study finds that the average value of an angling day ranges from a low of $9 a trip in the fall to a high of $155 a trip in the spring with an average value of $41 a trip.9

7 Individual estimates to not match up due to rounding.

8 This particular study investigated survey question order and its potential impact on outcome of WTP estimates.

9 This average value was found by taking the total value of the fishery, $1,224,247, and dividing by the number of

angler trips, 30,154.


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As a comparison, in a study of remediating Area’s of Concern in Ontario, Apogee (1990) uses a value of $70 in consumer surplus per angler-day for recreational fishing on the Great Lakes. In addition, Rosenberger et al. (2001) present a range of U.S. estimates for fishing to be $3.04 to $370.12, based on 39 studies and 122 estimates.

Exhibit 5 Comparison of Values in the Literature for Recreational Fishing

Author, Year Range of Values

Context

Fisheries and Oceans Canada, 2008

$244 M $230 M

Value directly attributed to recreational fishing activities on Great Lakes system in 2005 Additional value dispersed in region on direct recreational fishing expenditures during fishing trips (transportation, lodging, food, etc)

Dupont, 2003 $10.92 $39.47

WTP for improvements by passive user – fishing question placed second after swimming WTP for improvements by potentially active user – fishing question placed first

DSS Management Consultants Inc. 2008

$9 to $155 Range of estimates for the average value of an angling trip in the Credit Valley watershed.

Apogee, 1990 $70/angler day

Consumer surplus per angler-day for recreational fishing on the Great Lakes

3.1.3 Hunting Hunting refers to the value placed on this recreational activity by those who engage (or would engage) in the activity and the subsequent economic benefits to the local economy as a result of their actions/spending. Waterfowl, songbirds and raptors all use the Great Lakes as a major continental flyway. This bird population presents the opportunity for recreational hunting for those who enjoy the sport, and in turn brings economic benefit to the region. However there is relatively little literature that estimates these benefits for the Great Lakes region specifically. There are estimates of the value of hunting waterfowl and other birds based on meta-assessments of the literature, with Rosenberger presenting a range of $3.79 - $250.60 consumer surplus per waterfowl hunting activity day, based on 13 recreation demand studies carried out over 1967 to 1998. These values are not Great Lakes specific however Roseneberger presents this range in his dissertation on using the benefits transfer methodology. America’s North Coast Report (2007) has estimated that the benefits from increased hunting resulting from the implementation of the GLRC plan would be in the $8 – 118 million range. The authors’ use the benefits transfer method and an estimate of $700 WTP by Louisiana waterfowl hunters for a one-duck increase in the daily bag limit to arrive at the upper estimate. The authors arrive at the lower estimate using the same methodology, but they apply a value of $35 per trip for waterfowl hunting. It is noted here the possible caveats of utilizing the benefits-transfer methodology, specifically the value used to arrive at the upper estimate: $700 may not be a representative reflection of the WTP for users of the Great Lakes and in-turn, an over-estimate of the economic value of the service. The authors also issue caution,


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indicating that the estimate could be higher or lower, depending on the level of waterfowl hunting on the Great Lakes.10 There is at least one recent economic estimate of the value of waterfowl hunting to Canadians, presented in the study by Environment Canada (2000), which states that Canadians spent over $1 billion on hunting in Canada , with waterfowl hunting having a value of $18.79 per day and other birds $11.07 per day. These values are not Great Lake specific however there is provincial data available, which could allow for a proxy assumption, as was done for the U.S. study (America’s North Coast Report).

Exhibit 6 Comparison of Values in the Literature for Hunting


Environment Canada, 2000

$11.07 /day $18.79/day

Economic value of hunting ‘other birds’ for Canada Economic value of hunting waterfowl for Canada

Rosenberger, 2001 $3.79-$250.60/activity day/person

Average consumer surplus values per activity day per person from recreation demand studies from 1967 - 1998

3.1.4 Industrial Water (excluding heating/cooling)

Water is used as an input for a variety of industrial sectors in the Great Lakes.There are a few estimates available that place a value on water provided to industrial facilities in the Great Lakes. There exist no studies examining the specific value of water to industry in a Great Lakes context. However, current water charges of $0.00371/m3 ($3.71 per million litres) apply to commercial and industrial water uses who withdraw more than 50,000 litres per day from groundwater and surface water sources or a municipal system. This charge is likely a large underestimation of the actual value of water in to industries. More sophisticated work has attempted to place a value of water as an input in the industrial process. Dachraoui and Harchaoui (2004) report estimates for the value of intake water for the Canadian manufacturing sector ranging from $0 to $1.50/m3 (with an average of $0.35/m3). The authors also provide an estimate of commercial water intake of $0.59/m3. These estimates are not related to the quality of water. Data on the actual water withdrawals and consumptive use of industrial users in the Great Lakes can be found in the Annual Report of the Great Lakes Regional Water Use Database Repository (The Great Lakes Commission (2009)). This data is broken down by industry, Lake and jurisdiction. Although the reported year is 2006, due to data limitations, the calendar year 2000 data were used in the report for Ontario. Water use estimates for 2006 are not expected to be significantly different from the use in 2000. For all industrial users, total Great Lake surface withdrawals in 2006 amounted to 5,074 million/m3 while total consumptive use was 438 million/m3.11 Ontario’s industrial users withdrew and consumed 1,241 and 80 million/m3 of water, respectively.

10

The authors were not able to determine the fraction of waterfowl hunting trips that either occur in the Great Lakes or are associated with waterfowl breeding habitat, rather they assume 5 percent of waterfowl hunters in the Great Lakes states depend on the Great Lakes ecosystem. 11

The states and provinces use a variety of methods for measuring consumptive use. The most commonly used practice is to multiply water withdrawals by agreed-upon percentage (consumptive use coefficient). Please refer to The Great Lakes Commission (2009) report for a more in-depth discussion of methodology.


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Within the industries, food processing is the second largest manufacturing sector in Ontario. Ontario represents between 31% (percentage of establishments) and 40% (percentage of total revenue) of Canada’s food processing industry. In the study by Dachraoui and Harchaoui (2004) noted above, the shadow price of water intake for food manufacturing is $0.16 per cubic metre. This is well below the average reported for all other industries. Perhaps the most sophisticated work relating to water use in the Canadian food processing industry is a paper by Dupont and Renzetti (1997). In their paper, they estimate the input demand price elasticities, and demand and expenditure elasticities with respect to output for the food processing industry in Canada. They identify four aspects of water use (intake, treatment prior to use, recirculation and discharge) and show that for the most part, all water inputs are substitutes for one another. Using the 1991 Industrial Water Use Survey, their results show that, in aggregate, for every 1% increase in the price of intake water, the food processing sector would reduce its water intake by 0.34%, the amount of recirculation by 0.496% and the amount of treatment by 0.476%. These results are important in making the case for a role for economic instruments in managing water demand in this sector.

Exhibit 7 Comparison of Values in the Literature for Industrial Water


Context

Dachraoui and Harchaoui (2004)

$0 to $1.50/m3 Estimates for the value of intake water for the manufacturing sector.

3.1.5 Heating and Cooling (including nuclear and thermal plants) Thermal and nuclear electrical plants use enormous amounts of cooling water in order to produce electricity. High-quality data is available for withdrawals and consumptive use and can be found in the Regional Water Use Database cited above. Annual water withdrawn for cooling fossil fuel power plants totaled 17,658 million cubic metres while total consumptive use was 124 million cubic metres for this type of facility. For nuclear power, these figures are 20,905 and 249 million cubic metres of water annually withdrawn and consumed, respectively. In 2006, Ontario’s share of these total amounts was 2,028 and 18 million cubic metres of water withdrawn and consumed by the fossil fuel power plants and 13,990 and 126 million cubic metres of water withdrawn and consumed by nuclear power plants. Although data on the physical use of water is available, there is little literature on the economic value of this water in the process of heating and cooling thermal power plants. The Industrial Water Use Survey indicates that, in 1996, Ontario’s thermal power generating plants spent $9.1 billion on water intake operating and maintenance costs for the intake of 23,228 million cubic metres of water (Scharf, Burke, Villeneuve and Leigh (2002)). This expenditure results in an average intake cost of $0.39 per cubic metre. Using cold lake water to cool some of Toronto’s buildings is also a very interesting and new use of Lake Ontario water. Cold water is removed from a depth of 80 metres and used to replace air conditioning as a source of space cooling. The most significant example of this technology’s application is Toronto’s ENWAVE, which uses deep water from Lake Ontario to cool buildings in the downtown core. According to ENWAVE’s website, the project had a capital cost of $230 million and resulted in the displacement of approximately 61 megawatts of electricity demand and 80 million kwh of electricity consumption. The plants have a lifetime of approximately 50 years. Unfortunately, no dollar estimate of the full social benefits (avoided electricity production, avoided pollution costs, etc.) is available from ENWAVE. If the annual operating


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costs of the deep water system and the annual amount of water used by ENWAVE could be combined with benefit estimates, calculation of the net benefits per cubic metre would be possible.

Exhibit 8 Comparison of Values in the Literature for Heating and Cooling


Context

Scharf, Burke, Villeneuve and Leigh (2002)

$0.39/m3 Average intake cost for Ontario’s thermal power generating plants

3.1.6 Agricultural Water This section reviews the literature relating to the value of the Great Lakes to the agricultural sector. More specifically, this section covers the value of water in crop production in agriculture.12 Approximately, one quarter of all of Canadian agricultural production takes place on land situated in the Great Lakes basin with operations dominated by dairy, grain, corn, and livestock farms, along with some tender fruit crops in the more southern reaches.13 One third of the land in the basin is given over to agricultural operations. Farms use water as an input in their production processes. Agricultural operations withdraw water from the lakes, groundwater or from rivers that flow into the lakes for livestock watering and/or irrigation. 2006 data from The Great Lakes Commission (2009) indicates that Ontario’s agricultural sector withdrew a total of 152 million cubic metres of water for irrigation and livestock uses from all water bodies in the Great Lakes basin (including both surface and groundwater). However, these estimates may be an underestimate due to the fact that the threshold for inclusion in this report is 50,000 litres a day; so many seasonal farm uses are excluded. To (2006) estimates the value of water in irrigation for a variety of crops in the Big Creek watershed in southern Ontario. He calculates the loss in yields due to a loss in water and multiplies this lost yield by the average market crop price received by producers from 2000-2004. Using this method he can calculate the loss in profitability in the short term (when costs are fixed) due to a decrease in water. These estimates are presented in Exhibit 9. To give a magnitude of the potential water use, the total hectares in production in Ontario of each crop are also shown.14

12

For information on the value of water to the food processing industry, see the section on Industrial Water. 13

(http://www.great-lakes.net/econ/busenvt/ag.html#overview, accessed Dec 7, 2009) 14

The amount of hectares that are actually irrigated would be a subset of these totals.

http://www.great-lakes.net/econ/busenvt/ag.html#overview


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Exhibit 9 The total hectare of production in Ontario and value water for irrigation in the Big

Creek watershed by major crop.

Type of Crop Total hectares of production in

Ontario15

Irrigation requirement (m3/month) per hectare

August

Value of water ($/m3) per hectare

August16

Potatoes 36,000 242.33 $0.43

Sweet corn 10,522 104.17 $0.22

Tobacco 9,700 104.17 $1.24

Tomatoes 6,964 145.61 $1.26

Apples 6,677 104.17 $1.57

Ginseng 5,00017 104.17 $3.79

Carrots 3,339 242.33 $0.42

Cabbage 1,532 242.33 $0.51

Strawberries 1,234 196.27 $0.59

Peppers 1,165 242.33 $0.90

Squash, pumpkins and zucchini 1,062 242.33 $0.36

Cucumbers 927 242.33 $0.50

Cauliflower 530 242.33 $0.74

The report states many challenges with this simple method of calculating the value of water and various data gaps. Therefore, these estimates should be seen as a first approximation. However, the results give an important glimpse into the potential value of water to the agricultural sector. In addition, there are estimates for other parts of Canada (Alberta and Saskatchewan) and the southwestern United States. For example, Bruneau (2004) uses a residual imputation method18 to obtain estimates for the South Saskatchewan River Basin. His estimates vary by livestock type with a lower value for milk cows ($33.04 in Alberta and $33.87 in Saskatchewan) and a higher one for pigs ($156.52 in Alberta and $163.49 in Saskatchewan). All values are per cubic metre. Estimates of the value of water for irrigation purposes vary by crop and geographic location. Recent results for grain crops come from Gardner Pinfold (2006) who use an economic rent approach for the South Saskatchewan River Basin area. The authors estimate the average short-run value to be $0.06 per cubic metre with the average long run value of $0.014 per cubic metre. Samarawickrema and Kulshreshtha (2008) calculate the value of irrigation water use in 15

Data taken from the OMAFRA website http://www.omafra.gov.on.ca/english/stats/hort/index.html. 16

It is important to note that this is the value of water in the short term, not the long term. In the long term, irrigation technologies will change and agricultural producers may change the mix of seeds, fertilizer and pesticides, The author does not specify the currency year used in the report, only that the prices used in the calculation are the average from 2000-2004. It is assumed that 2004 is the base year used in the report and this is converted to, and presented in, 2009 Canadian dollars in the table above. 17

Data taken from the Ontario Ginseng Growers website http://www.ginsengontario.com/industry/index.php?id=7&layid=2#IPL1. 18

It should be noted that this approach tends to provide an upper bound estimate on water’s value since the entire residual impact of gain is attributable to the increased availability of water as an input.

http://www.omafra.gov.on.ca/english/stats/hort/index.html


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a number of sub-basins in the South Saskatchewan River Basin for both the short and long run. They find that estimates for the short-run range between $0.018 and $0.089 per cubic meter with long run estimates ranging between $0.010 and $0.068 per cubic meter. Brown (2007) reports on median values from water rights transactions in Western US States over the 1990-2003 period; estimated irrigation values are estimated to range between $0.005 to $0.090 per cubic meter. On top of the baseline values reported above, climate change is expected to decrease soil moisture levels during the growing season. This will increase the need and demand for irrigation, and therefore the value of water in the agricultural sector.

Exhibit 10 Comparison of Values in the Literature for Agricultural Water

Author,

Year Range of Values ($/m3 per hectare) Context

To (2006) Potatoes - $0.39 These estimates are for the short term value of water in August in the Big Creek watershed Sweet corn - $0.20

Tobacco - $1.13

Tomatoes - $1.16

Apples - $1.43

Ginseng - $3.47

Carrots - $0.38

Cabbage - $0.47

Strawberries - $0.54

Peppers - $0.83

Squash, pumpkins and zucchini - $0.33

Cucumbers - $0.45

Cauliflower - $0.68

3.1.7 Commercial Fishing

The Great Lakes supports a small, yet robust, commercial fishery. For example, Lake Erie supports the largest walleye fishery in the world. Our literature review identified only a small sample of studies that investigate the economics of Great Lakes commercial fisheries. One study (Milliman et al. 1992) investigates the impact of an ongoing rehabilitation plan19 however it is specific in both geographic location and fish species, looking at the impact to sport and commercial fisheries for the yellow perch fishery of Green Bay. The study concluded that sport anglers were the benefactors of sizeable benefits, with the commercial sector seeing moderate losses.20 The study of the U.S. (America’s North Coast Report, 2007) does not attempt to estimate benefits to the commercial fishery from the implementation of the GLRC plan as the American

19

Initiated in 1983 by the Wisconsin Department of Natural Resources (WDNR), for the yellow perch fishery of Green Bay, Lake Michigan. 20

The commercial user group was modeled to exhibit a negative change under the rehabilitation policy scenario when compared to the baseline policy scenario for all time horizons (5-year, 10-year, 15-year, and 20-year) while the sport user group saw a positive change for all time horizons. This means the 1983 WDNR plan increases catch variability for sport anglers while reducing it for commercial users.


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Great Lakes commercial fishery was less than two percent as valuable as the recreational fishery sector. For these reasons, the authors do not include any benefit estimates associated with commercial fishing. There are economic data available for Ontario relating to commercial fishing however and, although it is not a huge contributor to the provincial economy, it is not zero. Ontario’s commercial fishers are regulated by the Ontario Ministry of Natural Resources. The 500 active commercial fishing licenses in Ontario catch nearly 15,000 metric tonnes of fish each year. This catch has a dockside value of $29.3 million.21 Commercial fishing is concentrated in Lake Erie where 80% of the value is caught. Once the fish has been processed and sold in stores and restaurants, it has been estimated that the commercial fishing industry contribute between $180 and $216 million to Ontario’s economy. This last figure refers to both direct and indirect economic impacts.

3.2 Non-Extractive Uses Non-extractives uses pertain to those activities that do not result in water (or commodity) level decreases; all water/commodities extracted are returned to the system. The IJC Lake Ontario St Lawrence River Study Board carried out a number of studies relevant to this section. The studies investigated recreational boating WTP studies and shoreline protection value studies. 22

3.2.1 Recreational Boating Recreational boating refers to the value placed on this recreational activity by those who engage (or would engage) in the activity and the subsequent economic benefits to the local economy as a result of their actions/spending. The Great Lakes provide wonderful opportunities for recreational boating, and this has translated in the literature via numerous estimates of the economic value of this activity. As with recreational fishing, early economic research focused almost solely on travel cost, using the individual travel-cost model to estimate the value of recreational boating to those who utilize the Great Lakes for this type of recreation. One early study estimated that the economic value of recreational boating and fishing activities of those who visited the Central Basin of the Ohio portion of Lake Erie in 1982 was $48.44M (Dutta (1984)). The author points out the caveats of this method and the ambiguity that arises when valuing the cost of travel time. Later studies include those of Husak, who carried out two different studies, one investigating the expenditure of boaters, and one investigating the effects of dredging the US Ottawa River. Husak (1999) estimates that the total boating expenditure by Ohio boat owning households was $2.6 billion from October 1, 1997 to September 30, 1998. This study evaluated spending by recreational boaters and how fast that spending affected the state economy and Ohio businesses. Husak’s (2000) study focused on providing economic information on the effects of dredging the US Ottawa River, in terms of the impact on recreational boating on the US Ottawa River and related waters. He also investigates the impact to local businesses. The study is based on the results of three surveys conducted during the 1998 boating season asking local users what amount of contribution ($) they would be willing to pay to make dredging of the US Ottawa River possible. The authors also make estimates for the increased economic value of dredging 21

Dockside value refers to the price paid for the fish as it comes off the boat and before it is processed for human consumption. 22

These studies can be accessed at <http://losl.org/about/about-e.html>.

http://losl.org/about/about-e.html


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contaminated sediment. One key finding of the study that is relevant to the current study is the mean willingness to pay for dredging to remove contaminated sediments from the Ottawa River of $66.5323per year for the next 10 years. The authors use a discount rate of 5 percent to estimate the present value of mean payments to be $539. Other studies carried out on the economic value of recreational boating to the Great Lakes include that of the U.S. Army Corps of Engineers, whose most recent assessment of Great Lakes Recreational Boating in December 2008, estimated that there are 911,000 recreational boaters on the Great Lakes: Spent $3.68 billion/year on boating trips Spent $2.25 billion/year on boats, equipment and supplies Resulted in the creation of 60,000 jobs with $2.76 billion in personal income. The study focuses on the economic benefits of recreational boating in Great Lakes Basin, and has a particular focus on the harbours benefiting from operation and maintenance projects of the Corps in eight U.S. states. They also state that the recreational boaters “increase the quality of life and appreciation of the environment for many Americans” however no valuation metrics are provided for this service. Estimates for recreational boating in Ontario also exist. Of the 1.2 million recreational boats in Ontario, the Canadian Coast Guard estimates that approximately 780,000, or 65 percent, are used on the Great Lakes, At least one local study has been carried out to assess the WTP of Ontarians living along the Great Lakes for environmental improvements to Hamilton Harbour, ON, CAN to support recreational boating. The study carried out by Dupont (2003) estimates the median WTP for improvements was in the $8.20 to $43.27 range for passive and active boating users, respectively. Changing water levels24 are also expected to impact the economic activity associated with recreational boating. We have identified two studies that speak to this effect. The study of Connelly (2005) considered water level changes due to the outflow of water from Lake Ontario through the St. Lawrence River. This study collected Canadian data in 2002 and 2003 from three audiences: recreational boaters (use of Lake Ontario and St. Lawrence River, expenditures and impacts of high and low water levels on use), marina and yacht club owners (impacts of fluctuating water levels and physical water level measurements), and tour boat and excursion craft operators (impacts of fluctuating water levels to their business). Two performance indicators for water level – impact relationships were developed, these being total possible boating days lost and net economic value lost (willingness-to-pay). The study uses these relationships to show the economic impact to the indicators as water level decreases or increases. The study presents a number of tables and graphs, but no clear value associated with incremental water level changes. The most recent data available for recreational boating in Canada we have identified is a very comprehensive document titled Economic Impact of the Canadian Recreational Boating

23

The median respondent household was willing to pay $10 per year for 10 years for dredging to remove contaminated sediments from the Ottawa River. The authors present median values as these would be the pertinent values to provide for referendum design. Present value of the median payment was estimated at $77. 24

Changing water levels due to climate change are not investigated in this section. The studies reviewed here do not present economic estimates of water level changes with respect to climate change, but other causes.


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Industry: 2006. This document was prepared for the Canadian Marine Manufacturers Association (CMMA) in September 2007 with the study designed to determine the direct and indirect economic activity attributed to the recreational boating industry in Canada. The authors include the following to arrive at their overall estimates: Annual sales Job creation Tax revenues generated Tourism revenues generated Consumer expenditures related to boating Contribution to GDP. Primary data used in their analysis was collected via on-line surveys and secondary data from publicly available data from Industry Canada. The study estimates that total final direct expenditures (net of sales taxes) in Canada for year 2006 for the recreational boating industry was $14 billion. Total estimated direct and indirect impact of recreational boating in Ontario is estimated at approximately $5.1 billion. They do not include estimates for Great Lakes users specifically.

Exhibit 11 Comparison of Values in the Literature for Recreational Boating


Context

Dupont, 2003

$8.20 $43.27

WTP for improvements by passive user WTP for improvements by active user

CMMA, 2007 $14 billion $5.1 billion

Total final direct expenditures in Canada for year 2006 in recreational boating industry Estimated total direct and indirect impact of recreational boating in Ontario

Husak, 2000 $66.53 WTP for dredging to remove contaminated sediments from the Ottawa River

3.2.2 Beaches and Lakefront Use

Beaches and lakefront refers to the value placed on the recreational activity of going to the beach by those who engage (or would engage) in the activity and the subsequent economic benefits to the local economy as a result of their actions/spending. Literature relating to the recreational benefits of beaches and lakefronts is more robust and primarily use the proxy of beachgoer visits (or swimming days) and the associated value of a day at the beach. This follows the theory that any days a beach is inaccessible due to closings and advisories translates into an economic loss as those individuals will not be consuming goods/services related to a day at the beach. One study prepared for the Ontario Ministry of Natural Resources, estimates that the value of Great Lakes beaches is in the $210 to $262 million range [Krantzberg 2006].25 This value was derived for Canada by proportionally scaling the results of Shaikh (2004). Saikh (2004) estimates the average day at the beach is worth approximately $50 and the total seasonal value of the US Great Lakes beaches to be in the $1.13 to $1.42 billion range. The study of Shaikh relied on survey results of beachgoers at Chicago beaches in 2004.

25

These figures are found by taking one fourth of the values reported in Saihk (2004).


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One study found that explores the value of beaches and provides numeric values is that of Sohngen (1999), who uses survey data and the travel-cost method to estimate the recreational value of a single-day trip to Lake Erie beaches in the $26 to $44 range. A more local, but less recent study by Apogee (1990) uses an assumed value of $9.17 per swimming occasion in areas of concern at 10 relevant RAP sites to estimate the economic benefit of new swimming activities due to improved conditions. There is at least one recent Canadian study that investigates the WTP for improvements to Hamilton Harbour, located in Hamilton, Ontario, Canada (also an AOC). The study estimates WTP in the range of $16.06 to $75.18 for swimming activities.26 Canadian data sources for Great Lakes as recreation for beachgoers includes the City of Toronto’s Toronto Beaches Plan (2009), which outlines the plan for the area’s 11 swimmable beaches. It discusses the rigorous standards that must be upheld to keep a beach open for use and indicates that swimmable beaches are often used as an indicator of Toronto’s environmental performance and quality of life [Toronto 2009]. The document provides data on the 11 swimmable beaches, including overall time Toronto beaches were open for swimming. However, no valuation metrics to indicate the economic value of the beaches to Torontonians are provided. America’s North Coast Report estimates that the benefits of implementing GLRC plan27 to beaches and lakefronts would be $2.4 -3.6 billion, or higher. Their method utilizes data collected from beachgoers at sixteen Lake Erie beaches, which found a willingness-to-pay of approximately $42 per visitor per year or $2.74 per visit to have a 30 percent reduction in the average number of water quality advisories/beach closures. The authors use survey data for recreational use of ocean beaches to estimate the annual number of swimmers (8 million) and swimming days (80 million) at Great Lakes beaches as they were “unable to identify any reliable comprehensive measurement of the total number of visitors to Great Lakes beaches”. Their analysis assumes the GLRC would result in a 20 percent reduction in beach closings and advisories, meaning the lower estimate is the result of multiplying 80 million swimming days by an estimated value of $1.78 per visit and the higher estimate is the result of multiplying 8 million swimmers by $27 per visitor.

Exhibit 12 Comparison of Value in Literature Beaches & Lakefront


David Suzuki Foundation, 2008

$125/hectare/year Recreational Value Swimming – Great Lakes shoreline

Krantzberg, 2006 $210-262M/year $50/day

Total economic value of swimming as recreation in Great Lakes eco-region Value of a day at the beach

Dupont, 2003 $16.06/visit $75.18/visit

WTP for improvements to Hamilton Harbour, ON, CAN (passive user) WTP for improvements to Hamilton Harbour, ON, CAN (active user)

26

This study investigated the sequence in which three recreation activities were presented and the resulting difference in WTP. The activities were: swimming, boating and fishing. 27

In this context, the GLRC plan would eliminate untreated or under-treated waste flows in the Great Lakes from MWWT and on-site disposal.


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Sohngen, 1999 $26/visit $43/visit

Economic value of day trip for swimming to Headlands State Park beach, U.S Economic value of day trip for swimming to Maumee Bay State Park beach, U.S

3.2.3 Aesthetic and Amenity Values

Aesthetic and amenity values capture the benefits to individuals provided by the natural and physical qualities and characteristics of the environment such as vistas and the general pleasantness and environmental conditions of an area. The Great Lakes certainly provide these important, yet intangible benefits to individuals. Aesthetic and amenity are private values held by people living near or visiting the Great Lakes. For example, while the carbon storage and nutrient cycling services of wetlands are public goods, there is also a private benefit to homeowners from living near this wetland. This private benefit is difficult to quantify and monetize. The most common method to measure aesthetic and amenity values is with the hedonic price method using differences in house prices. This econometric approach involves gathering market data on property transactions and controlling for all the other features of a property (lot size, number of bedrooms, garage, etc) except for the environmental amenity (proximity to lake, size of wetland, etc) that is being valued. In this way, the value of the environmental amenity can be inferred from the revealed actions of individuals. There is a growing economic literature base regarding the implicit prices people are willing to pay to benefit from environmental amenities. Johnston et al. (2001) study the Peconic Estuary System of Suffolk County, New York and find that lots located adjacent to preserved open spaces have 12.8% higher per-acre value than similar lots located nearby. Using housing transaction data from coastal communities in South Carolina, Pompe (2008) estimates the implicit prices for various environmental amenities. He finds that houses either on the waterfront, with a waterview, or near a marshland add 53.5%, 36.6% and 19.4%, respectively to the houses’ value. In a study focused on wetlands, Mahan et al. (2000) use residential housing data from Portland, Oregon to estimate that the marginal implicit price of increasing the nearest wetland by 1 hectare is $104.41. In addition, they find that reducing the distance to the nearest wetland and lake by 1,000 feet increases the house value by $690.45 and $2,705.94, respectively. Finally, Earhhart (2001) combine stated (choice-based conjoint analysis) and revealed (hedonic analysis) preference methods to estimate various environmental amenities in the Farifield, Connecticut housing market. One result of note is the large difference between the revealed welfare measure of a disturbed marsh (-13.2% of a home price) and a restored marsh (16.6% of a home price). When revealed and stated data are combined, a more realistic welfare measure for marsh restoration of 2.7% of median home price is found. In the Great Lakes context, there are three American studies that estimate the value of various environmental amenities. The first study is on Ramsey County in Minnesota (Doss and Taff (1996)). In their study, the authors examined the implicit price people pay to be closer to a wetland. They find that moving 200 metres closer to an open water wetland increases house values by $3,260. In addition, their results suggest that Minnesota homeowners value a lakeview at $75,724.28 The second study by Anderson and West (2006) use housing data from the Minneapolis-St. Paul metropolitan area to determine the effects of open spaces on

28

The reported mean house price was $172,322.


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residential property values. Their results suggest a more complex relationship between environmental amenities and property values. For example, they find that the sale price increases 0.0342% for every one percent decrease in the distance to the nearest lake. However they find that this amenity value falls as lake size increases. They suggest this may be due to noisy watercraft activity and point out that this interaction effect is small. In conclusion, the authors point out the importance of spatial context for analyzing environmental amenity values. The third study analyses rural properties in 9 Michigan counties which have shorelines along Lake Superior (Orr et al. (2001)). Intuitively, they find that lakeview is a significant determinant of house prices for non-shoreline properties. In addition to the American research, there is a recent Canadian Great Lakes study undertaken in the Credit Valley Watershed (DSS Management Consultants (2009)). This study uses the hedonic pricing method to estimate the positive amenity benefits associated with four categories of natural features: green space and ravine type 1, 2, and 3. Green space encompasses all publicly owned land with public access that is not zoned for development and is designated as Green Space or Open Space by the municipalities. This does not include active recreation sites (i.e. golf courses), but does include passive use parks and all upland natural features. Ravine type 1 sites are larger connected ravines with tree cover while Ravine type 2 sites are isolated and often devoid of tree cover. Ravine type 2 is between these two categories. In addition, the study area is split into two areas: south and north Mississauga. The results of this study are presented in Exhibit 13. These estimates give an indication to the market value individuals place on living near natural features.

Exhibit 13 Average Value of Property and Natural Features Appreciation Impact

Natural Feature Type Increase in Value

South Mississauga North Mississauga

Green Space 1.9% 3.7%

Ravine Type 1 4.7% 2.8%

Ravine Type 2 3.8% 1.9%

Ravine Type 3 2.8% N/A

Average 2.4% 3.6% Although these studies utilize robust measurement methods, some caution is needed in interpreting their results. First, people may prefer to live by a lake for the recreational opportunities. Therefore, these value estimates may capture some of the recreational use benefits and simply summing up these two categories of values may result in double counting. In addition, other unobserved neighbourhood characteristics, if uncontrolled for, can lead to a biased estimate.


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Exhibit 14 Comparison of Aesthetic and Amenity Values

3.2.4 Wildlife Watching

Wildlife watching refers to the value placed on this recreational activity by those who engage (or would engage) in the activity and the subsequent economic benefits to the local economy as a result of their actions/spending. Nearly all documents addressing the importance of the Great Lakes mention the recreational activity of wildlife watching and the pleasure Canadians derive from this activity. The literature attempting to assign an economic benefit of this activity however is somewhat lacking for the Great Lakes region specifically. The literature reviewed that estimate wildlife watching benefits largely relies on the travel-cost method. There have been a number of studies carried out that estimate the economic value of wildlife watching, however these have been mostly carried out in the U.S. and not specifically directed at the Great Lakes regions. We have identified two studies that investigate the economic benefits associated with wildlife watching in the Great Lakes area, summarized below. Using the travel cost method, Hvenegaard (1989) found that bird-watching expenditures for trips to Point Pelee was $374 per trip or $107 per day for a total of $9.0 million for all of 1987. This study goes further and asks the participants’ maximum willingness to pay for bird-watching at Point Pelee. This measure of net economic value of birdwatching was found to be $10.5 million for the year. These figures should be considered very place specific because Point Pelee is rated as “one of the premier birding locations in North America” (Hvenegaard (1989)). A 1989 birdwatching survey of the Hamilton-Wentworth and Burlington area population revealed that 9 percent of the population currently participates in this activity. However, 16 percent reported they would birdwatch if water quality conditions improved an increase of almost 100 percent. As a comparison, Rosenberger looks at 16 studies (carried out from 1967 to 1998) and 157 estimates and found a range of $4.14 to $283.53 in consumer surplus per wildlife watching activity per day. These ranges are not Great Lakes specific however are presented for comparison purposes, with the values of Hvenegaard falling within this range. The study of the U.S. estimates wildlife watching benefits of the GLRC plan to be in the $119-237 Million range. This estimate is derived using an assumed surplus value of birding at the U.S. Great Lakes sites to be $59 per trip, on average. The present value estimate of $119-237 million is based on the assumption that improvements of the GLRC plan occur gradually over 10


Context

Mahan et al., 2000 $104.41 Marginal implicit price of increasing the nearest wetland by 1 hectare.

Doss and Taff, 1996 $3,260 Increase in house values by moving 200 metres closer to an open water wetland

$75,724 Value of a lakeview for Minnesota homeowners.

Earnhart, 2001 2.7% Increase in house prices due to the benefits of marsh restoration.

DSS Management Consultants, 2009

1.9% to 4.7% Increase in house prices due to various natural features.


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years with reductions in habitat occurring gradually over 20 years. The study does not take into account estimates of birders living outside the Great Lakes region nor does it include any other form of wildlife watching; benefits are solely associated with birding. Environment Canada (2000) estimated that $1.7 billion was spent on wildlife viewing by 20 million Canadians in 1996 in natural areas. These natural areas were defined as trips taken to natural areas such as forests, water bodies and other areas for the main reason of participating in a number of nature related recreation activities. While this value does not explicitly present the economic benefits of wildlife watching in the Great Lakes area, it does act as a source of data for the value of wildlife watching to Canadians as a whole. They also present values by Province, with Ontarians spending an average of $338 on wildlife viewing per year, slightly less than the Canadian average of $382.

Exhibit 15 Comparison of Values in the Literature for Wildlife Watching


Environment Canada, 2000

$1.7 billion $338/year

Amount spent in 1996 on wildlife viewing by 20 million Canadians Average expenditure on wildlife viewing by Ontarians

Rosenberger, 2001 $4.14 - $282.53/activity/day

Consumer surplus per wildlife watching activity per day, based on 16 recreation demand studies carried out over time period 1967 - 1998

Hvenegaard, 1989 $107/day Daily expenditure for bird-watching trips to Point Pelee in 1987

3.2.5 Other Recreational/Tourism Benefits

In addition to the recreational uses outlined above, the Great Lakes provide additional benefits from a variety of other recreational uses. The Great Lakes offer a range of tourism opportunities, from pristine wilderness activities in national parks to rock climbing. Additionally, the well-defined four season climate of the Great Lakes region offers many types of recreation including ice fishing, skiing and snowmobiling in the winter to swimming, hiking, camping and golfing in the summer. Therefore, tourism in an important economic aspect associated with the Great Lakes however it should be noted that tourism is not a stand-alone category as it is driven by a number of activities. The U.S. Office of the Great Lakes states that Great Lakes tourism in the Michigan area generates billions of dollars each year, attributed to those who spend leisure time around the lakes and streams. The direct benefits from tourism, fishing and recreation (based on a regional investment of $30 billion to implement the Great Lakes Regional Collaboration Strategy) are estimated to be $7.3-13.3 billion in short and long-term returns [Office of the Great Lakes, 2009]. Additionally, an increase in approximately 18,000 tourism-related jobs was observed in the Michigan region, indicating the importance of the Great Lakes to this sector. While this report does provide some valuation in the tourism sector, it should be noted that it is grouped with fishing and recreation with no attempts to separate the categories individually. Price Waterhouse Coopers (2004) conducted an economic impact analysis of the Trans Canada Trail in Ontario. They estimated that 42,000 jobs and a total of $2.7 billion in value added income are attributed to the trail in Ontario. However, of this amount, only $170.0 million can be attributed to non-local expenditures or what the authors call “new money” into the economy. In addition, the study estimates the value of completing the currently undeveloped portions of the Trans Canada trail at $275.4 million in new income to Ontario.


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As tourism is driven by a number of activities, it is somewhat difficult to extract any valuation metrics that are directly attributed to the act of ‘tourism’. America’s North Coast Report makes no attempts to value the specific category of ‘tourism’, rather it is assumed as inherent within fishing, wildlife watching, hunting and other recreational activities that have an associated value. The best attempt in the literature to value the broadest range of recreational activity has been made by Rosenberger et al. The authors investigate 21 outdoor activities whose value has been researched in the past and present a range of estimates available in the literature for the value of each. As this literature report has investigated swimming, recreational fishing, recreational boating, hunting and wildlife viewing as separate categories, these are excluded from this section, leaving 1329 activities and their values displayed in Exhibit 16 below.

Exhibit 16 Comparison of Values in the Literature for Other Recreation/Tourism Benefits


Rosenberger, 2001 2.97-328.31 Consumer Surplus values per activity for Camping

13.60-208.71 Consumer Surplus values per activity for Picknicking

0.95-306.73 Consumer Surplus values per activity for Sightseeing

7.67-59.03 Consumer Surplus values per activity for Off-road driving

2.74-383.16 Consumer Surplus values per activity for Hiking

30.90-110.33 Consumer Surplus values per activity for Biking

22.00-92.28 Consumer Surplus values per activity for Downhill skiing

20.53-70.75 Consumer Surplus values per activity for Cross-country skiing

63.57-181.96 Consumer Surplus values per activity for Snowmobiling

26.49-26.49 Consumer Surplus values per activity for Horseback Riding

52.32-150.44 Consumer Surplus values per activity for Rock Climbing

2.07-376.53 Consumer Surplus values per activity for General Recreation

8.35-302.39 Consumer Surplus values per activity for Other Recreation

3.2.6 Commercial Navigation

The Great Lakes provide a low cost, environmentally friendly means of transporting goods from the industrialized core of North America. The Great Lakes-St. Lawrence River Navigation System includes 90 commercial harbours and ports that conduct annual commerce exceeding 180 million metric tons (International Lake Ontario St. Lawrence River Study Board (2006)). In 2008, the Canadian Shipowners Association’s fleet comprises of 67 ships that transported over 62 million metric tonnes of cargo. The top three moved goods by weight are iron ore, coal and salt with 17, 13, and 8 million metric tonnes of each transported. This integrated waterway system generates more than $4 billion and approximately 20,000 direct jobs in Canada and another $3 billion and 50,000 jobs in the US. For Ontario, the marine transportation industry added $2.2 billion to the provincial GDP in 2003. Water levels are the most important aspect of the Great Lakes for commercial navigation. If the water levels are too low, cargo ships must reduce their loads. This reduced capacity increases the costs of transporting goods. As noted by the International Lake Ontario St. Lawrence River

29

Rosenberger includes two categories of boating (motorized and non-motorized) and three categories of hunting (big game hunting, small game hunting and waterfowl hunting), hence the discrepancy in activity #s.


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Study Board, the “actual value of this loss depends on a variety of factors including the type of cargo, the time delay involved with low water levels and the time of year”. In Exhibit 17, The Study Board provides information on the value of water levels to commercial navigation by estimating the effect of lower water levels on costs to commercial shipping.

Exhibit 17 Value of Water Levels to Commercial Navigation

Effect per Ship Effect per Year (1300 ships)

Draft reduction

Cargo reduction

tonnes

Loss of revenue SLSMC

Loss of revenue Shipping

Cargo reduction

tonnes

Loss of revenue SLSMC

Loss of revenue Shipping

1 cm 40 $80 $800 52,000 $104,000 $1,040,000

8 cm 320 $640 $6,400 416,000 $832,000 $8,320,000

3.2.7 Hydropower Production The Great Lakes provide important low cost and clean electricity generation opportunities through hydropower production. Ontario currently has 65 hydroelectric plants operating with the majority stationed throughout the Great Lakes basin. In total, hydroelectric generation produced 36 terawatt-hours of power in 2008. The International Lake Ontario St. Lawrence River Study Board and the ongoing work of the International Upper Great Lakes Study Board demonstrates that water used to produce hydroelectricity on the Great Lakes is immensely valuable, with hundreds of millions of dollars worth of electricity being produced each month at the Long Sault, Adam Beck and Moses Saunders hydroelectric facilities (International Lake Ontario St. Lawrence River Study Board (2006)). Because these facilities use enormous quantities of water, the unit value of water use is relatively low. For example, the Adam Beck power plant on the Niagara River uses between 9 and 11 billion cubic metres of water each month and produces between $100 and $150 million worth of electricity (Bill Werrick, International Upper Great Lakes Study Board, personal communication, December 8, 2009). These values imply an average value of water use in the range of $0.01 to $0.02 per cubic metre. This figure should be interpreted with caution as it does not impute a value to inputs other than water and it therefore significantly overstates the water’s contribution to the value of production.


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4 Ecosystem Services This section reviews the literature concerning indirect uses relating to services/goods provided by the ecosystem. Keeping the issues raised in section 2 in mind, the literature reviewed relevant to the Great Lakes may be grouped according to the following categories: Gas Regulation, Local Climate Regulation, Water Regulation, Disturbance Prevention, Water Supply, Soil Retention, Waste Treatment, Nutrient Cycling, and Habitat, Refugium and Nursery. As noted above, Soil Formation, Pollination and Biological Control were not included in this study because it was deemed they were not directly related to the Great Lakes themselves. The literature is reviewed below, taking caution of the interpretation and use.

4.1.1 Gas Regulation The Great Lakes basin helps the earth regulate the chemical balance of the atmosphere. By regulating gases, the Great Lakes provide clean, breathable air and protect the general maintenance of a habitable planet. Improving air quality is one of the most important benefits that the Great Lakes ecosystems provide to society. Air quality issues relating to smog are of particular concern in Ontario’s Great Lake region. Ground-level ozone (O3) and fine particulate matter (PM2.5) are the two components of smog that most directly affect human health. In 2005, The Ontario Ministry of the Environment (2005) estimated the total health and environmental damages due to ground-level ozone and fine particulate matter. Using demographic and economic data from 2003, they estimate the total economic cost to be $10.7 billion. As presented in Exhibit 18, health damages represent 70 % ($7.3 billion) of the total economic damage. In addition, transboundary air pollutants (i.e. from U.S. sources) comprise 55% ($5.8 billion) of the total economic damage. These estimates give an idea of the economic costs of air pollution in Ontario and the study can be used to value benefits (i.e. avoided costs) associated with intervention strategies that reduce air pollution.

Exhibit 18 Economic Losses due to air pollution in Ontario

Damages ($Billions/yr)

Ontario Transboundary Total

Health 3.2 4.1 7.3

Environment 1.7 1.7 3.3

Total 4.9 5.8 10.7

CITYgreen software can be used to assess the amount of air pollutants removed by trees in the Great Lakes basin. 30 An illustration for Lake Simcoe’s watershed this type of analysis from Wilson (2008) is provided in Exhibit 19. In examining Exhibit 19, we can see the kilograms removed and the value of this ecosystem service for a variety of air pollutants. As an example, 30.3 kilograms of ozone is removed per hectare of tree cover and this results in a value of $243.33 per hectare. This Exhibit effectively shows the value that can, and should, be given to natural cover in relation to air quality. It should also be noted that wetlands and the Lakes themselves also absorb air pollutants but this ecosystem service is not valued for these ecosystem types in Wilson (2008).

30

The CITYGreen software can be downloaded for free from American Forests, http://www.americanforests.org/productsandpubs/citygreen/


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Exhibit 19 The Value of Air Pollutants Removed by Tree Cover

Kilograms per hectare

Value per kilogram

Value per hectare

Total Value ($per year)

Carbon monoxide 1.2 $1.11 $1.34 $88.86

Ozone 30.3 $8.03 $243.33 $16,152,382.98

Nitrogen Dioxide 7.5 $8.03 $60.24 $3,998,114.28

Particulate Matter 16.8 $5.36 $90.08 $5,979,340.52

Sulfur Dioxide 4.2 $1.96 $8.24 $546,915.39

Totals 60.0 $6.73 $403.22 $26,765,613.11

The most globally relevant atmospheric gas regulated by the Great Lakes is carbon dioxide. The Great Lakes basin can act as both a source and a sink for carbon. This carbon sequestration service is a clear benefit to society. In effect, this process of ‘free’ abatement by nature reduces the need to reduce carbon dioxide in other sectors of the economy. This is due to the fact that as a uniformly mixed global pollutant, it does not matter geographically where carbon dioxide is emitted or abated. This is where the relevant research on the valuation of gas regulation has taken place. Wetlands are an important store of carbon in the Great Lakes. Valuing this benefit relies on two key data sets. First is the carbon storage potential of each type of wetland. Data for this can be found in the Canada’s Soil Organic Carbon Database. The second data requirement is an estimate of the social cost of carbon. The literature on the social cost of carbon is still in development yet hundreds of estimates have already been made. The International Panel on Climate Change reports the peer reviewed average estimate of the social cost of carbon to be $56/ tonne with a range of $13 to $451/ tonne of carbon. The large range in values reflects the fact that the social cost of carbon depends on a large range of variables.31 Using these data sets, Wilson (2008) provides an estimate of the value of carbon storage of wetlands in the Lake Simcoe Watershed. The soil carbon ranges from 125 to 312 per hectare depending on the type of wetland (i.e. shallow water, bog, marsh, swamp and fen). Converting this to an annual value, this ecosystem service was valued at $559 to $1,388 per year depending on the type of wetland. In addition, wetlands sequester between 0.2 to 0.3 tonnes of carbon each year. This annual carbon uptake has a benefit of $14 per hectare. These numbers are also used in the valuing this ecosystem service in Ontario’s Greenbelt (David Suzuki Foundation (2008)) and the Credit River Watershed (Kennedy and Wilson (2009)).

Exhibit 20 Comparison of Values in the Literature for Gas Regulation


Wilson (2008) $560 to $1,392 per year Value of carbon storage of wetlands in Lake Simcoe Watershed

Wilson (2008) $14/hectare Annual carbon uptake value of wetlands

31

These include: the future development of population and economy; the future emissions of greenhouse gas emissions; the future climate change; future impacts of climate change; the values of these impacts; the rate of pure time preference; the rate of risk aversion; and the rate of inequity aversion.


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4.1.2 Local Climate Regulation The Great Lakes are the dominant natural system regulating the local weather and climatic conditions of the region. During the warmer (colder) months, the Great Lakes typically provide a cooling (warming) influence on the air. An exception is when there is ice cover during the winter months. In this case, the warming effect is almost nonexistent. This moderating influence also plays out on a daily scale with nighttime temperatures being relatively warmer and daytime temperatures being relatively colder. Therefore, this ecosystem service helps moderate the seasonal and daily temperature extremes. The benefit to society from this ecosystem service is the avoided temperature regulation costs (heating in the winter and air conditioning in the summer). There is no existing literature on the potential economic value of this ecosystem service provided by the Great Lakes. One way to crudely value this ecosystem service is to compare the differences in temperatures in the Great Lakes basin with another similar climatic region without a large body of water nearby. Using these temperature differences, we could for example compute the cost savings of avoided heating costs in the winter months. In addition, we could compute the value of agricultural products and recreational activities that depend on these microclimatic conditions. This basic approach relies on the advanced science and knowledge of the complex interactions between the Great Lakes and the local weather and climate, which unfortunately does not yet exist. Although a potentially very large number, any rough estimates of this service would have to be put into appropriate context. Because there is no threat of the Great Lakes completely disappearing in the foreseeable future, we would be more interested in valuing marginal temperature effects resulting from small changes of the water volume of the Great Lakes. This marginal analysis of the climate regulation ecosystem service may not be feasible given the current state of knowledge of local weather and climate patterns.

4.1.3 Water Regulation The natural regulation of the hydrological flows provided by the Great Lakes is of great benefit to society. As a whole, the Great Lakes watershed slows the flow of water to the sea. This provides a regular flow of the hydrological cycle and allows the relevant direct uses of water identified in section 4. On a more watershed level, the land cover regulates the runoff of water into the Great Lakes after large amounts of precipitation. It has been estimated that Ontario’s water system will need between $30 to $40 billion dollars in water infrastructure investments in the next 15 years (Ministry of Public Infrastructure Renewal (2004)). This investment covers infrastructure relating to water regulation in addition to water supply and wastewater treatment. These figures give an idea of the expected demand for new water infrastructure needed in the years to come. The valuation of this service can be done through the replacement cost method. This method estimates the expected cost of replacing the natural system in place with entirely manmade infrastructure. CITYGreen software from American Forests allows users to estimate the value of green infrastructure. The software performs complex analysis of ecosystem services to calculate the dollar benefits associated with tree canopy and other greenspace.32 Using this software, Wilson (2008) calculates the total annual savings provided by forest cover in the Lake

32

The CITYGreen software can be downloaded for free from American Forests, http://www.americanforests.org/productsandpubs/citygreen/


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Simcoe watershed to be $2,016 per hectare.33 The David Suzuki Foundation (2008) also uses this software to yield $1,628 as the value of water run-off control services provided by forests in Ontario’s Greenbelt. In a recent comprehensive study of ecosystem services in southern Ontario, Troy and Bagstad (2009) did not find any empirical papers specifically relating to water regulation and included estimates in a combined water supply/regulation category. While they did find estimates of some ecosystem types, their report did not include the water regulation service provided by the Great Lakes themselves in slowing the flow of water to the sea. One difficulty in quantifying this ecosystem service on a Great Lakes scale is that the Great Lakes’ water flows are largely regulated by manmade infrastructure.

Exhibit 21 Comparison of Values in the Literature for Water Regulation


Wilson, 2008 $2,016/yr/ha Annual value of water regulation service of forest cover in the Lake Simcoe watershed

The David Suzuki Foundation, 2008

$1,628/yr/ha Annual value of water regulation service of forests and wetlands in Ontario’s Greenbelt

4.1.4 Disturbance Prevention In addition to regulating normal water flows, natural ecosystems provide an important disturbance prevention function. From this natural function, society benefits from ecosystem services such as storm protection and flood control. The difficulty in estimating the value provided by this ecosystem service is that while the natural cover in the watershed provides important flood control services to society, the Great Lakes themselves are a main cause of floods. Flooding is also a natural phenomenon. In fact, compared to unregulated water level conditions, the risk of flooding has been significantly reduced due to the regulation plan currently place (International Lake Ontario St. Lawrence River Study Board (2006)). The Study Board’s report provides very good estimates on the potential benefit of these changes. Historically, flooding has not been as big a problem in the Great Lakes as in other water systems. Between 1859 and 1987, flood events caused $288 million of damages on the Ontario side of the Great Lakes (Kreutzwiser and Gabriel (1992)). In addition to natural factors, Ontario has been more effective in flood planning and management. For example, in 1986 four storms caused $641 million in damages in Michigan, but only $0.64 million in Ontario. This is in spite of the fact that flood flows were actually higher in Ontario (Conservation Ontario (2009)). Recently however, flooding has become a larger problem for Ontario not from the Lakes themselves, but within the watershed. It has been estimated that average annual damages in Ontario due to flooding are well in excess of $100 million (Conservation Ontario (2009)). A large part of this damage is from basement flooding and sewer backups. These figures can be used to estimate the benefits (i.e. avoided costs) of investing in flood prevention and control.

33

She uses a construction cost of $61 per cubic metre and annualizes savings over 20 years.


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Traditional engineering approaches to flood control are expensive and not always effective. Because of this and the growing realization of ecosystem service benefits, natural sources of flood control are being increasingly used in North America (Salzman et al. (2001)). Wetlands are particularly valuable at providing flood control services because they are a natural reservoir of water that moderates the release of water. For example, the Illinois State Water Survey study in 1993 found that a one percent increase in wetlands along a stream corridor reduced peak stream flows by 3.7 percent on average (Salzman et al. (2001)). The exact economic benefit of flood protection provided by natural systems is difficult to estimate. Usually, the replacement costs or avoided cost method is used to value this ecosystem service. The replacement cost method estimates the man made infrastructure costs that would be needed to adequately replace the flood protection offered by natural cover. The avoided cost method estimates the expected economic damages that would arise in the absence of the flood protection provided by natural cover. Unique characteristics of local areas (frequency of flood events, property values of surrounding lands, etc) may make conducting the benefit transfer technique from other studies inappropriate. Taking this into account, some estimates of the value of flood control of wetlands has been conducted. The National Round Table on the Environment and the Economy conducted a study in the Grand River Watershed that examined the benefits of converting agricultural lands back to natural cover. The expected benefit from a decrease in sedimentation damages when flood events were reduced was estimated to be $5.61 a hectare on average (Belcher et al. (2001)). This study was used in the report by Kennedy and Wilson (2008), although due to the higher presence of meadows, the lower value of $2.46 per hectare was used. More generally, Costanza et al. (1997) find a global average of $13,367/ha. Woodward and Wu’s (2001) global meta-analysis of 39 studies reveal an average value of $1,644/ha. Olewiler (2004) reports annual values ranging from $445 to $2,305/ha for the Seattle, Washington area.

Exhibit 22 Comparison of Values in the Literature for Disturbance Prevention


Belcher et al., 2001 $5.61/yr/ha Benefits in terms of flood control in converting agricultural lands back to natural cover in the Grand River Watershed.

Costanza et al., 1997

$13,367/yr/ha. Annual value of flood control of wetlands taken from global study.

Woodward and Wui, 2001

$1,644/yr/ha Average annual value of flood control of wetlands estimated in a meta-analysis of 39 valuation studies.

Olewiler, 2004 $444 to $2,305/yr/ha

Annual value of flood control of wetlands from two high flood risk communities near the Seattle, Washington area.

4.1.5 Water Supply

The service provided by water supply focuses on the filtration and storage capacity functions of an ecosystem. Therefore it is different, although directly related to, the water regulation ecosystem service. Over 95% of Ontario’s population receives its water from the Great Lakes basin. Drinking water is the main economic good derived from this ecosystem service. In fact, because of its close relationship with safe drinking water, water regulation and purification is one of the most valuable ecosystem services provided by the Great Lakes. For example, Kennedy and Wilson (2009) found that this ecosystem service totaled approximately 27% of the total value of ecosystem services in the Credit River Watershed.


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A study by The Trust for Public Land and the American Water Works Association (AWWA) found that for each 10 percent loss in forest cover, water treatment costs are 20 percent more on average (Ernst et al. (2007)). The David Suzuki Foundation report (2008) assumes wetlands provide the same level of cost savings as forests and estimate the avoided cost of water treatment for Ontario’s Greenbelt. They find that the annual water filtration service provided by wetlands is around $506 a hectare. Troy and Bagstad (2009) present the water supply values for fresh water wetlands from a study in Massachusetts carried out by Thibodeau and Ostro (1981). They find that this annual ecosystem service is valued at $49,057.95 per hectare. In addition, estuaries and tidal bays provide an annual value of $45.45 per hectare for this ecosystem service (Troy and Bagstad (2009)). These wide ranges of values are due to fact that these are two different types of ecosystems and site specific characteristics of each study area. Environment Canada undertook a study in 1996 that valued the groundwater in the Town of Caledon, ON. The value of this groundwater can be approximated as the avoided cost of pumping water from Lake Ontario. This avoided cost was estimated to be $7.00 per cubic metre of water. This avoided cost can be used as a proxy for estimating the value of the water supply ecosystem service. The linkages between watershed protection and drinking water are clear. Source protection is rapidly being realized as a cost effective method of ensuring water supplies. A commonly used case study demonstrates the potential value of this ecosystem service (Salzman et al. (2001)). In the early 1990s, new EPA requirements for public water systems forced New York City to upgrade its existing water infrastructure. The estimated cost for the new infrastructure was $10.5 to $14 billion in capital costs and another $526 million to operate annually. Protecting the existing Catskill watershed through land purchases, conservation easements and other programs would only cost between $1.75 billion and $2.63 billion. Thus in this case, protecting the natural ecosystem allowed society to benefit from the natural service of water filtration and purification at a much lower cost.

Exhibit 23 Comparison of Values in the Literature for Water Supply



$506/yr/ha Annual value of water filtration service of forests and wetlands in Ontario’s Greenbelt

Troy and Bagstad, 2009 $49,057.95/yr/ha Annual value of water supply provided by fresh water wetlands

$45.45/yr/ha Annual value of water supply provided by estuaries and tidal bays

Environment Canada $7.00 per cubic metre

Avoided cost of pumping water from Lake Ontario

4.1.6 Soil Retention

This ecological function is directly dependant on the structural aspects of the ecosystem (de Groot et al. (2002)). The vegetative cover and root system along the riparian zones and shorelines as well as the submerged vegetation in near coastal areas help control erosion and sedimentation. The Great Lakes basin provides important erosion control services for society although the water in the lakes themselves is one of the main causes of erosion to the surrounding shorelines.


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The literature related to erosion control in the Great Lakes focuses on two main economic benefits to society. These include the public benefit of reduced sedimentation and avoided private property damage. Sedimentation is an example of an off-site damage while property damage is an on-site damage. By reducing sedimentation in the Great Lakes, the cost of water treatment decreases. The cost of replacement method is used to provide a monetary estimate of this benefit of decreased water turbidity of the water source caused by increased sedimentation. The most comprehensive study of the economics of erosion control relevant to the Great Lakes is Holmes’s (1988) study using data from over 400 large U.S. utilities. In an American context, Holmes (1988) estimates average cost of turbidity related treatment activities per million gallons to be $279.10/MG with a plus or minus 50% reliability given the cost figures used to derive the estimates. He estimates that for a one percent increase in turbidity of the source water, operating and maintenance costs increase 0.07 percent. Realizing that we are more interested in the effect on costs of sediment loading specifically, and not turbidity, Holmes then estimates that for a one percent increase in sediment loading, water treatment costs increase 0.05 percent. In the Great Lakes context, the cost estimates of sediment removal for municipal water treatment facilities in southern Ontario range from $14.28 to $42.85 per tonne of sediment (with a mean of $28.57) (Fox and Dickson (1990)). Fox and Dickson (1990) also provide information on the expected increase in fishing days that can arise from decreasing sediment loads in creeks and rivers in southern Ontario. They find that decreasing annual sediment loads by 1 tonne in a creek or river results in an increase of fishing days between 1.47 and 4.41. This linkage between intervention (reduced sedimentation) and the expected benefit (increased fishing days) is critical in a cost benefit analysis. In addition to increased water treatment costs, increased sedimentation increases dredging costs. Van Vuuran et al. (1997) provide some estimates of potential dredging savings from changing agricultural practices and installing buffer strips. To quantify the net social benefits of improved agricultural practices, they used an estimate of $6 per hectare of improved cropland as the avoided average annual cost of dredging drainage ditches, municipal drains, and roadside ditches in Ontario. Olewiler (2004) uses a dredging cost of $2.77 per tonne of sediment in her calculations. This figure can be used as a proxy for the avoided cost of dredging for an ecosystem service that prevents one tonne of sedimentation in areas where dredging occurs. Shoreline erosion also damages public and private shoreline property. Coastal shorelines provide important erosion control services and prevent these economic damages. On Lake Ontario, around 600 homes are at imminent risk to damages from erosion and flooding due to their close proximity to the shoreline (International Lake Ontario St. Lawrence River Study Board (2006)). A fact sheet by the Lake Huron Centre for Coastal Conservation presents estimates for shoreline protection provided by sand dunes. These values have been translated into the David Suzuki Foundation (2008) report, which presents Sauble Beach’s beach front and dunes value at $6 million for shoreline protection. It also presents the structural replacement cost for coastal protection along Lake Huron at $2,138 per metre. Intuitively, Kriesel (1988) finds that erosion protection is a significant determinant of lakeshore property prices. More specifically, he estimates that the average WTP to increase the number of years until the distance between the house and the lake is zero from 1 to 21 years is $80,283 (the average selling price of a house in their sample was $251,132). Building on Kriesel’s study, Kim (1992) estimates different WTP for erosion protection devices of varying degrees of effectiveness in different Ohio lakeshore housing markets.


Marbek 34

In addition to the actual damage itself, the risk of shoreline erosion to lakefront properties also imposes positive private welfare costs on risk adverse individuals in society. Using a dynamic model of risk, Dorfman et al. (1996) estimate the WTP of Ohio households to lower their risk of shoreline erosion along Lake Erie. They find that if the risk of erosion is reduced to zero, the distribution of this option price has a mean of $74,798 (the average selling price of a house in their sample was $252,714). It is important to remember that natural erosion will occur no matter what humans implement to prevent it. By regulating water levels and minimizing drastic fluctuations, some erosion costs can be avoided. The Study Board finds that the current Lake Ontario water level regulation plan (IJC’s Lake Ontario St Lawrence River Study Board (2006)) almost minimizes shoreline damages to coastline property owners. In addition, optimizing Lake water level conditions to maximize benefits to shoreline property owners would only increase these benefits by an average of less than $1.2 million per year. However, as noted in the report, this change will cause major economic losses elsewhere in the Great Lakes basin, primarily to recreational boating downstream.

Exhibit 24 Comparison of Values in the Literature for Soil Retention


Holmes, 1988 0.05% Cost increase at water treatment facilities for a 1 percent increase of sediment loading. Based on US data from 400 large utilities

Fox and Dickson, 1990

$14.28 to $42.85 per tonne of sediment ($28.57 mean)

The cost estimates of sediment removal for municipal water treatment facilities in southern Ontario

Olewiler, 2004 $2.77 a tonne Dredging cost of a tonne of sediment


$2,138 per metre Structural replacement cost for coastal protection along Lake Huron

4.1.7 Waste Treatment

The Great Lakes are able to store and recycle certain amounts of this anthropocentric waste through dilution, assimilation and chemical re-composition. Ecosystems act as a giant sink for human waste and some toxic pollutants. The main ecosystem service provided by this ecological function is pollution control and detoxification.34 This ecosystem service clearly relates to water quality (as opposed to quantity) and yields two primary types of benefits: avoided treatment or control costs and avoided human health impacts. This section reviews the literature concerning both of these benefits, but first outlines the different types of pollution in the Great Lakes. Pollutants enter the Great Lakes through three primary means: point source, non-point source and atmospheric. Remobilization of pollutants in sediments creates another source of contaminants to the water column. Almost all point source pollutants come from municipal waste water facilities or large industrial operations. Non-point pollutants enter the Great Lakes through a variety of different sources, with agriculture being identified as the main contributor. While point source pollutants can be relatively easier to monitor and regulate, non-point pollutants, because of their diffuse nature, are increasingly responsible for pollutants entering

34

Nutrient pollutants such as nitrogen and phosphorous are not included in this section but rather in the section on Nutrient Cycling.


Marbek 35

the Great Lakes ecosystem. Finally, atmospheric pollutants come from air pollutants volatilizing as particulates and can be carried on air currents or in water droplets, or dissolved in water. Conceptually, the value of the Great Lakes to the waste treatment sector can be estimated as the avoided costs from using the water as a sink for pollutants rather than engaging in enhanced treatment of sewage or wastewater. This cost will provide an upper bound estimate on society’s valuation of this service. There is a lot of literature surrounding these benefits (i.e. avoided cost of treatment). The more difficult part is linking these benefits to the respective ‘sink’ in the ecosystem.

Gardner Pinfold (2002) provides a good overview of the approach in valuing these avoided costs for municipal waste water treatment plants in Canada. Probably the best source of a dollar estimate would come from applying the formulas found in Marbek’s study, “Cost-Benefit Analysis for Cleaner Source Water”, carried out for the Canadian Council of Ministers of the Environment in 2007.

An example of this type of calculation was carried out by Renzetti and Kushner (2004). In assessing the full costs of the operations of the Niagara Region’s water supply and sewage treatment facilities, the authors examined the expenditure by the Region that would be required to guarantee water quality in the Region at a ‘swimmable’ level. A study conducted for the Ontario Ministry of the Environment (Apogee Research, Peat Marwick and James F. Hickling Management, 1990) calculated the annualized value of the capital and operating costs of up-grading Niagara’s sewage treatment plants in the Niagara Region to achieve this goal would be $14,242,521. Thus, by continuing to use Lake Ontario as a sink for its wastes, the Region avoids the annual expenditure of $14,242,521. Given that the sewage treatment plants in the Region treated a total of 84,083,335 cubic metres, this implies an average annual avoided cost (or benefit) of $0.18 per cubic metre.

Another approach is to use the contingent valuation method. In an interesting study, Irwin et al. (2007) estimate the WTP of Ohio residents for setting aside a certain percentage of “available pollutant assimilative capacity” of Ohio’s surface water. These estimated one-time payments were $75.29, $68.99, $81.60 and $79.50 for 25%, 50%, 75% and 100% set aside, respectively. Thus, the estimated WTP decreases, increases and then decreases as more of the available pollutant assimilative capacity is set aside. The un-intuitive nature of these results shows the difficulties in linking the estimated WTP with specific avoided water quality diminishment and suggests caution in using the results. In addition to raising treatment costs, pollutants also affect human health. Environment Canada estimates that “Health problems related to water pollution cost $300 million per year” (Environment Canada (2001)). This pollution can be direct (i.e. poor drinking water quality, air pollution) or indirect (i.e. consumption of contaminated fish). In the Great Lakes basin, human health impacts come from a variety of toxic pollutants. In the State of the Great Lakes Report 2009, human health receives a mixed status indicating that improvements have been made in some areas (decreasing concentrations of PCBs, ) while other areas have been deteriorating (increasing closures of Lake Erie’s public beaches). The Great Lakes Water Quality Agreement lists 11 critical pollutants which persist in the environment, bioaccumulate in fish and wildlife, and are toxic to humans and animals (Agency for Toxic Substances and Disease Registry (2008)). Johnson et al. (1998) review the literature concerning the toxicology and epidemiology of persistent toxic substances in the Great Lakes. Burtraw and Krupnick (1999) provide a general discussion of human health effects from pollution and outline the techniques of measuring the value of health care improvements in a Great lakes context.


Marbek 36

No direct studies have been done concerning the economic benefits of decreasing these negative human health impacts resulting from pollution in the Great Lakes. In the most comprehensive cost benefit analysis ever conducted on the Great Lakes, Austin et al. (2007) include human health in the ‘unquantified’ category of prospective benefits due to this data gap. However, some estimates have been done concerning people’s general WTP to reduce deteriorations of their water quality due to pollutants, economic costs of specific pollutants and the potential health impacts of invasive species and foreign virulent pathogen. Brox et al. (2003) estimate the WTP for different changes in water quality in the Grand River Watershed in Ontario. Although water quality in the area meets all existing government standards, they construct a hypothetical situation where pollution problems are a reality and water quality is below these standards. Using the contingent valuation method, they ask respondent’s WTP for a water treatment project that would bring water quality back to within a required government standard. In addition, they demand people’s willingness to accept (WTA) compensation for this decline in water quality.35 They find that households have on average a WTP of $6.09 to $11.07 per month for minor and major changes in water quality respectively. In addition, the average WTA for what can be considered a major decline of water quality was found to be $12.57 per month. To further put these numbers in a broader context, the authors use a 5% discount rate and assume a 25 year lifetime for capital projects to calculate the implicit willingness to fund a one-time investment in a capital project for water quality improvements. They arrive at a present value sum of $1,869 per household. Using the recent E coli outbreak in Walkerton as an example, Livernois (2001) uses a cost-of-illness approach to estimate the damages (lost benefits) associated with decreased water quality. He finds an aggregate economic cost of $75 million resulting from the water problems in Walkerton. This should be viewed as a lower bound as it excludes the positive WTP to avoid getting the illness in the first place (Harrington and Portnry (1987)). Some rough estimates have also been made for a more specific pollutant level. Methyl mercury exposure to pregnant women has been found to reduce the IQ level of the child which in turn decreases the future productivity of affected individuals. Krantzberg (2006) estimates that this loss in productivity could represent a potential cost of $116 to $334 million for Canada’s side of the Great Lakes and $581 million to $1.6 billion US dollars for the Great Lakes region as a whole. To arrive at this figure, the author had to make some important assumptions concerning contaminated fish consumption levels in the US as well as relying on the fact that the Canada’s results can be scaled down from US figures. Viewed as a first approximation, these figures provide important insight into the potential magnitude of toxic pollutants on human health costs.

35

Economic theory implies that if individuals are behaving rationally and markets are working efficiently, for marginal changes, it should make little difference whether contingent valuation surveys ask people’s WTP for receiving a good or WTA the loss of a comparable good. However, in experiments, individual’s WTA estimates have been four to fifteen times greater than their WTP estimates. See Perman et al. (2003) for a more in-depth discussion of this issue.


Marbek 37

Exhibit 25 Comparison of Values in the Literature for Waste Treatment


Brox et al., 2003 $6.09 to $11.07 Estimated WTP for minor and major changes in residential water quality in the Grand River Watershed, ON

$12.57 Estimated WTA for major changes in residential water quality in the Grand River Watershed, ON

Livernois, 2001 $75 million Estimated cost of E coli outbreak in Walkerton, ON

Krantzberg, 2006

$116 to $334 million

Estimated cost of decreased productivity due to IQ loss associated with methyl mercury on the Canadian side of the Great Lakes.

$581 million to $1.6 billion

For the whole Great Lakes region

4.1.8 Nutrient Cycling

The Great Lakes continuously cycle chemical elements that occur in nature. Wetlands and other natural ecosystems fixate nutrients in their soils. Although similar to waste treatment, the specific ecosystem service provided by this function is the avoided cost of nutrient control measures. This section first reviews the economic damage resulting from nutrient pollution and then provides an estimate of the economic value of wetlands in assimilating these nutrients (i.e. the avoided costs of waste treatment costs). Nutrient outputs from the economy into the Great Lakes can be classified primarily as non-point source pollutants. Two of the main non-point source pollutants in the Great Lakes Basin are phosphorous and nitrogen. The International Joint Commission for the Great Lakes (IJC) showed that runoff from agricultural land was responsible for about 70% of the phosphorus reaching Lake Erie from the tributaries in Ontario. Over enrichments of these nutrients in the Great Lakes have lead to algae blooms, oxygen depletion, fish kills, odour problems and consequently eutrophication.36 Although a natural process, when accelerated, eutrophication can cause serious problems for surface recreation, fishing and raises the cost of treatment for water used as an input in various industrial and residential sectors. These economic damages from eutrophication have been recently estimated to be $7.8 billion dollars in U.S. freshwaters (Dodds et al. (2009)). The $7.8 billion figure is composed of recreation and angling costs, lost lake property values, loss of biodiversity and drinking water treatment costs. In addition, warmer waters increase the probabilities that excess nutrients will be associated with algae blooms including the toxic blue-green algae. Therefore, climate change can be expected to increase the expected damages from these pollutants. Wetlands are able to absorb nutrients and consequently act as an effective natural waste treatment facility. It has been estimated that wetlands can absorb between 80 to 770 kg/ha/year of phosphorous and 350 to 32,000 kg/ha/year of nitrogen (Wilson (2008)). One way to value this ecosystem service is through the cost of replacement approach. The ideal cost value to use in an economic analysis would be the marginal cost of abatement of both point and non point source. Trading of pollution permits provide another important mechanism for not only reducing total abatement costs, but providing data on marginal costs of abatement. The South Nation Conservation Total Phosphorous Management Program is an example of this

36

The IJC Working Group Report on Eutrophication (2009) provides an important synthesis of current knowledge and research concerning eutrophication in the Great Lakes.


Marbek 38

type of trading program. However, due to data limitations, average abatement costs of point source sources have been used in recent reports. One problematic issue in using average point source (i.e. waste water treatment plants) abatement figures in calculating the value of this ecosystem service is that existing point source control measures approach a point of diminishing returns beyond 90 or 95 percent removal of pollutants. Consequently, if the ecosystem service of nutrient fixation were to disappear tomorrow, abatement measures undertaken by point source emitters will have a relatively higher marginal cost than nonpoint sources. However, as noted above, most of the nitrogen and phosphorus that enter the Great Lakes come from non-point sources. Consequently, perhaps abatement funds invested in non-point sources would be more cost effective than similar funds invested in point sources. Various abatement actions from point and non point sources have varying costs. For example, one 1995 study estimated abatement costs of phosphorous range from $13 to $5,876/kg for sewage treatment plants, $676 to $3,004/kg for industry and $39 to $78/kg for agriculture (International Joint Commission (1998)). Wilson (2008) found that costs to remove these nutrient pollutants by waste water treatment plants was approximately $24 to $65 per kilogram for phosphorous and $3.20 to $9.09 per kilogram for nitrogen. Using these values, estimates that this ecosystem service provided by the wetlands in the Lake Simcoe watershed is $2,296 per hectare or $89.5 million overall. Olewiler (2004) reports the cost to remove phosphorous to fall in the range of $5.6 to $556 per kilogram, using a value of $56 in her study of the Grand River watershed in Ontario. Focusing on nitrogen, Giraldez and Fox (1995) find that the off-farm benefits of reducing nitrogen application on farms outweigh the costs of abatement in southern Ontario.

Exhibit 26 Comparison of Values in the Literature for Nutrient Cycling

Author,

Year Range of Values Context

Wilson, 2008

$3.20 to $9.08 Estimated cost of Vancouver‘s waste treatment plant to remove nitrogen

$24 to $65 Estimated cost of Vancouver‘s waste treatment plant to remove phosphorous

$2,296 per hectare Economic value of nutrient control provided by wetlands

Olewiler, 2004

$5.6 to $556 per kilogram of phosphorous

Estimated cost of waste treatment plant to remove phosphorous. Olewiler used a value of $56 in her study

4.1.9 Habitat, Refugium and Nursery Natural ecosystems provide space for wild plant and animal species to breed, grow and live. This habitat function is the basis for many other functions. The ecosystem service provided by this function is the maintenance of biological and genetic diversity. With over 16,900 kilometers of coastline, a surface area of 244,100 square kilometers, 214,000 hectares of coastal wetlands and 35,000 islands, the Great Lakes provide a variety of habitats that play a key role in maintaining biodiversity and local ecosystems. The Great Lakes is host to over 200 globally-rare plants and animals and over 40 species that are unique to the Basin. The Great Lakes provide habitat for migrating birds which, in addition to providing viewing and


Marbek 39

hunting opportunities to Basin residents, provide these same use values to other individuals along their respective migratory path. The Great Lakes Basin as a whole has lost more than half of the regions wetlands (Austin (2007)), while southern Ontario has lost approximately 70% of its wetlands (Wilson (2008)). There are 175 species at risk in southern Ontario (Wilson (2008)). The State of the Great Lakes 2009 Report provides a broad and in depth look at relevant biodiversity and endangered species information. Although much of the literature has focused on the ecological aspects of biodiversity, there exists very little concerning the economic value of biodiversity, habitat or endangered species in the Great Lakes.37 In fact, the general nonmarket valuation literature has not focused on these issues in very much detail. Over 2000 publications using the contingent valuation method exist, yet very few address biodiversity, habitats or endangered species (Randall and Gollamundi (2001)). Similarly, there is no Canadian literature that values water’s role in maintaining habitat. The one area of study where there exists some literature is spatial estimates of wetlands’ value in providing habitat. Woodward and Wui (2001) conduct a meta-analysis of the wetland valuation literature and provide values of different ecosystem services. After examining 39 wetland valuation studies, they estimate an average value of $1,363.79 per hectare. As noted by the authors, due to the inseparability of many of the ecosystem services provided by wetlands, their valuation estimates for different services should not be considered additive. Kazmierczak (2001) reviews valuation studies of wetlands and links estimates to specific ecosystem services. He finds the value of habitat and species protection to be $843.55 per hectare. In their now famous study, Costanza et al. (1997) use the benefit transfer approach to yield a global average of the habitat ecosystem service of $690.71 per hectare. For both Kazeierczak (2001) and Costanza et al. (1997), the habitat service of wetlands is a small part of their total economic value. Schuyt and Brander (2004) find the global average value of 89 valuation studies to be $281.71 per hectare. The range of values found in these studies suggests caution in using the results in subsequent economic analysis. There also exist estimates in the Great Lakes context. van Vuuran and Roy (1993) compare the private and social net benefits of wetland preservation and conservation to agriculture in the marshes near Lake St. Clair in Southwestern Ontario. Wilson (2008) and Troy and Bragstad (2009) use a spatial approach to estimate the value of ecosystem services in a southern Ontarian context. Wilson (2008) estimates that the specific ecosystem service attributed to habitat is valued at $6,234.14 per hectare of wetland in Lake Simcoe’s Basin. This figure is the average annualized wetland habitat restoration costs for Great Lakes restoration projects including Rouge Watershed Wetland Creation Project, Humber Bay Shores Butterfly Meadow, and the Granger Greenway Habitat Enhancement project. Expanding this approach to include all Canadian Great Lakes restoration projects yields a figure of $2,184.40 per hectare of wetland (International Lake Ontario-St. Lawrence River Study Board (2006)). These last two figures represent what society is actually paying to restore wetlands for the purpose of habitat. There are several reasons why these last two figures are substantially higher than the valuation studies examined above. Although habitat was the identified restoration objective, recreational and other benefits will clearly result from these projects. In addition, the general average benefits summarized above may not reflect actual benefits from

37

In the non-use values section, there are some specific estimates of two endangered species in the Great Lakes Basin.


Marbek 40

specific sites which depend on various factors (i.e. productivity of site, proximity to people, scarcity of services provided). Please see the International Lake Ontario-St. Lawrence River Study Board (2006) report for a more detailed description of these issues.

Exhibit 27 Comparison of Values in the Literature for Habitat, Refugium and Nursery


($/yr/ha)

Context

Kazmierczak, 2001 $843.55 Habitat and species protection

Costanza et al., 1997 $690.71 Habitat/refugia

Woodword and Wui, 2002

$1,363.79 Results from a Meta Analysis of 39 wetland valuation studies.

Schuyt and Brander (2004)

$281.71 Global average value based on 89 valuation studies which incorporates various types of wetlands around the world

Wilson, 2008 $6,234.14 Average annualized wetland habitat restoration costs for Great Lakes restoration projects which include the Rouge Watershed Wetland Creation Project, Humber Bay Shores Butterfly Meadow, and the Granger Greenway Habitat Enhancement project

International Lake Ontario-St. Lawrence River Study Board, 2006

$2,184.40 Average annualized wetland habitat restoration costs for all Canadian Great Lakes restoration projects included in the Study.38

38

These average values are weighted by the relative size of each project.


Marbek 41

5 Option and Non-Use Values In the discussion so far, we have only considered direct and indirect benefits of the Great Lakes. However, the Great Lakes provide benefits independent from their direct and indirect use. The two relevant types of these values are option values and non-use values. Non-use values can be further broken down into existence and bequest values. In the Great Lakes basin context, both option and non-use values will accrue to current generations of basin and non-basin residents as well as generations to come. As an example, suppose there is a large algae bloom in Lake Ontario. Both users and non-users of the lake would be distressed and probably have a positive WTP for control measures to get rid of the algae. The total WTP measure can be broken down into four parts according to the motivation behind the WTP. First, the WTP of individuals to get rid of the algae because it impaired their current use would fall in the direct use category. Second, the WTP of individuals to get rid of the algae because it reduces the possibility of future use would be considered option value. Third, the WTP of individuals to get rid of the algae for its own sake, independent of current or future use is considered existence value. Fourth, the WTP of individuals to get rid of the algae because it impairs the use of future generations would be classified as bequest value. It is important to note that the last three types of values accrue to not only active users of the Great Lakes, but people geographically far removed from the region. The last three types of values derived from the Great Lakes may be significant. The rest of the section outlines the theory and reviews the empirical literature concerning both option and non-use value.

5.1 Option Value39 Uncertainty is pervasive in our world. What people are willing to pay for an environmental good or service depends on particular contingencies occurring. In economic theory, economists make an important distinction between ex ante situations, before the contingency occurs, and ex post situations, after the contingency occurs. The option price is the ex ante welfare measure, the WTP before the contingency occurs, and social surplus is the ex post welfare measures, the WTP after the contingency occurs. Stated another way, if there are two possible future states of the world, low and high water quality, the option price is the welfare measure taking into account the uncertainty surrounding the outcome. Social surplus is the welfare measure contingent on whether the low or high water quality state occurred. In a world without uncertainty, these two welfare measures would be the same. However, in the presence of uncertainty, they may differ. Option value is the difference between option price and expected social surplus. Therefore, option values can be ignored if welfare measurement can be undertaken in the absence of uncertainty. In a sense, option value is a risk aversion premium.40 Option value captures the benefit that someone is willing to pay to keep the option open of using the Great Lakes in the future. Caution is required in using this broad definition. Individuals may include some of these benefits (i.e. future use) in their own idea of existence value, raising

39

There is no commonly accepted placement of option value in relation to use and non-use components. Some people say that option value may be interpreted as not being related to current use and therefore should be placed in the non-use category. Others suggest that because it is valuing the assurance of direct and indirect use of the, option value should be a sub category of use values. In this report, option value is considered a separate category to capture its worth of both future use and non-use benefits. 40

Please refer to Perman et al. (2003) for a more in depth discussion of option value.


Marbek 42

the possibility of double counting benefits if these two categories are added together. Furthermore, the future is uncertain in terms of the demands and preferences of individuals as well as the quantity, quality and price of known and unknown environmental goods and services. Option value is directly related to these uncertainties. In general, it is not possible to quantify option value using information from which estimates of social surplus are usually made. These difficulties have limited the empirical estimation of option value and, consequently, its use in environmental cost benefit analysis. In addition, the theory provides little guidance into the expected size of the option value. One important theoretical result suggests that option value will be larger for assets that have less perfect substitutes (Smith (1984)). This may be the case for more for some ecosystem goods and services than others. For example, the unique biodiversity characteristics of the Great Lakes may not have any perfect substitutes and therefore may have a potentially higher option value. On the other hand, there are numerous other areas on the planet that can perform the sequestration and storage of carbon service provided by the Great Lakes ecosystem, and therefore, this service may have a lower option value. Regardless, these theoretical speculations lack empirical validation and therefore caution is needed in using these results.

5.2 Non-Use Value As explained above, the WTP metric is used to measure social surplus derived from goods and services. Usually in performing standard cost benefit analysis, economists can reasonably assume that social surplus changes based on changes, either observed or elicited (i.e. through contingent valuation), in the consumption or price of goods conceptually captures the entire WTP. However, in many instances, especially relating to environmental goods, people have an additional WTP that is not related to the consumption of a good. This additional WTP for goods or services is its non-use value. For example, swimming in the Great Lakes can be considered a direct use of the resource and people have a positive WTP for this recreational activity. In addition, people may have a positive WTP for swimming in the Great Lakes even though they will never themselves swim. This later WTP can be split into two conceptual types of value. The first is the ‘intrinsic’ value of swimming independent of current or future use. These values are considered existence values. The second is the WTP of individuals for future use by generations to come. These values are considered bequest values. This section reviews the literature concerning non-use values. Although economic theory has divided non-use values into existence and bequest value, the empirical literature does not always make the distinction and sometimes lumps them together as non-use values. Although in general the theory of non-use values is quite developed, empirical literature concerning its measurement of environmental goods and services is thin. Due to the lack of consumption, direct stated preference methods (contingent valuation, discrete choice experiments) are the only methodologies capable of estimating non-use benefits.41

5.2.1 Existence Value As explained above, existence value arises because people intrinsically value the Great Lakes and they have a WTP that is independent from its use. Non-use benefits individuals receive from knowing other people may currently be using the Great Lakes are included in this

41

However, some economists believe that this method lacks sufficient reliability to be used in cost benefit analysis. In addition, there remain issues of what exactly contingent valuation method studies are estimating (Stevens et al. (1991)).


Marbek 43

definition. Existence value also includes cultural values. A healthy and diverse Great Lakes ecosystem has been identified to have cultural values for First Nation and non-First Nations groups. However, there is no quantitative estimate of these values and unique challenges are posed to non-market valuation from this category of value. Adamowicz et al. (1994) discuss difficulties of applying traditional non-market valuation techniques to cultural values in a Canadian context. Even if the individual valuations for environmental goods or services are small, because existence values accrue to users and nonusers of the Great Lakes basin and elsewhere, they translate into large aggregate WTP. This is especially true for endangered, threatened or other highly valued species of animals or plants as we will see in section 5.2.3. However, this also raises the issue of defining an appropriate population group for incorporating non-use values into cost benefit analyses.

5.2.2 Bequest Value In addition to use and non-use by current generations, future generations will also benefit from the Great Lakes. Bequest value takes into account people’s WTP for future total use by their children and future generations. It differs from option values which only includes future use by current generations. However because bequest value is often difficult to separate from existence value in empirical studies, bequest value shares the same empirical estimation problems as option values. Similar to existence values, even if bequest values are small on the individual level, aggregated across the relevant population base, these values may become significant.

5.2.3 Empirical Literature There is a wide range of estimates of non-use values. These include “at least as half as great as recreational use benefits” (Fisher and Raucher (1984)) to 60% to 80% of total economic value (Freeman 1979). Relative to Canada, there exists a more abundant literature on the non-use value of water in the U.S. One specific study of Mono Lake in California has found non-use values to be approximately 73 times as large as the corresponding use values (Loomis (1987)). Most empirical studies of non-use values do not separate option, existence and bequest values. The studies reviewed below reflect this ambiguity. One exception is the study by Walsh et al. (1984). In this study, not only is the total non-use value of an environmental resource estimated, but also the individual contributions of option, existence and bequest values (see Exhibit 28). There has been no comprehensive study concerning the total non-use value of the Great Lakes. Existing cost benefit analyses and economic studies of ecosystem services of the Great Lakes have noted the lack of applicable studies and data for estimating non-use values (Troy (2009), Krantzberg (2006), Austion et al. (2007), Talhelm (1985)). However, some specific estimates of non-use values have been conducted in the Great Lakes context. The non-use empirical literature reviewed includes a general estimation of the Mixedwood Plains region in southern Ontario, estimates of recreational benefits and estimates of endangered species. A recent study by Sverrisson (2008) estimates the non-use values associated with increasing parkland and protected areas in the Mixedwood Plains region in southern Ontario. Using the contingent valuation method, Sverrisson (2008) finds that the WTP per household per year for five years range from $113.44 for a 1% expansion, $192.93 for a 5% expansion and $236.41 for a 12% expansion. While not directly related to the Great Lakes themselves, these estimates present an idea of the potential non-use values associated with natural areas.


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There also exist non-use estimates of recreational benefits. Dupont (2003) uses the contingent valuation method to estimate WTP of passive users for improvements in three recreational activities in Hamilton Harbour. Passive users had a WTP of $20.50 for swimming $10.94 for boating and $11.68 for fishing.42 It is important to note that these values are not total non-use values, but rather the values placed on these activities by non-users (i.e. passive users). A more complete measure of non-use values would include existence and bequest values of these activities by active users as well as other ecological benefits valued by both groups of users. In addition, these non-use values are only applicable for residents near Hamilton Harbour. As pointed out in Dupont and Renzetti (2005), non-use values associated with water quality improvements fall rapidly with distance to the improvement site. A 1988 study of the non-use values associated with improving water quality to permit swimming and improve fishing conditions estimated the WTP of households to be $167 per year (Marshall Macklin and Monaghan Ltd. (1988)). Several studies reviewed in Apogee (1990) provide additional estimates of non-use values associated with water quality. Based on their review of the literature, they conclude that the non-use component is 50% of the TEV. A study by Whitehead et al. (2009) estimate the non-use values associated with the Saginaw Bay coastal marsh in Michigan. They find that 23% of recreation nonusers have a positive WTP for recreational benefits, yielding a present value of $635 dollars per acre. Saginaw Bay is considered a site with relatively high recreational benefits and therefore this estimate should be considered towards the upper spectrum of potential values in areas with less recreational possibilities. In addition to its direct uses provided by fishing, hunting and viewing opportunities, biodiversity itself also provides a non-use value. Although less tangible for individuals, and consequently, more difficult to value monetarily, this non-use value can be substantial. Bishop (1987) provides an estimation of non-use values in Wisconsin associated with two endangered species: the Bald eagle and the striped shiner. Conducting a contingent valuation study Bishop (1987) estimates the nonviewers’ values associated with Bald eagles ranged from $25.96 to $75.25 per capita per year compared to $63.49 to $184.12 for viewers.43 Aggregating over all of Wisconsin’s taxpayers, the WTP to preserve the Bald eagle is $3,634,210 for viewers and $65,194,045 for a total of around $68 million. Perhaps the more interesting result relates to the relatively more obscure striped shiner. Here, taxpayers’ WTP for the striped shiner range from $10.17 to $13.84 on average. Because this fish has no identified use value to society, this WTP can be interpreted as the total non-use value. Once again, aggregating over all of Wisconsin’s taxpayers, the WTP to preserve the striped shiner is estimated to be $29 million. This non-use value for one small fish that provides no direct use value is almost 20% of the estimated direct use of all of Wisconsin’s sport and commercial fisheries in the Great Lakes ($154 million). Although difficult to transfer to other species, these values give an indication of the magnitude of non-use values associated with Great Lakes resources. Walsh et al. (1984) used 1980 recreational use and survey data to estimate the WTP of Colorado households for increments of land designated for wilderness. Exhibit 28 summarizes this study. The recreation use and total non-use values are as a percentage the total annual WTP of households in Colorado. In addition, non-use value is split into the three categories reviewed above – option, existence and bequest – and estimates are provided by their

42

In Dupont (1993), different sets of values are presented depending on the order of the recreational activity in the survey. Here we present a simple of average of the values. 43

Here, non-viewer values will include indirect values in addition to non-use values.


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respective weight. Percentages are presented instead of the numerical amounts because we are more interested in the relative weights of these non-use categories than the absolute amounts. It is interesting to note that the three components of non-use value have a relatively equal weight with existence and bequest values each being slightly more than option value. As noted by the authors, these values should be considered a first approximation.

Exhibit 28 Total Annual Consumer Surplus from Recreation Use and Non-use Value to Colorado Households from Increments in Wilderness Designation, 1980

Value Categories

Existing and Potential Wilderness Designation

Wilderness areas, 1980, 1.2 million

acres

Wilderness areas, 1981, 2.6 million

acres

Double Wilderness areas, 5 million

acres

All Potential Wilderness

areas, 10 million acres

Recreation use value 46% 50% 54% 62%

% Total

Non-use value to Colorado residents 54% 50% 46% 38%

% Total

Option Value 15% 14% 13% 11%

% Total

Existence Value 19% 17% 16% 13%

% Total

Bequest Value 19% 18% 16% 13%

% Total

Total Economic Value to Colorado households, millions (1980 $US)

$28.5 $41.6 $60.9 $93.2

Adapted from Walsh et al. (1985)


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6 Current and Future Stressors The environmental and economic health of the Great Lakes basin faces a number of current and future stressors. The four most important are Area’s of Concern, population growth, invasive species, and climate change. For each stressor, there are a number of different dynamics and effects that impact the majority of the beneficial categories of the Great Lakes and these are outlined above.

6.1 Areas of Concern (AOC) There are 43 identified AOC sites; 26 in US waters, 17 in Canadian waters. These sites continue to pollute the neighbouring areas and cause ecological harm and are an identified impediment to tourism. In addition, AOC depress property prices because people have a negative perception of these sites. There have been several comprehensive studies using the hedonic price method conducted in recent years that attempt to estimate the potential benefits of cleaning up these contaminated sites for neighbouring homeowners. Our literature review found several studies on the American side and one Canadian study of the benefits of cleaning up the Hamilton Harbour AOC. This literature pertains to the dis-amenity of living near an AOC site. In a series of studies, Braden et al. (2004), Braden et al. (2008) and Braden et al. (2008b), use both the hedonic price and the conjoint choice experiment to estimate the economic benefits of cleaning up different AOC sites. The conjoint choice experiment method asks individuals to compare their current house with hypothetical homes. These hypothetical homes differed on specific attributes such as structural (house and lot size), amenity (harbour environmental condition) and price. In this way, a stated WTP can be estimated for a complete cleanup of the harbour (i.e price change due to change in the harbour environmental condition). Braden et al. (2004), estimate the economic benefits to residents and non-residents of cleaning up the Wuakegan Harbour AOC. Using the hedonic price method, their results suggest that there will be a 16 to 19% increase in property values in urban areas and as much as 25% increase in the remainder of the county if the AOC site is completely cleaned up. Using the conjoint choice experiment method, they find that Waukegan households have a mean WTP of $4,088 per year, while non-Waukegan households have a mean WTP of $11,849 per year. These two separate methods of calculating benefits result in remarkably similar estimates of around $777 million. Braden et al. (2008) and Braden et al. (2008b) complete the same analysis for the Buffalo River AOC in New York and the Sheboygan County AOC in Wisconsin. The hedonic price method results in estimates of a home price increase of 5.4% and 8% respectively, while the conjoint choice experiment method yields estimates of 11.4% and 10% increases for the two different AOCs. Patunru et al. (2007) use a slightly more complex conjoint choice experiment to account for clustering of preferences to estimate the benefits of cleaning up the Wuakegan Harbour AOC. They find that the WTP of Waukegan homeowners for site remediation to be equivalent to a 20% increase in the market value of homes. A Canadian study estimates the economic benefits that accrued to local residents as a result of the partial remediation of the Hamilton Harbour AOC in the 1990s (Zegarac and Muir (1998)). By using a control and a study group area, they find that the restoration activities had increased the property values within a kilometer of the harbor by 12%.


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This literature gives a good indication of not only the economic costs of AOC sites, but also the expected benefits of cleaning up these contaminated areas. Exhibit 29 presents a summary of the values found in the literature.

Exhibit 29 Comparison of values in AOC studies

6.2 Population Growth The Great Lakes basin as a whole is home to approximately 40 million people – 30% of the Canadian population and 10% of the U.S. population. However, while the U.S. side of the Great Lakes has only seen a small increase in population levels from 26 million in 1980 to 27.3 million in 2000, Canada’s population has increased substantially. As presented in Exhibit 30, during the 25 year period from 1981 to 2006, the total Canadian population for the Great Lakes basin has increased 42.2%, from 7.7 million to 10.9 million. Meanwhile, Canada’s total population increased 30%, growing from 24.3 to 31.6 million people. There is a large variability in population changes within the Canadian side of the Great Lakes basin. For example, while the population in the Northeastern Lake Superior drainage area decreased 23.3%, during this same period, the Lake Ontario and Niagara Peninsula region grew by 50.5% and the population in Eastern Georgian Bay increased by 84.7%.

Exhibit 30 Population growth in the Great Lakes by drainage regions (thousands)

Year Northwestern Lake Superior

Northeastern Lake

Superior

Northern Lake

Huron

Wanapitei and

French

Eastern Georgian

Bay

Eastern Lake

Huron Northern Lake Erie

Lake Ontario/ Niagara

Peninsula Upper St. Lawrence

Total for all Great Lakes

1981 133.4 55.6 263.7 91.7 410.1 263.4 1,649.1 4,560.4 222.9 7,650.4

1986 134.4 50.1 260.5 87.5 440.8 275.6 1,689.6 4,894.3 231.7 8,064.7

1991 136.8 51.1 266.3 91.3 540.0 302.5 1,838.3 5,476.6 247.5 8,950.3

1996 137.5 49.5 267.4 91.7 610.1 309.8 1,933.1 5,897.3 259.5 9,555.9

2001 132.4 46.2 253.4 90.1 682.5 307.5 2,032.3 6,368.1 255.7 10,168.2

2006 133.6 42.7 256.7 90.7 757.7 312.7 2,141.7 6,864.1 280.0 10,879.8

Growth 1981-2006

0.1% -23.3% -2.7% -1.1% 84.7% 18.7% 29.9% 50.5% 25.6% 42.2%

(Source: StatsCan Table 153-0036)


Braden et al., 2004 16 to 19% Increase in property values near Wuakegan Harbour AOC in Illinois.

Braden et al., 2008 5.4% Decrease in home price due to Buffalo River AOC in New York.

Braden et al., 2008b 8% Decrease in home price due to Sheboygan County AOC in Wisconsin.

Patunru et al., 2007 20% WTP of households in Wuakegan Harbour AOC for complete cleanup

Zegarac and Muir, 1998 12% Decrease in house price due to proximity Hamilton Harbour AOC


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In his paper titled, “Climatic Change, Population Growth, and their Effects on Great Lakes Water Supplies”, Cohen (1984) identified changing demographics as a key stressor on water supplies in the Great Lakes over 25 years ago. While Cohen focused only on the problem of water quantity, population growth is expected to impact water quality as well. In fact, population growth introduces a number of new dynamics to analyzing the economic benefits of the Great Lakes. First, increased population levels increase the stress on local water systems. This increased demand for water, all else being equal, is along the lines of what Cohen researched in his paper. Second, higher population levels will increase the amount of anthropocentric waste deposited in the Great Lakes. This increase in pollution resulting from population growth affects the water quality of the Lakes. This makes it more challenging in the future to achieve water quality goals and objectives. Third, because population growth is normally associated with higher property prices, increasing the level of the population amplifies the pressure to develop existing natural areas that provide important ecosystem services. Fourth, an increased population of residents in the Great Lakes basin may increase the total economic value of the Great Lakes resources. This is because with population growth, there are more individuals with a WTP for relevant benefit categories. For example, if individuals have a total WTP of $5 for restoring a local wetland and there are 1 million residents in the relevant area, then the restored wetland will yield a $5 million benefit to society. However, if the population grows by 50% to 1.5 million, then, in the absence of a rise in the WTP, the restored wetlands now provide $7.5 million in benefits to society.44 Taken together, these dynamics resulting from population growth have important implications for economic analyses. Any cost benefit analysis conducted must reflect the changing demographics of the Great Lakes basin.

6.3 Invasive Species Invasive species are an important stressor on almost all of the benefit categories identified above. The invasion of aquatic habitats by non-indigenous species, or Aquatic Invasive Species (AIS), can cause negative ecological and economic impacts as well as harm to human health (Lake Superior Work Group (2009)). In many occasions, invasive species that come from outside an ecosystem can degrade habitat, kill native species and affect food webs. In their report, Ecosystem Shock: The Devastating Impacts of Invasive Species on the Great Lakes Food Web, White et al. (2004) provide a comprehensive outline of the ecological changes that have occurred in the Great Lakes due to invasive species. As noted by the others, these ecological effects carry considerable economic impacts. For decades, the Great Lakes region has been facing aquatic invasion by non-indigenous species. It has been recently estimated that 162 aquatic species have invaded the Great Lakes waterways. However, with new AIS being discovered almost every year, this number is surely higher. Exhibit 31 provides the number of invasive species, divided by type.

44

However, resources may suffer from congestion effects. Congestion effects explain the decreased personal value derived from a resource due to ‘overcrowding’. For example, if the number of people visiting a beach increased substantially, perhaps individuals may place a lower value on their day trip (i.e. have a lower WTP) due to the crowds.


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Exhibit 31 Exotic species in the Great Lakes Basin

Exhibit Great Lakes Total Species Total exotic species

Algae 379 25

Plants 1000 59

Invertebrates 4200 33

Pathogens/parasites - 3

Birds 131 4

Fishes 250 48

Total 5960 162

(Source: Pimental (2005))

In addition to ecological effects, AIS have had large negative economic impacts in the Great Lakes basin. These impacts can be separated into two categories: the degraded benefits of the categories outlined above and the administrative and implementation costs of control programs. Pimental (2005) recently estimated the total environmental and economic impacts of non-indigenous species in the Great Lakes basin. His results (as shown in Exhibit 32) suggest that invasive species cause almost $5.7 billion (USD) in annual economic losses. Commercial and sport fishing make up the most of this loss with about $4.5 billion (USD) in economic damage. Further examining Exhibit 32, we can see that the costs imposed by zebra and quagga mussels are also considerable. Mussels clogged intake pipes at large raw water users (electric power plants and water supply facilities) increase expenditures related to damage and control by an additional $480 million (USD) per year. In addition, the cost of removing these mussels from watercraft in the Great Lakes is $19.5 million (USD), while the Great Lakes tourism sector experienced an estimated $500,000 loss in 2005 due to these mussels. Aggregated together, zebra and quagga mussels result in an estimated total impact of $500 million (USD) per year in both Canadian and U.S. waters (Pimental (2005)). Another estimate to note, relates to public health. The $610 million (USD) figure includes the cost of spraying for adult mosquito control, death, hospitalization, outpatients and lost work. This large number portrays the considerable public health costs that can be associated with invasive species.


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Exhibit 32 Environmental and Economic impacts (damages and control costs) of invasive

species in the Great Lakes Basin (in millions of USD)

Stakeholder group

Functional Group

Fish Algae Aquatic plants

Mussels Other

Invertebrates Birds

Pathogens and

parasites Total

Landowner, agriculture 1 2 3

Public health 610 610

Tourism 4 0.5 10 1 2 17.5

Electric industry 480 10 490

Commercial fishing 2250 10 13 5 1 2279

Sport fishing 2250 10 5 3 5 2273

Boating 4 0.5 0.5 5

Transport 1 1 1 3

Bird/wildlife watchers 2 2 1 5

Total 4500 29 500 31.5 4 621 5685.5 (Source: Pimental (2005))

While comprehensive, Exhibit 32 should be interpreted as incomplete due to the lack of estimates for some areas (i.e. economic impact of invasive algae) and that these economic impacts ignore option and non-use values. In addition, Pimental (2005) does not employ a systematic empirical method for valuing economic impacts of invasive species. Although limited, beneficial uses of invasive species are also missing from this analysis. These shortcomings highlight the limitations faced by valuing invasive species impacts. However, Exhibit 32 does give a good indication of the relative impacts on different stakeholders groups of invasive species. Another study by Lodge and Finnoff (2008) estimate that the annual cost to the American Great Lakes region from AIS introduced by shipping may be over $238 million dollars. However, they only consider the impacts on sport and commercial fisheries, wildlife watching and operating costs for raw water users. Therefore, this number may be viewed as a lower bound to the extent it excludes other direct and indirect use as well as option and non-use values. In addition, this estimate does not include Canadian impacts. Focusing on Canada, Colautti et al. (2005) provide costs associated with various invasive species. They note that the Zebra mussel inflict Ontario’s power plants $6.4 million in control and operating costs and $1.1 million in research. In addition, the City of Windsor spent $450 000 per year to eliminate taste and odour problems in municipal water supplies associated with zebra and quagga mussels. In addition to degradation to benefit categories, AIS also impose administrative and implementation costs of control programs. These costs can be substantial. For example, it has been estimated that the Great Lakes Fishery Commission currently spends over 20 million (USD) per year for sea lamprey control with Canada’s portion of this is being $6 million Controlling invasive aquatic plants in Canadian and U.S. waters of the Great Lakes basin costs an additional $29 million in 2005 (USD) (Pimental (2005)). Eradicating a non-indigenous species after it has established itself is almost impossible, making the invasion irreversible. Therefore, prevention is the preferred control action. While the Great


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Lakes cannot afford “even one new invader”, existing measures for AIS control are considered to be inadequate (GLRC Strategy of 2005).

6.4 Climate Change This section provides an overview of the expected impacts of climate change on the Great Lakes together with a summary of adaptation studies.

6.4.1 Impacts Climate change is already affecting both lake levels and Great Lakes water quality. As shown in Exhibit 33, different water level changes are predicted for each of the Great Lakes. Lake Michigan and Lake Huron are the most affected with an estimated average annual decrease from the Basis of Comparison of 1.01 metres in 2050 under the CCCma 2050 model and a decrease of 1.62 metres under the CCC GCM1 model. Lake Superior is expected to face the least water level change with a decrease of 0.31 and 0.23 metres under the two models respectively.

Exhibit 33 Average Impact on Water Levels, by Climate Change Scenario

Location Basis of Comparison

Average annual level, metres

Average annual decrease from BOC Metres

CCCma 2030 CCCma 2050 CCC GCM1

Lake Superior 183.34 0.22 0.31 0.23

Lakes Michigan and Huron 176.44 0.72 1.01 1.62

Lake Erie 174.18 0.60 0.83 1.36

Lake Ontario 74.84 0.35 0.53 1.30

Montreal Harbour 6.49 0.45 0.62 1.41

(From Millerd (2005)

These earlier estimates of likely decline in lake levels are under intensive review. With reduced winter ice cover since 1970, the Upper Lakes are absorbing more solar energy in the winter, warming the surface waters more quickly than the atmosphere is warming. This water temperature change results in stronger winds and greater lake evaporation, lowering lake levels. At the same time, global warming is resulting in transport of more water vapour from the Gulf of Mexico to the headwaters of the Superior and Michigan basins, offsetting (partially) the trend towards increased evaporation. A major effort to resolve the impacts of climate change on Great Lakes levels is now underway in the IUGLS (See section 2) to be completed in 2012. Global warming is projected to mean a longer shipping season but lower water levels. A long-term decline in water levels would restrict access at docks and marinas, impact beaches and other recreational sites, decrease in the cargo capacity of ships, and cause water supply, taste and odour problems (NRCAN (2004)). The expected decrease in water depths will significantly affect commercial navigation in the Great Lakes-St. Lawrence River system. According to Millerd (2005), the lower water levels predicted as a result of doubling the atmospheric concentration of carbon dioxide could increase annual shipping costs of Canadian commercial navigation by 29 percent.


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Global warming is expected to have a variety of effects on water quality in the Great Lakes basin. Examples of possible effects include (Bruce (2009); Noah and Stuntz (2007)): The longer period of summer-like conditions results in longer stratification of lake waters,

with the warm surface layers divided from the cold bottom waters (a phenomenon resulting in anoxia). This isolation of bottom waters results in earlier depletion of the oxygen near the bottom affecting fish population. This lack of oxygen may also result in release of nutrients and contaminants (such as mercury) from the bottom sediments into biota and water. Since 2000, we have seen in several years, a return to the same state of anoxia as was in the 1960s in Lake Erie’s central basin. Four of the Great Lakes have experienced stratification period increases by up to 6 days per decade. Major fish kills have resulted in Lakes Michigan (2001) and Erie (2002).

Warmer waters may increase algae growth and may cause taste and odor problems with drinking water during the summer.

Weather variability is expected to increase the risks of waterborne diseases. Lower flows and lower lake levels will mean that water bodies can accept smaller

concentrations of pollutants before they become contaminated. Reductions in runoff may result in alterations in chemical fate and transport with possible

environmental consequences. Decreased soil flushing would result in delayed recovery from acid rain events and

enhanced sulfur and nitrate export following droughts.

Climate change is expected to affect tourism and recreation in the Great Lakes Basin. For example: i) a typical recreational property with Great Lakes view will be exposed with more shoreline, diminishing aesthetics and/or enjoyment of recreational property; ii) winters with less ice on the Great Lakes may increase coastal exposure to damage from storms and; iii) swimming activities may be limited by decreasing water quality (Noah and Stuntz (2007)). In terms of economic analysis, there is active work underway in IJC's International Upper Great Lakes Levels Study on assessing economic effects on Superior, Michigan-Huron, and Erie, of alternative Lake Superior regulation plans. These studies involve shore property, ecosystems, recreational boating, commercial navigation, hydropower, municipal, industrial and domestic water use.45

6.4.2 Adaptation The climate change impacts stated above combined with increased use pressures will lead to an increased supply-demand mismatch (Lemmen and Warren (2004)). A recent report by an expert panel on climate change adaptation in Ontario has outlined the various expected impacts and specified a number of key adaptation recommendations for the Great Lakes (The expert Panel on Climate Change Adaptation (2009)). To address this water quantity issue, both structural and institutional adaptations will need to be implemented. Structural adaptation refers to changes in the physical infrastructure (i.e. dams, weir, and canals) in the region as a response to climate change and is the traditional approach taken by water management in Canada. One study of the Grand River watershed shows that all but the most severe climate change scenarios can be adapted to through increases in the capacity of the reservoirs and modifications in operating procedures (Southam (1999)).

45

Jim Bruce is on the Board and Steve Renzetti is an economic advisor.


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For protection of the Lakes themselves, the IJC’s Great Lakes Water Quality Board has recommended a number of adaptation measures in their 2003 Report. Indeed, this Board concluded that climate change will make it very difficult to reach and sustain some of the water quality objectives in the GLWQA, unless vigorous adaptation is undertaken. One such group of vigorous measures (to reduce diffuse pollution from cropland) in the face of more frequent heavy rain events, has been advanced by the Soil and Water Conservation Society. The IJC International Upper Great Lakes Study (IUGLS) Board is advancing the development of a climate change adaptive management strategy related to lake levels. This strategy will address improved regulation of lake levels to the extent possible, and recommendations for actions to those responsible for shoreline management. The possibility of a regulatory structure near the outlet of Lake Huron is one option that will be under consideration. Institutional adaptation to climate change refers to changes in the laws and governance of water resources in the Great Lakes basin. Because the Great Lakes- St Lawrence River basin is a resource shared by two federal governments, two provincial governments, eight state governments and numerous municipal and local governments, implementing institutional changes will be difficult. Aside from the particular local efforts of some municipalities, a concerted effort to address climate change impacts on the Great Lakes has not been undertaken. Some municipalities have considered a Risk-based Guide for Community Adaptation to Climate Change to help establish priorities for adaptation measures. Conservation Authorities such as the Toronto Region Conservation Authority have increased their design flood criteria, and several cities have introduced programs to protect citizens’ health during heat waves. Some communities (e.g. Hamilton, ON) have increased upstream storage in their storm water management systems.


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7 Discussion: Main Findings, Gaps and Implications The informational demands required for an effective and robust cost benefit analysis are considerable. This section discusses the main findings, gaps and implications that relate to the economic value of the Great Lakes. The findings and implications of this study will be used for preparing the recommendation reports for key priority areas. This section is structured as follows: Section 7.1 discusses main findings, gaps and implications of the literature review. Section 7.2 elaborates on the findings related to specific goods and ecosystem services

provided by the Great Lakes.

7.1 General Issues The main observations are: The conceptual TEV framework is consistent with economic theory and comprehensive.

Further, there are no significant gaps in our analytic capabilities to measure benefits and costs. Generally what is lacking is either Great Lakes-specific studies or the appropriate data needed to carry our benefit transfer.

The economic contribution of the Great Lakes to the society includes the provision of a wide array of ecosystem goods and services. During the last decades, a limited number of these values have been quantified in monetary terms by use of market and non-market valuation methodologies. While the accuracy/appropriateness of the specific studies varies significantly, there are more than hundred studies that contribute to a better understanding of the economic contribution of the Great Lakes to the society.

There is considerable literature on the value of certain ecosystem goods and services such as habitat and different aspects of waste treatment. However, there are significant gaps on the values linked to important ecosystem services such as local climate regulation and nutrient cycling.

There are also quite significant gaps in the scientific literature that would be used to assess the impacts on water quality and other dimensions of Great Lakes ecosystem services of any proposed remedial projects.

No Great Lakes specific estimates were found for the value of industrial water in our review. However, we were able to identify Canadian estimates at the national level. These estimates represent firms’ private valuations rather than social values as they do not account for reductions in water quality arising from industrial activity. Further research is needed to determine how these values can be transferred to the Great Lakes situation.

To address informational gaps on relevant ecosystem services, it would be necessary to carry out original research relating specifically to the Great Lakes. However, given the lack of information, it is necessary to review studies in comparable ecosystems outside the Great Lakes basin prior to the application of the benefits transfer methodology. This will become an essential element of the methodology proposals for each key priority area.

The TEV framework includes both tangible benefits (benefits that can be measured and quantified) and intangible benefits (benefits that cannot be assigned a monetary value because data is not available). These “intangible” benefits should be described qualitatively as part of the economic analyses.

While the focus of this study has been on the benefits side, our literature review suggests a lack of knowledge with respect to linking costs (intervention strategies) and benefits. Where “cause and effects” relationships are not always possible to identify (or to quantify), this will


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pose a major challenge in the development of the methodologies for cost benefit analyses in key priority areas. In these cases, some explicit assumptions will need to be made about the cause and effect in order to conduct a cost benefit analysis.

In examining the economic value of water, it is useful to identify and differentiate between the quantity of a given quality and the quality of a given quantity of water.

Much of the empirical literature uses average values as proxies for marginal values. Economists make an important distinction between average and marginal values. To conduct a proper cost benefit analysis, marginal costs and benefits are to be compared. Using average benefit values in the calculation may possibly lead to an underestimation of benefits if benefits are growing faster than costs.

Almost all of the estimates of values from Great Lakes’ goods and services are private rather than social. In the specific case of industrial water use, this leads to an overestimate of industries’ valuation of their water use as it fails to account for the cost to society arising from diminishment of water quality arising from industrial activities.

Studies tend to focus on areas where the extent of the benefits is above-average. For instance, the benefits of bird watching in the Great Lakes have been derived for Point Pelee, a site that has unique characteristics. Birdwatching benefits in other areas may be below these values. Therefore, the benefits transfer methodology should take specific consideration of site-specific characteristics in order not to overestimate the economic value.

Many studies highlight the high degree of scientific uncertainty as well as the limited knowledge about the complex interactions of ecological functions, processes and services. While our proposed approach does not include primary research, these uncertainties/limitations will be respected (or even increased due to the limitations of the benefits transfer methodology).

Many of the benefits to be considered relate to changes in the level of risk or a degree of uncertainty. For example, reducing discharges from sewage treatment plants reduces risks to human health. Changing lake level regulation changes the likelihood of flooding and erosion damages. However, there is very little known regarding the perceptions and attitudes of Great Lakes residents regarding the risks and uncertainties relating to water resources projects.

There is a risk in double counting benefits when aggregating these values into one total measure. This is because the distinctions between values are not always clear cut. For example, fishing values depend on the quality of the habitat. However, habitat values include species that are not directly used by society and biodiversity values. Therefore care is needed in not double counting these types of benefits.

Research has shown that simply summing the WTP for each individual ecosystem service may result in a value that is more than residents would pay for all the goods priced in one bundle (Hoehn and Randall (1989)). Known as the Independent-Valuation-Summation (IVS) bias, this causes an overestimation of benefits.

7.2 Specific Issues Residential Water Our literature review identified a limited number of studies dealing with the value of

improving water quality. Among these, only two studies presented a detailed description of the value of specific improvements in the quality of drinking water. In the studies we reviewed, the value of drinking water was linked to the WTP for reductions in agricultural based nitrates, the WTP for reductions in microbial diseases and the WTP for reductions in the release of substances that increase the risk of bladder cancer. This information will contribute to cost-benefit analyses related to reductions in non-point source pollution,


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reduction in toxic pollutants and sediment remediation. There are no extant studies that are specific to the Great Lakes that estimate households’ valuation of reductions in other pollutants.

While the literature recognizes the needs to quantify the opportunity costs of raw water, there are still gaps regarding the value of water at the source and its spatial variation.

Industrial Water (excluding heating/cooling) Quality is the most important water characteristic for industrial water users but estimates

do not account for variations in water quality. This is considered a significant gap by Dachraoui and Harchaoui (2004). While the use of water is frequently tied to the quality of water, we have not been able to identify studies that provide a clear relationship between water quality and industrial water demand.

We anticipate industrial water to be a factor in a number of key priority area cost-benefit analyses. This includes water use efficiency, promoting green infrastructure and climate change adaptation. If these priority areas are selected, it will be necessary to develop an approach to transfer Canadian estimates to the Great Lakes and to derive relationships between water quality and the value of industrial water.

Heating and Cooling (including nuclear and thermal plants) We conducted a thorough review of the literature and found limited information on water

use values for heating and cooling. Quantity is the most relevant aspect of water for this use. Nonetheless, this use category may well represent an important economic contribution of the Great Lakes ecosystem given the relatively large number of industrial facilities, nuclear plants and thermal plants located in the watershed.

We were able to identify a number of monetary estimates that are suggestive of the economic value provided by the Great Lakes within this context. For example, Ontario’s thermal power generating plants spent about 10 billion dollars just on water intake operating and maintenance costs. Cold water from Lake Ontario is currently being used to displace air conditioning in buildings in downtown Toronto. While no dollar estimate for the full social benefits of this service is available, metrics are provided for the displaced electricity use.

The estimates for heating and cooling will be beneficial for a number of the key priority area cost-benefit assessments, especially that of green infrastructure. While the values found do not include the full social benefits, displaced electricity generation is a quantifiable index that could be used for assessment.

Agricultural Water Both quality and quantity are important characteristics of the value of water as input in the

agricultural sector. Much of the Great Lakes basin area is agricultural land that is dependent on water sourced

from the Great Lakes watershed for both irrigation and livestock use. An extensive review of the literature found no Great Lakes specific values for either of these uses. However, value estimates were found for other areas in Canada and the United States. There is information on water withdrawals from the Great Lakes basin for agricultural use.

Agricultural water use values available in the literature pertain to two use types: irrigation and livestock. Irrigation value estimates vary by crop type and geographic location. Livestock value estimates vary by livestock type and geographic location.

Use value estimates for agricultural water will be beneficial for key priority area cost-benefit assessments such as nearshore water and coastal health protection. Value estimates will require some translation to the Great Lakes context.


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Commercial Fishing Our literature search identified only a small sample of studies that investigate the

economics of Great Lakes commercial fisheries. In particular, one study (Milliman et al. 1992) reviewed investigated the impact of an ongoing rehabilitation plan to the Great Lakes, with the commercial fishing industry seeing moderate losses.

America’s North Coast Report does not make attempts to estimate benefits to the commercial fishery from the implementation of the GLRC plan.

Data was found on Ontario’s commercial fishery sector which could be used to estimate benefits.

Recreational Fishing Our review identified a wealth of literature in this area that focuses on the Great Lakes

specifically. This sector has received the majority of attention by American academics since direct use values lend themselves easily to measurement. Hence, there are a large number of WTP estimates. Some Canadian data for recreational fishing is available and is for the most part collected via surveys of those who enjoy this recreational activity. We reviewed a number of federal and provincial government documents and data collected. We have relatively current estimates of the economic activity of recreational fishing on the Great Lakes (data are available for the year 2005).

In terms of valuation metrics, many were presented in the literature. It should be noted that selecting an appropriate valuation metric for this sector is particularly important due to the varying nature of data reported and methods used.

We anticipate recreational fishing benefits to be an important outcome arising from investment in many of the key priority areas including non-point source pollution control, toxic pollutant prevention, reduction and elimination, sediment and “hotspot” remediation, and aquatic and invasive species prevention/elimination. This may be the most easily quantifiable (of a range of difficult to quantify) benefits.

Hunting This sector has received some attention in the academic literature since it also involves use

values that are relatively easy to estimate. We identified a number of studies that estimate the economic benefits associated with this activity, however, estimates were not available for Great Lakes hunting specifically. Canadian data is available for this area from Environment Canada, however no Great Lakes specific estimates are provided.

The value of hunting to Canadians has been estimated by Environment Canada for two types of hunting: waterfowl and ‘other birds’. We did not identify any studies that investigated the value of hunting to the Great Lakes explicitly however there does exist provincial data that could be used to estimate the value placed on hunting by Ontarians (along with national data from Environment Canada).

We anticipate hunting benefits will be realized if investments are made in the following key priority areas: habitat protection and restoration, nearshore water and coastal health protection and restoration, and non-point source pollution control. Data on the value of this activity to the Great Lakes region specifically will need to be transferred from Provincial and National datasets with some assumptions.

Recreational Boating We reviewed a number of studies that investigate recreational boating on the Great Lakes,

carried out for both Canadian and American jurisdiction. A number of these studies look in detail at the expenditures of boaters and their contribution to the provincial and national


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economies. Fewer studies examine the WTP for improvements to the activity due to improvements in the Great Lakes as a whole.

Our review identified a number of valuation metrics including WTP for unspecified improvements to recreational boating conditions on a specific Canadian area of the Great Lakes. Other data found was related to the WTP to remove contaminated sediments from the Ottawa River however the study was carried out in the U.S. Canadian data on direct expenditures for year 2006 on the recreational boating industry are available. Estimated total direct and indirect impact of recreational boating in Ontario is available along with detailed data on recreational boating habits.

We anticipate recreational boating benefits from investments key priority areas such as habitat protection and restoration and nearshore water and coastal health protection. Recreational Boating benefits are among the most easily quantifiable.

Beaches and Lakefront Use There is some literature that estimates the value of beaches and lakefront use of the Great

Lakes. These studies use varying methods to estimate the value of a day at the beach and include the economic value of swimming as a recreational activity.

The valuations metrics found include the WTP for unspecified improvements to swimming conditions for a specific Canadian area of the Great Lakes. Other valuation metrics include the value of a day at the beach in terms of expenditures. These expenditure values should be viewed as a lower bound estimate on the WTP.

Benefits derived from improvements to beaches and lakefronts are expected for a number of the key priority areas including nearshore water and coastal health protection and restoration, non-point source pollution control, toxic pollutant prevention, reduction and elimination, and sediment and “hotspot” remediation. The key will be to link values to specific project improvements. This is another area where the benefits are the most easily quantifiable.

Aesthetic and Amenity Values These benefits cover the positive economic benefits from environmental amenities

including the economic benefits of remediating AOCs in the Great Lakes. Aesthetic and amenity are private values such as vistas and the general pleasantness and environmental condition of an area held by people living near or visiting the Great Lakes.

Natural resource assets provide important private amenity benefits to neighbouring households. For example, restoring disturbed marshlands have been found to increase the market prices of nearby houses.

There is a substantial American literature that provides reliable estimates of the private economic benefits to homeowners of remediating AOCs in the Great Lakes. We found only one Canadian study (Zegarac and Meir (1998)) that examined this issue. This study examined the Hamilton Harbour AOC and its estimates are comparable with the results from the American literature. Besides the study of Hamilton Harbour AOC, there are no studies of the other Canadian AOC sites. As noted in their study, the economic benefits on property values are expected to be site specific. In addition, the Hamilton Harbour AOC is located in a highly populated urban area. Transferring these benefit estimates to other more rural sites may be inappropriate.

There is a risk in double counting. For example, if people are willing to pay more for a house next to a restored wetland for the recreational opportunities, this value will be captured by the estimates reviewed in this section. Therefore, care is needed to avoid this issue.

The value estimates reviewed will be especially important for the habitat protection and restoration and the sediment and “hotspot” remediation priority areas.


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Wildlife Watching A number of surveys and studies exist that pertain to wildlife watching. While no estimates

for the Great Lakes as a whole were found, some relevant data was available in the literature. Studies reviewed assess the economic value of wildlife watching in terms of expenditure or consumer surplus value. This method assumes expenditure is the inherent value that participants would place on the activity and represent a lower bound on the WTP estimates.

Our review identified one study that investigates Point Pelee as a wildlife watching platform explicitly. The study is quite detailed in nature but valuation metrics taken from this study should be used with caution, as estimates may be higher for this specific site as opposed to other wildlife watching areas (Point Pelee is considered one of the “premier birding locations in North America” and hence, may overestimate the value of this activity). Canadian data is available for average expenditure on wildlife viewing, including an estimate for Ontarians.

Benefits associated with wildlife watching will likely be realized from investments in a number of key priority areas, such as habitat protection and restoration, nearshore water and coastal health protection and restoration, and toxic pollutant prevention, reduction and elimination. Data to estimate benefits from this sector are available however will require some assumptions on applicability.

Commercial Navigation The literature pertaining to commercial navigation on the Great Lakes was found to

resonate around the economic value of its unique integrated waterway system in terms of cargo shipped, jobs created and contribution to GDP. These are largely private benefits relating to the quantity of water as opposed to the quality. The academic literature regarding this use category focuses on the impact of climate change to the industry.

Changing water levels are expected to impact the commercial navigation industry. Reductions in water levels are expected to result in a reduction in cargo carrying capacity which translates into an economic loss for the industry. Loss estimates are available for two water level reduction scenarios, presented by ship and aggregate effect per year.

The value of commercial navigation on the Great Lakes will be useful for cost-benefit assessment of the key priority area of climate change adaptation and potentially others such as water use efficiency. The values can be used with water level change estimates to estimate the impact (benefit) to the commercial navigation industry with little additional data requirements.

Hydropower Production The Great Lakes provide invaluable resources in terms of hydropower production. The

quantity of water is the most important aspect to consider in calculating this use value. We reviewed a number of sources and made personal communication with an expert in this field. The amount of water used to generate electricity is substantial, so is the value of the electricity.

We were able to gather estimates of the electricity generating capacity of one power plant located on the Niagara River which indicate the average value of water use is only pennies per cubic meter. This value is solely associated with the water use and is derived from total electricity generated ($) over total water use (m3), ignoring any other input to the system and attributing the entire value of electricity to water.

Hydropower production use estimates will be useful in the cost-benefit assessment of many of the key priority areas that pertain to water quantity including climate change adaptation,


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water use efficiency and potentially promoting green infrastructure. Values derived should be used with caution as they do not take any other variables of hydroelectric power production into account.

Gas Regulation The relevant research has focused on carbon dioxide storage and sequestration of carbon in

wetlands because there is good data in this area. However, we did not find any economic estimates of the gas regulation function provided by the Great Lakes themselves.

There is sufficient data for including the ecosystem services relating to carbon in the subsequent cost benefit analysis. These estimates can be used for economic analysis relating to wetlands.

Local Climate Regulation No literature was found relating to the local climate regulation function of the Great Lakes.

As noted in section 5.1.2, this knowledge gap reflects the difficulties in quantifying the complex interactions between the Great Lakes and the local climate.

There is insufficient data for including this ecosystem service in any subsequent cost benefit analysis.

Water Regulation The Great Lakes watershed provides the important service of regulating the hydrological

flows of water. Literature relating to the water regulation function focused on forests. CITYGreen software

can be used to analyse watersheds to determine the value of green infrastructure. Two estimates in the Great Lakes context (Wilson (2008) and Suzuki (2008)) used the CITYGreen software. Although specific watersheds (eg. Lake Simcoe) have been analyzed using the CITYGreen software, no similar analysis exists of the whole Great Lakes ecosystem. The value of water regulation is included in some estimates of water supply (Troy and Bagstad (2009)).

No literature was identified that estimated the water regulation function provided by wetlands or by large lakes.

Good estimates exist for the water regulation value of forest cover. However, it will be challenging to use these estimates for other ecosystem types (i.e wetlands). Value estimates can be used for the cost benefit analysis of such key priority areas as habitat protection and restoration and promoting green infrastructure.

Disturbance Prevention The difficulty in estimating the value provided by this ecosystem service is that while the

natural cover in the watershed provides important flood control services to society, the Great Lakes themselves are a main cause of floods.

In our literature review, we identified one study in Ontario of the Grand River Watershed that estimated the value of flood control services provided by forests (Belcher et al. (2001)). In addition, one global study using the benefits transfer approach (Costanza et al. (1997), one peer-reviewed meta analysis (Woodward and Wui (2002)) and one study using two communities near Seattle Washington (Olewiler (2004)) were found that estimated the value of flood control services provided by wetlands. The wide range in values of these more general studies underscores the importance of sit specific estimates of flood control services. Important site specific aspects include frequency of floods, proximity to human


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development, and susceptibility of these developments to flood damage. Therefore, there is a clear problem in using the benefit transfer method in the case of flood control benefits.

Flooding is a serious cost and reductions in flooding arising from infrastructure or regulation changes can be counted as a benefit. The International Lake Ontario St. Lawrence River Study Board (2006) report provides very good estimates on this value.

Nearshore water and coastal health protection and restoration and promoting green infrastructure are two priority areas where these estimates can be used in the economic analysis.

Water Supply The storage, filtration and purification services provided by the Great Lakes watershed

bestow important benefits to society. This ecosystem service relates to both the quantity (storage capacity) and the quality (water purification) characteristics of water

A number of studies of ecosystem services in southern Ontario have quantified the value of this ecosystem service. These estimates provide a good first approximation.

While good data exists for avoiding the pumping of water from the Great Lakes exist, there is no direct estimate of the water supply value of the Great Lakes themselves (i.e. the water in the lakes).

Because of its interdependence with drinking water, care is required in separating the ecosystem service (water supply) and the economic good (drinking water) to avoid double counting.

These estimates can be used for the cost benefit analysis of such key priority areas as habitat protection and restoration and promoting green infrastructure.

Soil Retention This shares the same valuation dilemma as disturbance prevention. While natural cover and

agricultural practices can control erosion, the water in the Great Lakes causes erosion. Several studies relating to soil retention were found. These studies valued the cost of

removing sediments from waste treatment plants in the southern Ontarian (Fox and Dickson (1990)) and American (Holmes (1988)) context. In addition, Olewiler (2004) presents estimates of dredging costs. Taken together, these studies provide a good approximation of the cost of sedimentation and therefore the economic value of the ecosystem service of erosion control provided by the Great Lakes

In addition, four studies examining the private property damage of shoreline erosion were examined. However, the first three are all based on U.S. data (Ohio) and have limited use in informing the economic costs of erosion on private property in Ontario. This is because there exists different set back laws between the two countries with American homes being allowed to be built a lot closer to the shoreline. Therefore, these estimates probably overstate the economic cost and risk in Ontario. The fourth study is the IJC’s Lake Ontario St Lawrence River Study Board (2006) report which is the most comprehensive report on shoreline erosion in Lake Ontario to date. The study finds that changing current lake water levels to minimize shoreline damage to coastline property owners would only increase annual benefits of $1.2 million on average while causing substantial damage to other use values (mostly recreational boating).

These value estimates are sufficient for approximating this benefit category and can be used in the cost benefit analysis for nearshore water and coastal health protection and restoration and non-point source pollution control. However, valuing changes in erosion rates is an enormously complicated process.


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Waste Treatment The literature reviewed reflects the multiple sorts of benefits provided by this important

ecosystem service. This category includes both the flow of pollutants (human sewage) and the accumulation of toxic chemicals. The Great Lakes dilute and assimilate these waste products, thus providing a valuable service to society.

Good data on the costs of municipal waste treatment plants and the benefits of upgrading treatment can be found in Marbek (2007). However, that report only covers a very limited number of expected benefits. In terms of water treatment, we found relevant information on the marginal cost of residential, non-residential and sewage treatment of water in municipalities that serve the Great Lakes which can be used to evaluate the benefits (i.e. avoided costs) of using the Great Lakes as a waste sink.

Another study reviewed (Irwin et al. (2007)) examined the WTP of individuals for the “available pollutant assimilative capacity” of surface water in Ohio. Although providing important estimates, the results also suggest the difficulty in linking the estimated WTP with specific avoided water quality diminishment. Therefore, there continues to be data gaps on the economic value of the pollutant assimilative capacity of the Great Lakes.

In general, some literature exists surrounding quantifying and monetizing human health impacts of toxic pollutants. However, there is a lack of knowledge linking changing levels for many toxic pollutants to specific health impacts. While it is known that toxic pollutants harm human health, there is little literature relating specific pollutants to human health impacts. However, without this direct link, it is hard to link reductions in toxic pollutant emissions and levels with quantifiable human health benefits.

Kranztberg (2008) estimate of the loss in productivity (due to IQ loss) caused by exposure to methyl mercury is based on some important assumptions and should be viewed as a first approximation. However, the results also highlight our lack of knowledge in this important area.

Intervention strategies in almost all of the key priority areas while affect this ecosystem service. Therefore, various estimates will be used in many of the economic analyses. However, important data gaps remain in both the value estimation of this service and the link between specific interventions and tangible effects.

Nutrient Cycling While data exists for the nutrient absorptive capacity of wetlands, there are no comparable

estimates of the nutrient absorptive capacity of the Great Lakes as a whole. In addition, there is a need for up to date estimates of marginal nonpoint source abatement

costs of phosphorous and nitrogen as these are not available for the Graet Lakes area. This is because nonpoint sources continue to be the most important sources of these pollutants and therefore using abatement costs of point source pollutants is not appropriate.

Another important data gap is the difficulty in establishing a link between specific non-point sources of pollution and economic damage. The implication for the economic analysis is that the costs of abatement of reducing this pollution are hard to compare to the subsequent increase in economic benefits.

These value estimates will be especially important for the nearshore water and coastal health protection and restoration and non-point source pollution control. This is an area where important data gaps exist.

Habitat, Refugium and Nursery Our review of the literature found several studies that estimated the habitat value of

wetlands. Most of these studies used nonmarket valuation techniques to value this ecosystem service. Another way to estimate this value is to examine the actual amount of


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money spent on restoration projects that have habitat restoration as their sole objective. The costs of identified Great Lakes projects are summarized in the IJC Study Board Report (2006). However, as noted in the report itself these cost values may not be an appropriate measure of this ecosystem service for a number of reasons.

There is a real risk of double counting this benefit. For example, if I derive value from fishing, then my WTP includes the value of nursery and habitat that produce the fish I value. However, many other species, and biodiversity itself, that are not directly used rely on this ecosystem service.

While some estimates exist of the economic value of habitat ecosystem service, we could not find any comparable estimates of the value of nearshore habitats. These areas are important in providing suitable nursery and refugium spaces for many fish species that are important to recreational and commercial fishers. Lacking this information makes it difficult to identify the economic benefits of habitat protection and restoration of this ecosystem type.

In addition, there is no estimate of the economic value of water in providing habitat. Habitat protection and restoration is the main priority area affecting this benefit category. Option Value Our review of the literature did not find any empirical studies of the option value of any of

the Great Lakes goods or services. Intuitively, if there are not any actual use values, then there will not be option values for future use.

There is little empirical research of the option value of environmental goods and services in general. This is partly explained by the the difficulties in untangling option values from direct use values and other non-use values. However, there have been some estimates that give an indication to the magnitude of option values of an environmental area in the US (Walsh et al. (1985)).

Due to the lack of quality data on this value category, option values may not be able to be included in a future cost benefit analysis.

Non-use Values The empirical literature does not reflect the theoretical distinction between existence

values and bequest values. There are a few small studies of the non-use values of very specific Great Lakes’ goods and services. In Ontario, good recent estimates of the non-use values of various recreational benefits (Dupont (2003)) and protected areas (Sverrisson (2008)) exist. However, context is extremely important in interpreting the results from these studies.

This is an area where informational gaps exist that make conducting consistent and robust economic analysis of these types of values challenging.


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Appendix A Review of Relevant Cost-Benefit Analysis Studies

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The purpose of this Appendix is to provide some context to how the value estimates reviewed in the main report can be incorporated into a cost benefit analysis. This section also reviews intervention strategies identified in the literature. This sections contributes to the work to be undertaken as part of Deliverable #3 and Stage 2 of this study.46 A goal of cost benefit analysis (CBA) is to help social decision making by quantifying in monetary terms the value of all consequences of a project, policy or program to all members of society. Within a CBA framework, the aggregate value of a project/policy/program is measured by its net social benefits, that is, the difference between social benefits and social costs (Boardman et al., 2006). While intuitively, undertaking a CBA makes sense from a public policy perspective, there are often various constraints/limitations in the attempts to perform a CBA. Some of them are: Criticism on utilitarian assumptions: Most cost benefit analyses assume that social

preferences are the simple aggregation of individual preferences. Equity weights need to be attached to individual preferences to assess distributional impacts.

Lack of information: Insufficient information on the costs, benefits and/or the linkages between the two.

Costs of doing: Conducting a proper cost benefit analysis is costly in terms of time and resources.

The lack of mandate in relevant legislation.47

Given the above, it is not surprising that the number of previous CBA related to the Great Lakes protection and restoration is limited. While there have been hundred’s of studies evaluating the benefits of specific goods and services provided by the Lakes, very few CBA studies have been completed thus far. In addition, among the most quoted economic analysis studies (e.g. the America’s North Coast Report of 2007), the work has relied on a previous review of benefits literature with little (or none) additional primary research conducted. We review seven previous CBA studies completed in the past. The most glaring observation is the variance in methods used to carry out these studies and the various methods of assigning ‘benefits’. We reviewed one previous CBA that is concertedly focused on the Great Lakes (America’s North Coast Report, 2007) that makes an attempt to create a ‘bottom-up’ assessment of the costs and benefits associated with a specific plan aimed at improving conditions of the Great Lakes as a whole. We reviewed four previous CBAs carried out on areas of concern (AOC): one which uses a similar methodology to that of America’s North Coast Report; one that is not a CBA per se, but provides information on the potential costs and benefits of remediating sediment at a particular location; and two that use hedonic pricing and survey methods to estimate decrease in property value with proximity to the AOC and WTP for unspecified improvements that result in a full clean-up of the AOC, respectively. These two latter studies do not include any remediation measures to clean up the AOC and hence, no costs estimates. These studies conclude the loss in property value (due to proximity to AOC) and WTP as the ‘benefits’ associated with remediating the AOCs. Two additional studies were

46

It should be noted that currency figures in this section have been left in their original amounts and not converted to 2009 Canadian dollars like the rest of the report. 47

Economic analysis has historically played a small role in Canadian water resources management. As noted by Dupont and Renzetti (2005), none of the most important pieces of federal legislation such as the Canada Water Act (1970), the Fisheries Act (1868), the Canadian Environmental Protection Act (1988) or the Canadian Environmental Assessment Act (1999) require the assessment of the benefits and costs of proposed projects or the government’s own initiatives.

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reviewed that perform a CBA on specific areas (water conservation and wetland restoration), which can be considered a partial CBA for the purposes of this study. The remainder of this section provides details and findings of the previous CBA studies reviewed.

America’s North Coast: A Benefit-Cost Analysis of a Program to Protect and Restore the Great Lakes (Austin et al., 2007) This study begins by establishing the ecological baseline conditions of the Great Lakes and estimate of physical changes that would occur if the recommendations for Great Lakes protection and restoration are followed. To carry out this task, the study had teams of economists and Great Lakes scientists to determine the costs and likely ecological impacts of the restoration plan. The output of the study is an estimate of purely economic benefits of those likely ecological impacts. Baseline conditions are taken from the 2005 report, Great Lakes Regional Collaboration Strategy To Restore and Protect the Great Lakes, a product of a U.S. EPA-led research project that resulted in a comprehensive plan to restore the Great Lakes. The report identified the most significant concerns to be: Contaminated sediments Sewage spills Invasive species Pollution runoff Habitat destruction (particularly wetlands)

Exhibit 34 presents the measures proposed in the GLRC strategy

Measure Definition Strategy recommendations (5-year cost estimates)

Addressing Aquatic Invasive Species

Prevent introduction of new aquatic invasive species

Elimination and/or control of AIS spread by ships and barges ($66 million)

Federal, state and local government measures ensuring AIS are not introduced through canals and waterways ($225 million)

Federal and state measures preventing introduction and spread of AIS through trade and potential release of live organisms ($85 million)

Establishment of and AIS management program to implement rapid response and control ($220 million)

Outreach and education programs ($98 million) Habitats and Conservation

Improve area habitats through conservation of local fish, other species and wetlands

Additional support for efforts to restore and protect native fish communities on shore and in open Lakes ($100 million)

Restore wetlands and establish monitoring program ($943 million) Support restoration of Great Lakes rivers ($200 million) Create coastal shore and upland habitat conservation program

($200 million) Coastal Health Improve quality of

drinking water through reducing discharges from sewers and other sources of contamination

A five year total of $13.7 billion in spending to improve municipal wastewater treatment facilities along the Great Lakes. The Strategy suggests a 55/45 federal/local cost share, implying $7.535 billion in federal grants, and $6.21 in state and local resources;

Improving drinking water quality through protection of drinking water sources ($1.61 billion);

Developing more rapid and more accurate tests for determining when beach water is safe for swimming ($7.2 million).

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Measure Definition Strategy recommendations (5-year cost estimates) Areas of Concern (AOCs)

Dramatically accelerate clean up of Areas of Concern (AOC)

The appropriation by Congress of $750 million over 5 years, under the Great Lakes Legacy Act, to remediate contaminated sediment sites in the AOCs (along with various amendments to the Act itself).

Funding of $50 million over 5 years to support state and community-based coordinating councils in the AOCs and $8.5 million over 5 years to the EPA Great Lakes National Program Office for regional coordination and program implementation.

The Congress should fully fund, at $3 million annually, the research and development program authorized in the Great Lakes Legacy Act

Non-Point Sources

Address non-point sources of pollution

Additional funding to restore up to 550,000 acres of wetlands over 5 years, recognizing that 50–70 percent of the area’s historic wetlands already have been lost (between $375 M and $944M)

Restoration of 35,000 acres of buffer areas in urban and suburban areas ($335 million)

Measures to reduce the soil loss in ten selected watersheds by 40 percent ($120 million)

Support for the development and implementation of comprehensive nutrient and manure management on livestock farms ($106 million)

Hydrological improvements in ten urban watersheds ($90 million) Toxic Pollutant Strategy

Reduce, and virtually eliminate, certain toxic pollutants (such as discharges of mercury, PCBs, dioxins and pesticides)

Reduce and virtually eliminate principle sources of mercury, PCBs, dioxins, and other toxic substances in the Great Lakes basin ($60 million)

Prevent new toxic chemicals from entering the Great Lakes basin ($80 million in spending, $250 million in tax incentives)

Institute a comprehensive research, surveillance, and forecasting capability for identifying, managing, and regulating chemical threats to the Great Lakes basin ($25–50 million, in addition to the $1.5 billion likely to be spent already over the next five years).

Execute a public education and messaging campaign relating to threats of toxins to fish consumption ($68 million in new spending)

Support efforts to reduce continental and global sources of PTS to the Great Lakes basin ($30 million in new spending)

Indicators and Information

Establish a sound information base about Great Lakes ecosystem

Series of measures aimed at collecting, analyzing and dissemination key information ($350 million)

Assuring Sustainable Development

Assure sustainable development, through application of best practices in land use, agriculture, and forestry and other practices to ensure the sustainability of the Great Lakes

State and local governments in the region should encourage sustainable development

State and local regional planning and governance should be coordinated in order to enhance sustainable planning and management of resources ($115 million)

Marketing and outreach programs should be created to educate consumers and users about sustainable alternatives ($10–20 million)

Resources should be appropriated to implement this overall Strategy ($30 million)

Solutions proposed were estimated to cost $20 billion. A present value estimate of all the costs of the recommendations is $26 billion. The study was carried out by assembling a panel of Great Lakes experts to first estimate the ecological impacts resulting from the restoration plan and an assembly of environmental economists to then examine the potential impact of those effects on economic values and services.

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Based on a present-value total investment of $26 billion in ecological restoration, the study calculates the following present-value economic benefits: Over $50 billion in long-term benefits to the national economy; and Between $30 and $50 billion in short term benefits to the regional economy. Short-run multiplier effects were considered in the study included a regional multiplier range of 1.5 and 2.5. The authors apply this range to the estimate cost of the Great Lakes strategy to come up with the short term estimate of $30 - $50 billion. The authors make an important note, stating “these short term multiplier effects should only be considered after a decision to invest in the Great Lakes is made; they should not be used as an economic justification for spending on Great Lakes restoration per se.”

Long-run environmental and health benefits estimates were generated via two approaches: Specific improvements in the environment that were expected from restoration measures

were identified, valued and then added up to arrive at a total ($18-31 billion or higher) Likely increases in land value as a result of the clean up initiatives were estimated and

summed to come up with a total ($29-41 billion or higher) Exhibit 35 below summarizes the economic benefits of the Great Lakes Restoration plan, as extracted from America’s North Coast: A Benefit-Cost Analysis of a Program to Protect and Restore the Great Lakes:

Exhibit 35 Summary of Economic Benefits of Great Lakes Restoration Plan

Improvement GLRC effect (relative to baseline)

Affected value Present value benefit (relative to

baseline)

Increased fish abundance

30-75 percent Increasea

Improved catch rates for anglers

$1.1-$5.8 billion or higher

Avoided dislocation of sport- fishery workers and assets

20 percent reduction or higher

Maintenance of sport- fishery wages and profits

$100-$200 million of higher

Reduced se dimentation

10-25 percent reduction

Lower water treatment costs for municipalities

$50-$125 million

Reduced bacterial and other contamination leading to fewer beach closings and advisories

20 percent reduction

More swimming activity

$2-$3 billion

Improved water clarity at beaches

5 percent improvement or higher

More swimming and improved enjoyment of swimming activity

$2.5 billion or higher

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Improvement GLRC effect (relative to baseline)

Affected value Present value benefit (relative to

baseline)

Improved wildlife habitat leading to more birds

10-20 percent improvement

Improved opportunities for birding

$100-$200 million or higher

Improved wildlife habitat leading to more waterfowl

10-20 percent improvement

Improved opportunities for waterfowl hunting

c

$7-$100 million

Removed contaminated sediment in Areas of Concern (AOC)

All toxic sediment contamination remediated

Basin residents benefit directly or indirectly from AOC restoration

$12-$19 billion

Total quantified specific benefits

$18-$31 billion or higher

Use values (e.g, health- related and recreational) and non-use values(eg, “existence” and be quest”) for unqualified resources

Unqualified Multiple Potentially single digit billions or higher

Aggregate Long- Run Benefit Estimate $29-41 billion or higher

Short Term Multiplier Effects $30-50 billion23

*Values used by the authors to arrive at the present value benefits are reported in the previous sections of this report.

Cost–benefit analysis of the Remedial Action Plan to improve water quality in the Great Lakes in Canada (Dupont and Renzetti, 2005) The Remedial Action Plan (RAP) program identified 42 Areas of Concern (AOC) within the Great Lakes basin. This study provides context on the costs associated with this program as a whole followed by a cost-benefit analysis of the RAP for Hamilton Harbour specifically. Remedial efforts for areas of concern (AOCs) have been underway since the mid 1980’s with expenditures on sediment remediation and waste water treatment surpassing $300 million at Canadian sites and several billion dollars at American sites [Dupont and Renzetti, 2005]. The first stage of each local RAP’s efforts was devoted to understanding the physical and natural scientific dynamics of processes that lead to degradation of the local ecosystem, which represented a vast amount of effort. No complementary work was carried out to understand the economic aspects of the RAPs however. While all potential costs of the remedial actions were calculated, the economic value of their benefits were rarely assessed [Dupont and Renzetti, 2005]. It is quite clear that for the Hamilton Harbour RAP, this was the case. An excerpt from the Hamilton Harbour Remedial Action Plan states:

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‘The overall benefit to the Harbour of the Remedial Action Plan is expected to be substantial because of the many spin-off benefits to the economy and an improved image of the community. A specific study of these economic benefits, while it would be valuable, was not part of this update’

Dupont and Renzetti estimate the present value of Hamilton Harbour RAP costs and benefits. They demonstrate that the costs of the remedial actions carried out in Hamilton Harbour exceed any reasonable estimates of the benefits by a large margin: they estimate that the present value of the RAP costs is 240 million 1990CAN$ with benefits of 68 million 1990CAN$. Major remedial efforts considered for the Hamilton Harbour are shown in Exhibit 36 below:

Exhibit 36 Remedial Efforts Considered for the Hamilton Harbour

Remedial actions Objective

Water and bacterial Contamination Expand and upgrade waste water treatment plants Decouple combined sewer- storm water outflows

Reduce loading of phosphorus, Ammonia, suspended solids and bacteria

Land Management Introduce universal residential water metering

Reduce water consumption and flows to waste water treatments plants

Toxics and sediment remediation Change production processes and upgrade

discharge water treatment at steel and chemical plants

Remediate contaminated sediments

Reduce loadings of metals and other pollutants

Fish and Wildlife Maintain, enhance and create fish and wildlife

Habitats

Restore Cootes Paradise wetland and support fish and wildlife repopulation efforts

Public education, research and other actions Build marine Discovery Centre Construct shoreline trails Continue monitoring, research and education

programs

Remedial actions in Hamilton Harbour began in 1990 and are projected to continue until 2015. Total expenditures in the 1990-2000 time frame are documented to be $205.38 million (nominal Canadian dollars) with expenditures for the 2000-2015 time frame projected to be $645.5 million (nominal Canadian dollars). Exhibit 37 below indicates the major sources of expenditure.

Exhibit 37 Most significant sources of expenditure for Hamilton Harbour RAP

Time Frame Expenditure (Costs) Most Significant Sources of Expenditure 1990-2000 205.38 million CAD process changes at metal foundries and manufacturing facilities

remediation of toxic sediments improvements to public recreation facilities restoration of wetland

2000-2015 645.5 million CAD upgrading sewage treatment facilities continuing remediation of contaminated sediments introduction of universal residential water metering further expansion of recreational facilities

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The study also provides the detailed cost information for the remedial actions, based on activity, as shown in Exhibit 38 below.

Exhibit 38 Costs of Major Remedial Actions for Hamilton Harbour

Activity Capital cost Annual O&M cost

Water quality and bacterial contamination 1990-2000 2000-15

103.6 543.0

NA

Land Management 1990-2000 2000-15

1.5 10.11

NA 0.777

Toxins and sediment remediation 1990-2000 2000-15

53.48 64.02

NA 0.048

Fish and wildlife 1990-2000 2000-15

14.93 8.5

NA

Public access and aesthetics 1990-2000 2000-15

22.83

19.7

NA

Public education, research and other actions 1990-2000 2000-15

9.04 0.096

NA 1.67

Total 850.81 2.50

Notes: All figures are millions of nominal Canadian dollars NA= estimate not available.

Total benefits attributed to RAP remedial efforts were categorized into two streams: use and non-use values. Use values were further divided into three categories: direct, option and indirect. The actions taken and the perceived benefits utilized in this study are displayed in Exhibit 39 below.

Exhibit 39 Improved Opportunities and Actions Taken

Improved Opportunity

Actions Benefits

Recreational Fishing Reductions in storm water and industrial effluents (leading to better water quality)

Restoration of spawning and nursery habitats (to support reintroduction of popular species such as pike and largemouth bass)

Creation of carp barrier (to prevent carp from fouling habitats of desirable species)

Creation of fishing platforms

Direct use to fishers Future benefits to fishers in region Support provision of ecosystem

services (thereby leading to indirect use benefits)

Swimming and windsurfing

Better water quality Better facilities

Direct use benefits to swimmers Direct use benefits to future

generations of swimmers

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Improved Opportunity

Actions Benefits

Recreational boating Improved water quality Improved access and facilities

Direct and future use benefits to individuals interested in recreational boating

Improved access and aesthetics

Restoration of wildlife habitat Construction of boardwalk Wetlands improvement Creation of water-side pathways

Direct use, indirect use and possible future use to near-shore walkers, cyclists and birdwatchers

Overall All actions Non-use benefits (continued existence of a healthy water body for the region)

The authors indicate that ‘the most significant benefits from improvements to water quality are related to enhanced recreational opportunities’ *Dupont and Renzetti, 2005+. To estimate benefits, the authors use the values of a contingent valuation study conducted in 1995 that estimated benefit values that are directly attributed to improvements in Hamilton Harbour [Dupont, 2003]48. The authors rely on these Hamilton Harbour specific estimates to generate benefit estimates associated with improved swimming, fishing and boating. Additionally, the authors note that benefits will also be realized via increase in other recreation activities such as cycling, walking, bird watching and windsurfing however no Hamilton Harbour specific estimates exist for improvements to these activities. The authors therefore conduct a literature review to identify other studies that assign a value to these activities and consider the benefits transfer methodology to generate an estimate. Their review concluded that estimates for windsurfing were not suitable for benefits transfer to Hamilton Harbour. Bird watching estimates from a study conducted in Italy using a similar method to that of Dupont in 2003 were considered appropriate and included in the study. Additionally, the authors use non-use values associated with the RAP improvements derived in Dupont’s 2003 work to estimate an appropriate non-use value. Exhibit 40, below summarizes estimated aggregate benefits of major remedial actions (include direct use values, future use values and non-use values (passive or existence).

Exhibit 40 Estimated annual aggregate benefits of major remedial actions for Hamilton Harbour

Benefit Category Estimated value

Direct use values Swimming Fishing Boating Birdwatching

0.429 0.188 0.746 0.224

Future use values Swimming Fishing Boating

3.098 2.360 1.381

Non-use values (passive or existence) Total

1.011 9.437

Note: All figures are millions of nominal (1995) Canadian dollars on an annual basis.

48

These values and their development are discussed in the Recreational Fishing, Beaches and Lakefront and Recreational Boating sections of this report.

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With exception of bird watching, all values are specific to Hamilton Harbour RAP improvements. Bird watching is estimated using benefit transfer methodology and data from Signorello (1998).

The authors make some important observations regarding the limitations of the study, including that is was carried out ex post. The authors indicate that although they had some benefit values directly attributed to the RAP improvements, they did not have a complete set of information for all categories of benefits. Some issues noted include: relatively little explanation of the process employed by the RAP to choose and prioritize individual remedial actions. This lack of information made it particularly difficult to determine whether the recommended remedial actions are the most cost-effective options available. Another inhibiting factor in assessing remedial options is that the RAP objectives are quite general, not providing any quantitative guidance metrics. As pointed out by the International Joint Commission (2003), without specific water quality targets, it is difficult to determine when exactly a remedial action’s objectives have been met. Also noted by the authors is that the costs may be greater than they needed to be. RAP documents are somewhat contradictory in their assumptions to be used for analysis (i.e. they indicate that costs of upgrading sewage treatment facilities is to take population growth into account however the plans also pursue to implement water meters, facilitating an aggressive water pricing program, which would impact per capita water assumptions). In addition, industrial process changes included in the RAP were developed under a concurrent Ontario environmental program49, one that was criticized regarding its approach to pollution abatement50. This study represents one of the most comprehensive and recent cost-benefit assessments for a Canadian Great Lakes site. Based on the RAP plan for Hamilton Harbour, the costs were estimated to be $240 million (CAD1990$) while benefits were estimated to be $68 million (CAD1990$). Benefits were associated with improvements to the following services provided by the Great Lakes: swimming, fishing, boating and bird watching.

Economic Benefits of Remediating the Buffalo River, New York Area of Concern (Branden et al., 2008a) This study estimates the economic benefits of remediation in the Buffalo River, NY Area of Concern (AOC) using two empirical methods: hedonic analysis of property sales and the survey based method. The study uses these two methods in parallel to estimate (and compare between methods) the economic impacts of the AOC. The authors use hedonic property value method to analyze property sales data, seeking statistical evidence that the AOC has reduced residential property values. However the authors indicate that a lack of comparable property value data before and after remediation limits the effectiveness of the hedonic method as it cannot provide direct estimates of the value of environmental improvement. The authors use sales and assessment data for 3,474 single-family, owner-occupied dwellings within five linear miles of the AOC, purchased in the years

49

Municipal and Industrial Strategy for Abatement (MISA) 50

As noted by the authors, a substantial amount of evidence suggests that the best available technology (BAT) and BATEA approaches to pollution abatement used in the MISA do not result in the cost-minimizing distribution of abatement responsibilities across polluters.

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2002-2004. Using this method, the market analysis conducted by the authors indicates that single-family residential property prices south of the river are negatively impacted due to their proximity to the AOC by $118 million, or 5.4% of the total market value. The impacts are greatest for properties closest to the AOC and no impact was found for properties located to the north of the river. The survey method attempts to determine local residents’ willingness-to-pay for change in environmental condition of the AOC by hypothetically varying the environmental condition of the river and asking respondents how it would impact their housing choices. The study does not attempt to identify specific measures to improve conditions (or the subsequent changes in environmental quality). The survey based estimates indicate a willingness-to-pay for full clean up of the AOC to be approximately $250 million, or 14% of median-based market value. It must be re-iterated again here that no measures are recommended to clean up the area, but rather respondents are simply asked what they would be willing to pay to clean-up of the AOC which can be interpreted as benefits of cleaning up the AOC. As such, no costs are included in this study. In addition, the authors do not attempt to address the reasons for the difference between estimates derived via the two methods.

Economic Benefits of Remediating the Sheboygan River, Wisconsin Area of Concern (AOC) (Branden et al., 2008b) This study estimates the economic benefits of remediation in the Sheboygan River, WI Area of Concern (AOC) using two empirical methods: hedonic analysis of property sales and the survey based method, following the same methods as Branden et al. (2008a) in the study of the Buffalo River, NY AOC. The hedonic analysis is based on property distance from the AOC. The authors estimate a form of the hedonic price model where they assume sales prices are a linear function of property characteristics. They find that the hedonic analysis of single family owner-occupied property sales within a five-mile radius of the Sheboygan River AOC see an overall loss of value of $158 million (representing 8% of the market value) with $48.8 million having strong statistical support. The survey based analysis relies on a conjoint choice housing survey administered to homeowners in the area. This method estimates the willingness to pay for full cleanup of the AOC to be $218 million. It is noted here (as for Branden et al., (2008a)) that no specific remediative measures are included in the assessment, but rather hypothetical improvements to the AOC. As such, no costs are included in this study.

Benefits Assessment: Randle Reef Sediment Remediation (Environment Canada, 2006) This report deals with contaminated sediment remediation at Hamilton Harbour (an Area of Concern (AOC)). Environmental issues facing Hamilton Harbour include: water quality and bacteria contamination, toxic substances and sediment remediation, and public access and aesthetics. The authors indicate that sediment remediation “represents a pivotal project that will spur other projects necessary to achieve harbor delisting”. The majority of contaminated

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sediment is either on or around Randle Reef. This report, prepared for Environment Canada, uses the BENSIM51 model to assess the benefits of the Randle Reef remediation project with the authors specifically making note that “this project is not a cost-benefit or cost-effectiveness analysis”. The study looks at potential economic, social and environmental benefits as shown in Exhibit 41 below.

Exhibit 41 Benefits Included in Study

Benefit Category Benefits Included

Economic The Hamilton Port Authority in terms of new tonnage that they would expect to handle as a result of their expanded docking and shipping capacity.

Stelco was described as reaping direct economic benefits from the Randle Reef project through the anticipated improvements to their operations and improved corporate image.

Environmental technology and engineering companies in Hamilton in terms of work generated by the remediation project, and also by the enhanced reputation through their involvement in applying leading-edge environmental remediation technology.

Social Increased recreational use of the harbour for activities such as hiking on trails surrounding the area, swimming, angling and boating

Increased community pride resulting in a psychological benefit for community members

Enhanced opportunities to market outdoor recreation opportunities and to attract events to the city, both recreational and business related conferences.

Environmental Reduced fish killed by the industry water intakes Improved fish habitat Restoration of Sherman Inlet, the only remaining wetland of significance in that

area of the harbour. Overall improvement to harbour health and water quality Increased naturalized area associated with the containment facility.

The study investigates, in addition to the Randle Reef project, other harbor remediation options including other sediments, wastewater and habitat Exhibit 42 shows the remediation projects included in the BENSIM model used by the authors and the associated costs.

51

BENSIM is a stakeholder-driven model of the benefits of environmental clean-up projects. It is a simulation model constructed to link analytical and public communication. It was designed around a disaggregated benefits assessment framework (i.e. impacts at the stakeholder level) with benefits linked to specific clean-up projects. BENSIM tracks physical and economic benefits and tracks those benefits to specific beneficiaries. For more details on the BENSIM model, refer to BENSIM: A Stakeholder-driven Model of the Benefits of Environmental Clean-up Projects by Hanna et al.

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Exhibit 42 Harbour Remediation Projects Included in BENSIM (millions 2005 $CAD)

Project Description Default Duration

Capital Cost

Randle Reef Contain toxic sediments at Randle Reef by building a containment unit as proposed by the technical Terms of Reference

2007-2015 $90 million

Other Sediments

Contain the remaining 10% of toxic sediment deposits in the Harbour

2007-2015 $5 million

Wastewater Reduce sewer and wastewater inputs into the Harbour 2007-2015 $480 million

Habitat Rehabilitate shoreline habitat 2007-2015 $12 million

The study breaks down benefits by beneficiary. These values are extracted and shown in Exhibit 43 below.

Exhibit 43 Total Benefits by Beneficiary (millions 2005 $CAD)

Beneficiary: Benefit Randle Reef Project All Projects

Federal Government $21 $338

Provincial Government $19 $297

Municipal Governments $29 $60

Hamilton Port Authority $11 $11

Stelco $15 $15

Dofasco $0 $0.1

Local Businesses $38 $592

Un(der)employed People $13 $206

Recreational Users $3 $496

Local Property Owners $96 $124

While it is noted by the authors that this is not a CBA, much of the information included in the study may be useful in subsequent CBAs. The authors do caution however that “to use these results for such purposes (CBA) requires some important modifications to the basic methodology”.

Assessing the Potential for Water Conservation and Efficiency in Ontario Final Report (Ministry of the Environment, 2009) This study evaluates costs and benefits of water efficiency measures from a purely financial perspective. While a number of social benefits were excluded (e.g. improvements to recreation activities), it determined that implementation of a number of water efficiency measures are worthwhile. The study presents estimates of annual expenditures for the residential, industrial, commercial and institutional, and municipal sectors. Estimated annual expenditures and estimated annual water savings for the various sectors are shown in Exhibit 44 below:

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Exhibit 44 Current Municipal Water Conservation and Efficiency Programming in Ontario

Sector Estimated Annual Expenditures

Estimated Annual Water Savings (m3/year)

Estimated Annual Water Savings (m3/year) after

10 Years

Residential $23,500,000 4,600,000 46,000

Industrial, Commercial and Institutional

$720,000 900,00 9,000,00

Municipal Pro-active Distribution Leakage Reduction

$600,000 1,000,000 10,000,00

Total 24,820,000 6,500,000 65,000,000

While this does not constitute a full CBA or provide Great Lakes specific information, it does represent a partial CBA that can be considered in the next stages of this study.

Cost-Benefit Analysis of Wetland Restoration (Dubgaard, 2003) This study utilizes the Skjem River restoration project in Denmark as an empirical example to illustrate the application of cost-benefit assessment within the context of river restoration. The Skjern River project has a primary purpose of re-establishing a large coherent nature conservation area with good conditions. The entire project includes the following initiatives: The lower 19 km of channeled river have been turned into a 26 km meandering course The river has been laid out with several outflows to the Fjord Creation of a 160 ha lake Re-establishment of the contact between the River and riparian areas by permitting

periodical floods on land within the project area Transfer of 1,500 ha or arable land to extensive grazing The study calculates costs and benefits of the Skjern River project using three varying discount rates. Results of the study are shown in Exhibit 45.

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Exhibit 45 Cost-benefit results of the Skjern River project (in million of 2000 Danish Crowns

(DKK)52

52

5 DKK (2000) equals around 1 Canadian dollar (2009)

Discount rate 3% 5% 7%

Project costs 143.7 143.0 142.2

Operation and maintenance 17.0 14.9 14.7

Forgone land rent 75.8 52.5 41.3

Total costs 236.5 210.4 198.2

Saved pumping costs 12.1 7.4 5.4

Better land allocation 29.7 19.4 15.2

Miscellaneous cost savings 5.0 2.4 1.3

Reed production 10.1 5.0 3.0

Reduction of nitrogen and phosphorus 56.7 34.0 24.3

Reduction of ochre 40.5 27.0 21.3

Improved hunting opportunities 15.3 9.0 6.3

Improved fishing opportunities 89.0 52.4 36.7

Outdoor recreation 120.1 70.7 49.6

Non-use value of biodiversity 85.9 50.6 35.5

Total benefits 464.2 277.6 198.6

Net present value 228 67 -1

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Appendix B Summary Table of Secondary Data Collected

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Exhibit 46 Summary table of secondary data collected

Study

Preventative or Restorative

Measure(s) Included

Evaluation methodology

used

Geographical Region and Date of the Analysis

Information about costs

Type of Values

Considered

Information about benefits

Residential Water

Willingness to Pay to Reduce Community Health Risks from Municipal Drinking Water: A Stated Preference Study, Adamowicz (2005)

Value of health risk reductions to Canadians

Contingent Valuation and Attribute-based Stated Choice Benefit Valuation Techniques

Internet based survey of 1,600 Canadians conducted summer 2004

n/a

Value of reduction in risk of microbial illnesses and/or deaths and bladder cancer illnesses and/or deaths

$168/household/year WTP for reductions in cancer $226/household/year WTP for reductions in microbial cases $314/household/year WTP for reductions in both cancer and microbial cases

Municipal Water Supply and Sewage Treatment Costs, Prices and Distortions, Renzetti (1999)

Study evaluates welfare losses that arise from overconsumption

Cost and Demand Modeling (Operation of municipal water supply and treatment facilities examined to estimate difference in water cost to consumers and treatment costs to municipalities)

Municipal water supply and treatment utilities in Ontario, Canada

$1.07/m3 marginal cost for residential supply

Marginal costs for water supply and treatment.

n/a

Benefits of Safer Drinking Water: The Value of Nitrate Reduction, Crutchfield (1997)

Value of reducing human exposure to nitrates in drinking water supply

Contingent Valuation Method

800 surveys were conducted in 1994 in four regions of the U.S.: the White River area of Indiana, Central Nebraska, the Lower Susquehanna River Valley, and the Mid-Columbia Basin in Washington

n/a

Value of nitrate reduction in drinking water

$82-$109/household/month WTP to reduce nitrate levels to minimum safety standard $82-$128/household/month WTP to render water nitrate free

Recreational Fishing

CVM Embedding Effects When There Are Active, Potentially Active and Passive Users of Environmental Goods, Dupont (2003)

Unspecified improvements to fishing

Contingent Valuation Methodology

Hamilton Harbour Watershed Area, Ontario, Canada (Data Collected in Fall 1995)

n/a

Willingness-to-Pay for improvements

$10.92 (passive user) - $39.47 (active user)

Overview Economic Assessment of Remedial Action Plans for the Great Lakes’ Areas of Concern, Apogee (1990) (MOE document)

Estimate of consumer surplus for recreational fishing trips


Mail survey of anglers on Lake Michigan

n/a

Value of recreational fishing on the Great Lakes

$70/angler-day

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Study


Measure(s) Included


used



Type of Values

Considered


Survey of Recreational Fishing in Canada Selected Results for the Great Lakes Fishery 2005, Fisheries and Oceans Canada (2008)

Estimates of values directly related to recreational fishing on the Great Lakes

Data collection via questionnaires from recreational anglers

Over 16,000 questionnaires sent via mail in 2005 to households within Canada and other countries (response rate unknown)

n/a

Value of recreational fishing activities on Great Lakes

$230 million directly attributed to rec. Fishing activities on Great Lakes in 2005 $244 million in additional value dispersed in region on direct recreational fishing expenditures

Valuation of Angling, DSS Management Consultants Inc. 2008

Estimate of consumer surplus for recreational fishing trips

Travel Cost Method

Credit Valley watershed (2006-2007) n/a

Average value of an angling trip in the

$9 to $155

Hunting

Benefit Transfer of Outdoor Recreation Use Values, Rosenberger (2001)

Estimates of hunting values

This study is an overview of average consumer surplus values found in the literature for outdoor recreation activities

Literature review of 13 studies and 59 estimates carried out over the time frame 1967-1998

n/a

Consumer surplus per waterfowl hunting activity per day

$3.79-$250.60/activity day/person

The Importance of Nature to Canadians: The Economic Significance of Nature-Related Activities, Environment Canada (2000)

Estimates of values directly related to hunting in Canada

Survey data from anglers in Canada

Derived from results of 20 million Canadians surveyed in 1996

n/a

Value of waterfowl and other bird hunting

$11.07/day economic value of hunting ‘other birds’ in Canada $18.79/day economic value of hunting waterfowl in Canada

Industrial Water

Water Use, Shadow Prices and the Canadian Business Sector Productivity Performance, Dachraoui, and Harchaoui (2004)

Economic value of water

Econometric estimation of waters input value

Statistic Canada’s KLEMS database (1981-1997)

n/a

Value of intake water for the manufacturing and commercial sector

Manufacturing: Range from $0 to 1.50/m3 (average of $0.35/m3) Commercial: $0.59/m3

Heating and Cooling

Industrial Water Use Survey, Scharf, Burke, Villeneuve and Leigh (2002)


Simple average calculation Statistic Canada’s

Industrial Water Use Survey

n/a

Average intake cost for Ontario’s thermal power generating plants

$0.39/m3

Agricultural Water

Report on the Impact of Water Policy Changes on Agricultural Producers in Ontario A Case Study of Big Creek Watershed, To (2006)


Estimates of water use and value were made using the yield response method.

Big Creek watershed (2000-2004)

n/a

The short term value of water in August for agriculture

Potatoes - $0.39 Sweet corn - $0.20 Tobacco - $1.13 Tomatoes - $1.16 Apples - $1.43 Ginseng - $3.47 Carrots - $0.38 Cabbage - $0.47 Strawberries - $0.54 Peppers - $0.83 Squash, pumpkins and zucchini - $0.33 Cucumbers - $0.45 Cauliflower - $0.68

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Study


Measure(s) Included


used



Type of Values

Considered


Commercial Fishing

Recreational Boating


Unspecified improvements to recreational boating



n/a



Valuing the Ottawa River: The Economic Values and Impacts of Recreational Boating, Hushak (2000)

Removing contaminated sediments


Three sets of surveys from recreational boaters using the Ottawa River (301), recreational boaters who resided within the area (300), and recreational businesses (77)

n/a

Value of cleaning up contaminate sediment in Ottawa River area

$66.53 WTP for dredging to remove contaminated sediments from the Ottawa River area

Economic Impact of the Canadian Recreational Boating Industry: 2006, Prepared by Genesis Public Opinion Research Inc. And Smith Gunther Associates for the CCMA (2007)

Direct and Indirect Economic impacts of recreational boating in Canada – not related to any restorative measures

Primary data from online surveys

Data collection via surveys in fall 2006-spring 2007

n/a

Value of recreational boating industry to Canada

$14 billion in direct expenditures in Canada for year 2006 (an estimated $5.1 billion in direct and indirect expenditures in Ontario)

Beaches and Lakefront


Unspecified improvements to swimming



n/a



Ontario’s Wealth Canada’s Future Appreciating the Value of the Greenbelt’s Eco-Services, David Suzuki Foundation (2008)

Recreational value of beaches

Not mentioned

Beaches in eco-region of Great Lakes

n/a Recreational value of beaches

$125 per hectare per year

The Value of Day Trips to Lake Erie Beaches, Sohngen (1999)


Travel-cost Method

2 Lake Erie Beaches: Headlands State Park beach and Maumee Bay State Park beach (survey carried out summer 1997)

n/a Economic value of recreation

$26 per trip for Headlands; $43 per trip for Maumee Bay (26-30% on travel expenses, rest to local economy)

A Valuation of Ecological Services in the Great Lakes Basin Ecosystem to Sustain Healthy Communities and a Dynamic Economy, Krantzberg (2006)


Interpolation from US Values

Ontario Great Lakes Beachgoers (interpolated from Shaikh (2004))

n/a Economic value of recreation

$210-$262 M per annum ($50 / day at the beach)

Aesthetic and Amenity Values

Marbek B-5

Study


Measure(s) Included


used



Type of Values

Considered


Valuing Urban Wetlands: A Property Price Approach, Mahan et al. (2000).

Value of environmental amenities

Hedonic Price Method

Residential housing area in Portland, Multnomha County, Oregon. (1992 to 1994)

n/a

Value of various environmental amenities

Wetlands: Marginal implicit price of increasing the nearest wetland by one hectare is $104.41. Reducing the distance to the nearest wetland by 1,000 feet increases the house value by $690.45 Lakes: Reducing the distance to the nearest lake by 1,000 feet increases the house value by $2,705.94

The Influence of Wetland Type and Wetland Proximity on Residential Property Values. Doss and Taff (1996)



Ramsey County, Minnesota (1990)

n/a

Value of various environmental amenities

Lakeview $75,724 Wetland: Moving 200 metres closer to an open water wetland increases house value by $3,260.

Valuing Estuarine Resource Services Using Economic and Ecological Models: The Peconic Estuary System Study, Johnston et al. (2001)



Peconic Estuary System of Suffolk County, New York

n/a Value of preserved open space

Open space: Land located adjacent to preserves open space is on average 12.8% higher per-acre than similar land elsewhere.

The Impact of Natural Features on Property Values, DSS Management Consultants, 2009



South and North Mississauga (2003-2005)

n/a

Increase in house prices due to various natural features.

1.9% to 4.7%

Wildlife Watching


Estimates of wildlife values



n/a

Consumer surplus per wildlife watching activity per day

$4.14 - $282.53/activity day/person

The Importance of Nature to Canadians: The Economic Significance of Nature-Related Activities, Environment Canada (2000

Estimates of values directly related to wildlife watching in Canada

Survey data from wildlife watchers in Canada

Derived from results of 20 million Canadians surveyed in 1996

n/a Value of wildlife viewing

$1.7 billion spent in 1996 on wildlife viewing $338/year average expenditure on wildlife viewing by Ontarians

Economic Values of Bird Watching at Point Pelee National Park, Canada, Hvenegaard (1989)

Economic value of bird watching (not related to improvements)

Travel-cost Method

Data collected via random personal interviews with 603 birdwatchers in 1987 (96% response rate)

n/a Value of bird watching

$107/day daily expenditure for bird watching trips to Point Pelee

Other Recreation/Tourism Benefits

Marbek B-6

Study


Measure(s) Included


used



Type of Values

Considered



Estimates of other recreational values



n/a Consumer Surplus per activity

Camping: 2.97-328.31 Picknicking: 13.60-208.71 Sightseeing: 0.95-306.73 Off-road driving: 7.67-59.03 Hiking: 2.74-383.16 Biking: 30.90-110.33 Downhill skiing: 22.00-92.28 Cross-country skiing: 20.53-70.75 Snowmobiling: 63.57-181.96 Horseback Riding: 26.49-26.49 Rock Climbing: 52.32-150.44 General Recreation: 2.07-376.53 Other Recreation: 8.35-302.39

Commercial Navigation

Hydropower Production

Gas Regulation

Lake Simcoe Basin’s Natural Capital: The Value of the Watershed’s Ecosystem Services, Wilson (2008)

Gas Regulation

Lake Simcoe watershed wetlands (2005)

n/a

Economic value of carbon storage in wetlands

$560 to $1,392 per hectare per year

Gas Regulation


n/a

Economic value of carbon sequestration by wetlands

$14 per hectare per year

Local Climate Regulation

Water Regulation

Lake Simcoe Basin’s Natural Capital: The Value

of the Watershed’s Ecosystem Services,

Wilson (2008)

Benefits of forest cover

Replacement cost approach

Lake Simcoe watershed

wetlands (2005)

Annual value of water

regulation service of

forest cover in the Lake

Simcoe watershed

$2,016/yr/ha

Ontario’s Wealth Canada’s Future Appreciating the Value of the Greenbelt’s

Eco-Services, David Suzuki Foundation (2008)

Benefits of forest cover


Ontario’s Greenbelt

Annual value of water

regulation service of

forests and wetlands in


$1,628/yr/ha

Disturbance Prevention

Ecological Fiscal Reform and Agricultural Landscapes, Analysis of Economic Instruments: Conservation Cover Program, Belcher et al. (2001)

Converting agricultural lands back to natural cover


Grand River Watershed (2001)

n/a

Economic value of flood control of forests

$5.61 per hectare per year

Marbek B-7

Study


Measure(s) Included


used



Type of Values

Considered


The value of the world's ecosystem services and natural capital, Costanza et al. (1997)

Flood Control

Benefit transfer from various valuation studies

Global n/a

Economic value of flood control of wetlands

$13,367 per hectare per year

The economic value of wetland services: A meta-analysis, Woodward and Wui (2001)

Flood Control Meta-Analysis of 39 valuation studies

Global n/a



The Value of Natural Capital in Settled Areas in Canada, Olewiler (2004)

Flood Control Cost of replacement Method

Two Western Washington communities currently experiencing frequent flooding, Lynnwood and Renton

n/a


$444 to $2,305 per hectare per year

Water Supply

An Assessment of the Ecological and Economic Value of Groundwater: Town of Caledon Case Study, Troyak (1996)

Avoided cost of pumping water from Lake Ontario


Town of Caledon, ON

n/a Economic value of water supply

$7.00 per cubic metre

Estimating Ecosystem Services in Southern Ontario, Troy and Bagstad (2009)

Water Supply Avoided Cost

Charles River Basin, Boston, Massachusetts (1981)

n/a

Annual value of water supply provided by fresh water wetlands.

$49,057.95/yr/ha

Water Supply Contingent Valuation Method

Albemarle-Pamlico National Estuary., North Carolina

n/a

Annual value of water supply provided by estuaries and tidal bays.

$45.45/yr/ha


Water Supply Replacement cost approach


n/a

Annual value of water filtration service of forests and wetlands in

$506/yr/ha

Soil Retention


Coastal Protection

Not mentioned Lake Huron coastline

n/a Structural replacement cost

$2,138/m

Shore Protection

Not mentioned 3 km of Sauble Beach dunes and beach front

n/a

Value of shore protection by beaches and dunes

$6 M

The Offsite Impact of Soil Erosion on the Water Treatment Industry, Holmes (1988)

Sediment treatment costs

Avoided cost Survey of the 400 large utilities in the U.S. (1984)

n/a

Benefits of avoided costs of sediment loading

1 percent increase in sediment loading, water treatment costs increase 0.05 percent.

The economics of erosion and sediment control in southwestern Ontario, Fox and Dickson (1990)

Sediment treatment costs

Avoided cost

Southern Ontario (applied to Grand River)

n/a

Benefits of avoided costs of sediment loading

$14.28 to $42.85 per tonne of sediment (with a mean of $28.57)


Dredging costs

Did not mention

U.S. (1989) Cost of dredging

n/a $2.77 a tonne

Waste Treatment

Marbek B-8

Study


Measure(s) Included


used



Type of Values

Considered


A Valuation of Ecological Services in the Great Lakes Basin Ecosystem to Sustain Healthy Communities and a Dynamic Economy, Krantzberg (2006)

Value of human exposure to methyl mercury

Interpolation from US Values

Canadian residents in Great Lakes Basin. (Data taken from various US reports)

Human health costs of expose to mercury.

n/a $116 to $334 million

Estimating willingness to pay for additional protection of Ohio surface waters: contingent valuation of water quality, Irwin et al. (2007)

Protection of Ohio’s surface waters


Ohio n/a

WTP for setting aside a certain percentage of “available pollutant assimilative capacity” of Ohio’s surface waters

Per capita values are $75.29, $68.99, $81.60 and $79.50 for 25%, 50%, 75% and 100% set aside

Estimating Willingness to Pay for Improved Water Quality in the Presence of Item Nonresponse Bias, Brox et al. (2003)

Hypothetical improvement in water quality to meet all existing pollution standards


Grand River Watershed, Ontario, Canada

n/a

WTP for major and minor water quality changes. WTA for major water quality changes

$6.09 to $11.07 per month for major and minor changes and a WTA of $12.57 per month for a major change.

Same as above

Same as above Same as above n/a

Willingness to fund a one-time investment in a capital project for water quality improvements. Assume a 5% discount rate and a 35 year lifetime of the project

$1,869 per household

Nutrient Cycling


Avoided waste treatment costs in the presence of wetlands.



n/a

Economic value nutrient control by wetlands



Avoided waste treatment costs in the presence of wetlands.


Ontario estimates (1997)

n/a

Estimated cost of waste treatment plant to remove phosphorous.

$5.6 to $556 per kilogram of phosphorous

Habitat, Refugium and Nursery


Habitat

Restoration costs of wetlands where habitat was identified as the sole objective

Rouge Watershed Wetland Creation Project, Humber Bay Shores Butterfly Meadow, and the Granger Greenway Habitat Enhancement project (2006)

n/a

Economic value of wetland habitat

$6,234.14 per hectare per year

Marbek B-9

Study


Measure(s) Included


used



Type of Values

Considered


Valuating Wetland Benefits compared with Economic Benefits and Losses, IJC Study Board (2006)

Habitat

Restoration costs of wetlands where habitat was identified as the sole objective

16 Great Lakes Sustainability Fund wetland habitat restoration projects (2006)

n/a


$2,184.40 per hectare per year. This is an average value weighted by the relative size of each project.

Economic Linkages Between Coastal Wetlands and Habitat/Species Protection: A Review of Value Estimates Reported in the Published Literature, Kazmierczak (2001)

Habitat

Summarizes a total of 8 peer-reviewed studies published from 1975 to 2001.

Global n/a

Economic value of wetland habitat and species protection


The value of the world's ecosystem services and natural capital, Costanza et al. (1997)

Habitat

Benefit transfer from various valuation studies

Global n/a



The economic value of wetland services: A meta-analysis, Woodward and Wui (2001)

Habitat Meta-Analysis of 39 valuation studies

Global n/a


$1,363.79 per hectare per year

The economic values of the world’s wetlands, Schuyt and Brander (2004)

Habitat Meta-Analysis of 89 valuation studies

Global n/a



Non-Use Values

Measuring the Economic Benefits of Saginaw Bay Coastal Marsh with Revealed and Stated Preference Methods Whitehead et al., (2009)

Coastal marsh protection


Saginaw Bay watershed, Michigan (Data Collected between February and June of 2005)

n/a Willingness-to-Pay

The present value of recreation nonusers is $635 per acre

Toward Total Economic Valuation of Great Lakes Fishery Resources, Bishop et al., (1987)

Non-use values of endangered species


Wisconsin residents (1984)

n/a Willingness-to-Pay

Annual per capita nonviewer’ values were $25.96 to $75.25 for Bald eagles and $10.17 to $13.84 for the striped shiner

Estimation of the Passive Use Value Associated with Future Expansion of Provincial Parks and Protected Areas in Southern Ontario, Sverrisson (2008)

Non-use values of protected woodlands


Demographically representative panel of Ontario (August 2007)

n/a

Willingness-to-Pay for an increase in protected areas

$113.44 for a 1% expansion, $192.93 for a 5% expansion and $236.41 for a 12% expansion

Assessment of Proposed Remedial Action Plans for Hamilton Harbour, Marshall Macklin Monoghan Limited and Peat Marwick Consulting Group. (1988)

Non-use values of recreational benefits

Not known, could not obtain method.

Hamilton Harbour Watershed Area, Ontario, Canada (1986)

n/a

Willingness-to-Pay for improving water quality conditions to permit swimming and improve fishing conditions

$167 per household per year

Area’s of Concern

Marbek B-10

Study


Measure(s) Included


used



Type of Values

Considered


The Effect of a Gated Community on Property and Beach Amenity Valuation, Pompe (2008)

Complete cleanup of AOC site


South Carolina coastal communities (2002 to 2005)

n/a Values of environmental amenities

Waterfront: Add 53.5% to house values Waterview: Add 36.6%% to house values Marshland: Add 19.4% to house values

Who Cares about Environmental Stigmas and does it Matter? A Latent Segmentation Analysis of Stated Preferences for Real Estate, Patunru et al. (2007)


Conjoint choice experiment

Waukegan Harbour, Illinois (2002)

n/a

WTP of Waukegan homeowners for full cleanup.

20 percent increase in housing stock value

Contaminant Cleanup in the Waukegan Harbor Area of Concern: Homeowner Attitudes and Economic Benefits, Braden et al. (2004)



Waukegan Harbour, Illinois (1999 to 2001)

n/a

Value to homeowners of complete AOC cleanup

16 to 19 percent increase in property values in the City and as much as 25 percent increase in property prices in the remainder of the county



Waukegan Harbour, Illinois (2002)

n/a

Mean WTP for full cleanup of AOC (2000 $US)

Waukegan resident: $4,088/household/year Non-Waukegan resident: $11,849/household/year

Economic Benefits of Remediating the Buffalo River, New York Area of Concern, Braden et al. (2008a)



Buffalo River, NY AOC (2002 to 2004)

n/a

Decrease in home price due to proximity to AOC

5.4% of market value



Buffalo River, NY AOC (2002 to 2004)

n/a

Mean WTP for full cleanup of AOC

11.4% of market value

Economic Benefits of Remediating the Sheboygan River, Wisconsin Area of Concern, Braden et al. (2008b)



Sheboygan County, Wisconsin 2002 to 2004)

n/a


8% of adjusted assessed market value



Sheboygan County, Wisconsin 2002 to 2004)

n/a

Mean WTP for full cleanup of AOC

10% of the sale price

The Effects of RAP Related Restoration and Parkland Development on Residential Property Values – A Hamilton Harbour Case Study, Zegarac and Muir (1998)



Hamilton Harbour AOC, Canada (1983 to 1996)

n/a


12% decrease in home price compared to homes more than 1 km from the harbour.

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