Trucost News / 04 Mar 2013

Valuing water to drive more effective decisions

Yarra Valley Water engaged Trucost to estimate the ‘value of water’ and develop a White Paper report 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.

During a drought the value of water becomes topical. However in times of plenty, access to a reliable water supply is often taken for granted. So does the value actually change, and if it does, how much does it change? Would we make different decisions about how we invest in infrastructure and manage water resources, knowing this value?

With these and many more questions in mind Yarra Valley Water engaged environmental economics experts Trucost to undertake research to estimate the ‘value of water’ and develop a White Paper Valuing water to drive more effective decisions for discussion in Victoria, Australia and internationally. Trucost is recognised as global experts in the field of valuing natural capital and translating the results to aid business decision-making. Trucost is based in London and has undertaken projects for large corporations such as Puma and the United Nations Environment Programme.

Managing Director, Yarra Valley Water Tony Kelly said, ‘We wanted to explore the idea of attributing a more accurate value to water through both dry and plentiful times. This value would include externalities and help us to make the right decisions when evaluating servicing options and help to support sustainable management of our most precious natural resource. The resulting value of water would take into consideration not only the traditionally costed items such as pipes, pumps and tanks but place a value on a range of external costs.

In the resulting White Paper, Trucost has assessed the impacts on the environment and used internationally-recognised methodologies to determine a broader value of water. We are launching this report to open up the discussion on the true value of water.

According to Trucost’s White Paper, river water is undervalued in Melbourne. It estimates the value of water to the community and the environment could be more than double the market price of water used in traditional economic decision making. The report also produces an estimate for the total capital value of the natural assets provided by Melbourne’s water. Trucost estimate this to be in the order of AUD2 billion. This is approximately double the revenue Melbourne water retailers’ recovered in sales during 2010-2011. Interestingly, the research also highlights that the true value of water to Melbourne fluctuates from year to year, depending on the relative percentage of river flow extracted. In the study period of 2003-04 and 2010-11, the value varied five fold.

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. This could lead to improvements inefficiency and allocating resources more effectively to ensure we protect one of Melbourne’s most precious assets – its water. It raises questions about how environmental values can be incorporated into infrastructure decision making such that we can sustain our water supplies for current and future generations

Trucost Research Editor Liesel van Ast said: “Valuing water as natural capital provides a business management tool to strengthen resource efficiency. Accounting for environmental impacts provides a more complete picture of risk and uncertainty to help make operations and supply chains more resilient.”

The importance of this work rests not only on quantifying the value of water, but also exploring how the results can be translated into pragmatic decision-making. Valuing the benefits of water provides one possible approach to improve decisions. Ecosystem services could be incorporated into business risk and opportunity management, information management and accounting systems. Valuation of the consequences of changing water allocations and water management provides decision-makers with a more complete picture of how resources allocations can be reconciled with economic, environmental and social needs. Using the Trucost methodology, companies can recognise broader water values on financial statements and consider potential opportunity costs, for instance, returns from investment in ecosystem assets such as wetlands and watershed basins.

‘Comprehensive valuation of ecosystem services is not yet a precise science, but the process illuminates the potential stakes and provides good comparable indications of where priorities should lie’;. United Nations World Water Development Report 4; Managing Water under Uncertainty and Risk, 2012.

Recognising that using this research is utilising a relatively new concept to value water, the report is presented as a White Paper, inviting discussion, review, and comment. It is only when we can incorporate all of the externalities associated with the provision of water that we can deliver the best outcome for our present community, and leave a legacy to safeguard natural assets for future generations.

Download White Paper: Valuing water to drive more effective decisions


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