White Paper: Valuing water to drive more effective decisions
03 April 2013
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Yarra Valley Water asked Trucost to estimate the "value of water" in Melbourne and develop a White Paper for discussion in Victoria, Australia and internationally. The research found that:
- Saving one cubic metre (m3) of water delivers an economic gain of AUD6 through avoided damages to the environment. This average value for water, which reflects its role in supporting natural capital, is far higher than the price of under AUD2 that consumers and businesses in Melbourne pay for water. Decisions around water supply and use are based on market prices and therefore undervalue options that deliver water savings and support ecological functions.
- The role of groundwater in storing supplies and generating ecosystem goods and services is particularly valuable, at AUD4.85 per m3
- The value of water varies widely over the eight years to 2010-11, reflecting variability in water scarcity levels. The study shows that the value of water to Melbourne ranged from AUD2 per m3 in wetter years to AUD 9 per m3 in the year with the biggest gap between water use and available resources (2006-07).
- At these rates, the value of water as a natural asset used in Melbourne ranges from AUD570 million to AUD3 B over the eight-year period. It is likely to be more cost-effective to protect resources than to incur the high costs of shortages.
- Developing a framework to include the indirect value of water in decision-making could strengthen resource management.
Given the high level of water scarcity in Melbourne, decisions on water use should consider the total economic value of water. The water industry and policy makers can consider environmental valuations in decision-making to deliver water efficiency and more effective resource allocations that help address water scarcity without impacting wellbeing or industry revenues.
Why did Yarra Valley Water commission the research?
The White Paper aims to spark discussion among stakeholders in the water industry, regulators and researchers to assist in integrating the total economic value of water into decision–making. Yarra Valley Water commissioned Trucost to calculate the value of water to Melbourne. The resulting White Paper reveals that the value of water to the environment is much higher than water prices in Melbourne. Water is therefore undervalued in decision-making on options to manage resources. The Paper calls on the water industry, regulators and researchers to develop new approaches to evaluate water so that decision-making considers the true costs and benefits of infrastructure, technologies and practices that conserve water.