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Economic Currents

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Economic Analysis of the Water-Energy-Food Nexus: My Visiting Research Fellowship at the Research Institute for Humanity and Nature in Kyoto, Japan

Posted July 30, 2015 | Categories: Blog, Project Environment

Earlier this year I had the opportunity to work with an interdisciplinary team at the Research Institute of Humanity and Nature (RIHN) on a Visiting Research Fellowship examining “Human-Environmental Security in Asia-Pacific Ring of Fire: Water-Energy-Food Nexus." Our objective was to design research frameworks for conducting water-energy-food economic analyses for three study sites in Japan: Obama, Beppu, and Otsuchi.

Synergies and tradeoffs among water, energy use, and food production should be considered by stakeholders and decision-makers looking to maximize the benefit from each resource. Economics can help to identify these tradeoffs by quantifying the benefits and costs of water, energy, and food-related projects over long planning horizons, as well as by optimizing allocations of these resources over multiple uses. During my research fellowship we developed frameworks for economic analysis of the water-energy–food nexus using examples from three case studies in Japan: water allocation over multiple uses in Obama, renewable energy production in Beppu, and construction of a dike in Otsuchi. Each of these case studies involves choices that will affect inherent linkages between water, energy, and food in each system. Failing to recognize these tradeoffs can result in sub-optimal allocation of resources with respect to the economy, the ecology, society and culture.

 

Obama is a city on the Sea of Japan in Fukui Prefecture, where groundwater is an important resource for a variety of uses including domestic use, melting snow, and fishery production (via submarine groundwater discharge). Over-allocation of groundwater towards above ground uses has implications on the important fishery resource near shore. An economically efficient solution is characterized by groundwater utilization paths over time that maximize net benefits across uses, explicitly considering how using water for one purpose reduces the availability of water for other purposes. Aside from the direct tradeoff between groundwater and the fishery, a key variable in the model is the price of energy, which affects the costs of both groundwater pumping and alternative snow-melting techniques. The team developed a bioeconomic optimization model that can be used to solve for optimal allocation of groundwater to each of these three uses over time.


Beppu is a city in Oita Prefecture best known for its high concentration of natural hot springs (“onsen”). Onsen are an important economic and cultural resource, whose use has significant implications on the surrounding society and ecology. Interest in small-scale renewable energy production using hot water and steam from the onsen (“onsen hatsuden”) has increased in recent years, especially following the Tokohu earthquake/ tsunami/ nuclear meltdown disaster of 2011. There are two primary types of onsen hatsuden being developed in Beppu: binary systems which are more productive but generate larger social and ecological damages, and the smaller scale yukemuri hatsuden which have a much lower production capacity but are less harmful to the surrounding ecosystem and society. We designed an economic approach to comparing the benefits and costs of each system.
 

Otsuchi is a small town in Iwate Prefecture in northern Honshu, one of the most impacted following the Tohoku disaster of 2011. Estimates of total economic losses from Tohoku range from $50-$210 billion USD. The research team developed an economic approach to assessing the benefits and costs of a government-financed dike being constructed with the intention of preventing similar losses following a natural disaster in the future. Benefits include the reduced risk of future losses, while costs include not only dike construction, operation and maintenance costs, but also loss of the groundwater connection between land and sea and the accompanying loss of mudflat habitat and associated oyster, abalone, and seaweed fisheries.

While the frameworks for the economic analyses have been developed, the science to properly parameterize the models is still being conducted at our three study sites. We will continue to improve our models and complete the analyses as more data becomes available. The 5-year/5-country (also U.S, Canada, Indonesia, and the Philippines) project will conclude in 2018.

Kimberly Burnett


PV Growth in Hawai'i?

Public comments regarding Hawaiian Electric’s PSIP and DGIP were due last week. Here’s a recap of what Hawaiian Electric has proposed for rooftop solar PV.

Hawai'i is characterized with small island electricity grids and some of the highest rates of solar PV penetration in the world. With over 10% of O'ahu households having PV, exceeding that of any mainland utility, the Hawaiian Electric Company and its subsidiaries have recently stalled the interconnection of new systems. The Hawai'i Public Utilities Commission ordered that further study be completed that might facilitate the adoption of more solar PV in Hawai'i. Along with circuit and power system upgrades, Hawaiian Electric's Distributed Generation Improvement Plan (DGIP) devises an alternative rate design that increases the interconnection fee and makes it more favorable to the utility to allow more households to install solar PV. Hawaiian Electric projects that DG customers could triple to upwards of 900 MW, while reducing the cost shift to non-DG customers, which they estimate to the tune of $38 million in 2013, or $31 for each non-DG customer.

In Hawaiian Electric's proposed tariff structure, referred to as "Gross Export Purchase program," all residential customer groups—current Net Energy Metering (NEM) customers, “DG 2.0” customers, and “Full Service” customers (non-DG)—incur a fixed monthly charge of $55 and pay retail rate for any energy consumed from the grid. The idea of the Gross Export Purchase Program is to account for some combination of interconnection and grid service charges. The first major proposal is to switch the NEM program to one where customers are compensated at wholesale rates rather than retail rates (similar to KIUC and many other utilities). This is to account for, as Hawaiian Electric puts it, “the value of DG to the grid.” Following the duck-shaped load curve, the bulk of electricity generation from DG occurs during the day, while peak consumption occurs in the late afternoon/early evening. Under the current rate structure, DG providers are providing “cheap” electricity while consuming “expensive” electricity. Current NEM customers will be grandfathered according to their original agreement (i.e. the utility pays retail rate in credits which expire at the end of the calendar year). Future NEM customers, called DG 2.0, will pay an additional monthly fixed charge of $16 and any excess electricity generated would be compensated at the lower rate of 16¢/kWh, reflecting that of wholesale rates.


Source: Hawaiian Electric Companies, 2014. Hawaiian Electric Power Supply Improvement Plan (PSIP).

The second proposal is to quicken interconnection for what is termed the “non-export option.” It allows customers to offset their electricity use so long as they do not send excess generation to the grid. The non-export option includes several variations. There are those that operate in parallel with the distribution system (grid-interactive) and with or without customer-side energy storage; and those that are independent from the grid (non-parallel operation) and with energy storage. A type of parallel non-export system without energy storage is an over-installed system under Hawaiian Electric’s Standard Interconnect Agreement—where there is a possibility for energy to “leak” back to the grid, though the customer receives no compensation. On the other hand, systems configured for non-parallel operation serve only an isolated load, thereby negating any possibility for reverse power flow into the distribution network. As filed in Docket 2014-0130, non-parallel systems are therefore eligible to bypass the full screening process under Rule 14H. Systems that have the potential to operate in parallel may also be granted expedited approval if reverse power protection measures, such as stand-alone inverters, is installed.

Will it Increase PV Installations?

The underlying question remains—will PV installations increase under Hawaiian Electric’s proposal? Certainly the change away from retail to wholesale rates for NEM customers, along with technical upgrades, increases utility revenue and its incentive to allow for more PV system connections. It also decreases potential customers incentive to install solar PV – though arguably the return on investment has been remarkably high and customers are still likely to install even if incentives decline slightly. Moreover, there is an element of increased fairness to non-DG customers through the revised NEM rates (assuming savings are passed through accordingly). So the answer is, it depends. On the continued decline of PV system costs, tax credits, the cost of battery technology and electricity rates. Whereas a decline in battery technology costs might lead to increased solar PV yet fewer connections to the grid, declining electricity rates would have the opposite effect. Within Hawaiian Electric’s proposal, they also project substantial cost savings primarily due to the introduction of LNG. This, however, is a more long-term endeavor than the granting of near-term solar PV permits.

- Sherilyn Wee and Makena Coffman


Understanding the Links Between Local Ecological Knowledge, Ecosystem Services, and Resilience

UHERO’s Project Environment has received funding from the National Science Foundation to participate in an interdisciplinary, international project that spans the natural and social sciences as well as the terrestrial and marine spheres. UHERO is partnering with scientists, resource managers, cultural practitioners and private landowners in Hawaii and Fiji. The project has two distinct parts; the first examines the relationship between local ecological knowledge and social, economic, and ecological outcomes across twenty rural villages in Fiji. The second part of the project explores the effects of different management and climate change scenarios on ecosystem services and indicators of resilience in three Pacific island watersheds.

For Part 1 of the project, we will focus on twenty rural coastal communities across four districts in Fiji. The team will collect household and village-level data within each of the four districts on ecological knowledge, customary skills and intergenerational knowledge. This will be matched to new and existing data collected from nearby forests and reefs. The goal is to develop an index of local ecological knowledge, as well as an index of social-ecological resilience, and examine relationships between these new indices and other ecological, social and economic outcomes. Of particular interest is the influence of local ecological knowledge on our indicators of resilience.



In Part 2 we will conduct three in-depth case studies at the watershed level, focused on quantifying ecological, cultural, and economic values of various land/ocean uses and covers, and their implications for resilience to climate change. The three watersheds were chosen where collaborators have long-term studies to leverage strong existing relationships with landowners, resource managers and users. The watersheds include Kaupulehu on the leeward coast of Hawaii Island, Haena on the north shore of Kauai, and Kubulau on southwestern Vanua Levu.

In each watershed we will collect new terrestrial data on vegetative composition, canopy cover, and indicators of habitat connectivity. Marine ecological surveys will include reef fish assemblages, benthic cover, species composition, biomass, and trophic structure. Ecosystem and cultural services for land and ocean uses will be calculated based on existing data, ecological characteristics, participatory mapping, and interviews.

To understand what combination of land-use practices best enhance social-ecological resilience under different climate change scenarios, we will evaluate the levels and resilience of ecosystem services under multiple future scenarios of climate change and management. These scenarios will represent a range of likely future climates crossed with a range of possible management decisions for each of the three watersheds. After developing an understanding of the ecological, cultural, and economic benefits of each of the management scenarios, we will then assess the costs of various management regimes under different climate change scenarios. The team can then identify a series of “optimum” scenarios – those that appear to maximize resilience indicators and emphasize the cultural, economic and ecological values identified to be of interest to the community members, land managers, and other stakeholders.

Our dual focus on Hawaii and Fiji provides a spectrum of cultural values and land and ocean uses, from functional agroforestry and traditional subsistence fishing in Fiji, to systematic habitat conservation and restoration in Hawaii. As a result, we can capture a wide spectrum of land management paradigms and their potential outcomes under different climate change scenarios, and our results can inform decision making elsewhere in Hawaii, in the Pacific, and throughout coastal areas more broadly.

-Kim Burnett and Cheryl Geslani


How Do We Measure Social-Ecological Resilience?

Two UHERO graduate researchers, Alex Frost and Cheryl Scarton, attended a field course about social-ecological resilience of island systems in Nadave, Fiji. Participants of the field course were students and environmental practitioners from places throughout the Pacifc like Fiji, Vanuatu, Micronesia and the Solomon Islands.

On day three of the field course, the group took an early morning boat ride to Viwa, an island community of 30 households that is largely food and water self-sufficient. The home stay experience immersed participants in a traditional village lifestyle to apply terrestrial and marine survey methodologies learned from previous days.

Based on western standards and traditional economic measure like income, labor, and production, Viwa would be considered impoverished. The residents’ primary income is through selling excess fish and crops at the market and organization of a home stay immersion program. The island has intermittent power at night from a diesel generator, water comes from a thoughtfully engineered catchment system, and the intermittent power limits access to television and Internet.

From a lens that focuses on social and natural capital versus human and financial capital, Viwa is ecologically and socially wealthy. There is strong community cohesion - every Monday is a rotating social work day, where residents take the time to help one family plant, weed or harvest. Everybody shares excess harvest and people have time for leisure and storytelling. They are always joking, laughing and singing. The knowledge of agroforestry and management of fisheries is passed down through observation and application between generations that do not harm the health of the soil and encourages biodiversity, both are key indicators of sustainability.

How resilient is Viwa island? The common definition of resilience is “the capacity of a system to absorb disturbances or shocks and adapt accordingly while still retaining the same function and structure (McClanahan et al. 2012).” Economically speaking, global financial collapse will probably not affect Viwa at all, but the increasing demand of marine resources from Asia is pressuring people to over harvest. Ecologically, it seems the biggest challenge is invasive species, but heterogeneity of the agroforestry system minimizes the spread of pests and disease, compared to monoculture agriculture. Additionally, they have social mechanisms in place to prepare for extreme events like hurricanes. The island is especially vulnerable to sea level rise, coral bleaching, and shifts in weather patterns (such as a long drought). The village residents are working to develop an extensive water infrastructure system in the future to connect water pipes with an adjacent island. Still, the village faces many social challenges. Younger generations are adapting to the expectations of the market economy by working off island, which leads to a loss of traditional ecological knowledge. Concurrently the growing island population requires further clearing of the land for more housing.

 Overall, the week-long intensive field course brought together faculty, students, and experts to disseminate and learn various methods and tools to measure social-ecological resilience. The forum encouraged network building between the University of Hawai’i and University of South Pacific. The variety of perspectives helped increase participant capacity to challenge existing mental models and assumptions. The experience inspired students to develop future interdisciplinary research on island resilience and identify opportunities to mitigate complex challenges that face Pacific nations, like the impacts of climate change.

- Alex Frost and Kim Burnett


UHERO 101.12: What is the Value of the Environment?

The Earth’s environment is divided into different combinations of living organisms and their nonliving surroundings: air, water and soil. These different organic communities are called ecosystems. Humans receive benefits from these ecosystems in the form of “ecosystem services”, a term that covers a range of benefits from artistic inspiration to soil detoxification. (See below for a list of example ecosystem services)*

In 1997 Robert Costanza and 12 other authors wrote an eye-opening article in Nature called “The value of the world’s ecosystem services and natural capital” (Costanza et al. 1997). It stoked interest in environmental valuation because of the $46 trillion/year value (in 2007 US dollars) it placed on the planet’s services. After factoring land use change the value of Earth's services in 2011 was updated to $125 trillion/year (in 2007 US dollars) (Costanza et al. 2014). The goal of Costanza et al. (1997) was not to commodify the environment, but more so to raise awareness to what these environmental benefits are worth in a capitalist market economy. The methods for arriving at these dollar figures were questioned and the valuation was controversial because some people are naturally inclined to ask…

How can you put a dollar value on the environment?

Putting aside the ethical question of assigning dollar values to experiences and connectivity with other people and nature, the below table sums up how previous academic research has addressed environmental valuation: 

 

These valuation methods are further described in Module 4, Session 2 of this training resource from The Economics of Ecology & Biodiversity (TEEB).

Prices of goods and services sold in markets can be used to arrive at a dollar value for certain aspects of the environment, but in the case that market values are not available, non-market based methodologies have been used to arrive at a value. Ecosystem service valuation is a relatively new field and researchers are collecting results from previous studies to help future researchers confirm what valuation methods work best for different ecosystem services (Ecosystem Services Valuation Database). A paper was written by De Groot et al. (2002) which includes a table of ecosystem functions and their compatibility with different valuation techniques to help guide in assigning a dollar value to ecosystem services. With some ecosystem services there are intrinsic values (such as existence values) that are hard to put into dollar terms. It doesn’t always have to be about money....

There is more than one way to value the environment

Ecosystem services do not have to be valued in terms of dollars. Any unit can be the common denominator such as time, energy, or freshwater, for example. Environmental valuation differs from financial valuation in that it is rarely done to account for an entity’s profit, it is done to account for alterations humans have made on the environment, or to help decision makers evaluate consequences of their actions. Farber et al. (2002) defines valuation as an assessment of trade-offs toward achieving a goal such as reduced carbon emission, increased habitat or improved water quality.

An important concept to keep in mind is that people do not directly benefit from ecosystems without human, social and built capital. The valuation of the environment’s natural capital must be parsed out from the entire interaction between people, communities and their built environment. It is only through institutions as well as human management and invention that we extract benefit from nature (Costanza et al. 2014). The scope, precision, techniques and units used in an environmental valuation depend on the purpose. Ecosystem service valuations are done at different spatial scales to suit different objectives such as raising awareness, national income and well-being accounts, specific policy analyses, land use planning, payment for ecosystem services, full cost accounting and common asset trusts. For more information on the field of ecosystem service valuation check out references below:

Ecosystem Services:
The Ecosystem Services Partnership
The Economics of Ecosystems & Biodiversity Initiative

Referenced Papers:
Costanza, Robert, Rudolf de Groot, Paul Sutton, Sander van der Ploeg, Sharolyn J. Anderson,
          Ida Kubiszewski, Stephen Farber, and R. Kerry Turner. 2014. “Changes in the Global
          Value of Ecosystem Services.” Global Environmental Change 26 (May): 152–58.           doi:10.1016/j.gloenvcha.2014.04.002.

De Groot, Rudolf S., Matthew A. Wilson, and Roelof MJ Boumans. 2002. “A Typology for
          the Classification, Description and Valuation of Ecosystem Functions, Goods and           Services.” Ecological Economics 41 (3): 393–408.

Farber, Stephen C., Robert Costanza, and Matthew A. Wilson. 2002. “Economic and
          Ecological Concepts for Valuing Ecosystem Services.” Ecological Economics 41 (3):
          375–92.

Robert Costanza, Ralph D’arge, Rudolf de Groot, Stephen Farber, Monica Grasso, Bruce
          Hannon, Karin Limburg, Shahid Naeem, Rpbert V. O’Neill, Jose Paruelo Robert G.
          Raskin, Paul Sutton & Marjan van den Belt. 1997. “The Value of the World’s Ecosystem           Services and Natural Capital.” Nature 387 (May): 253 – 260.

 - Cheryl Geslani

*(List comes from the Ecosystem Services Valuation Database)

Air quality regulation Fish Pollination of crops
Animal genetic resources Flood prevention Prevention of extreme events [unspecified]
Artistic inspiration Fodder Provisioning values [unspecified]
Attractive landscapes Food [unspecified] Raw materials [unspecified]
Biochemicals Fuel wood and charcoal Recreation
Biodiversity protection Gas regulation Refugia for migratory and resident species
Biological control [unspecified] Genetic resources [unspecified] Regulating [unspecified]
Biomass fuels Hunting / fishing River discharge
Bioprospecting Hydro-electricity Sand, rock, gravel. Coral
C-sequestration Industrial water Science / research
Capturing fine dust Inspiration [unspecified] Seed dispersal
Climate regulation [unspecified] Irrigation water [unnatural] Soil detoxification
Cultural use Maintenance of soil structure Soil formation
Cultural values [unspecified] Meat Solar energy
Decorations / Handicrafts

Microclimate regulation

Spiritual / Religious use
Deposition of nutrients Natural irrigation Storm protection
Disease control NTFPs [food only!] TEV
Drainage Nursery service Timber
Drinking water Nutrient cycling Tourism

Dyes, oils, cosmetics (Natural raw
material for)

Other ESS Various
Ecotourism Other Raw Waste treatment [unspecified]
Education Pest control Water [unspecified]
Energy other Pets and captive animals Water Other
Erosion prevention Plants / vegetable food Water purification
Fibers Pollination [unspecified] Water regulation [unspecified]
Fire prevention    

 


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