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Economic Currents

Keep up to date with the latest UHERO news.

The Water-Energy-Food Nexus

The water-energy-food nexus is one of the most important and fundamental global environmental issues facing the world today. The US Geological Survey estimates that the United States used 201 billion gallons per day (bgd) of freshwater for thermoelectric power generation and 128 bgd for irrigation in the year 2005. Combined, energy generation and irrigation accounted for roughly 80% of all water withdrawals over that period. At the same time, energy is a key input for the production of freshwater. A 2006 study prepared for the California Energy Commission estimated that the electricity required to process one million gallons of water in a typical urban water system ranges from 4,000 kWh per million gallons in Northern California to 12,700 kWh in Southern California, and water-related energy use comprised over 19% of total energy use in the state. Although the wide range in values suggests that water-related energy use depends on a variety of location-specific factors, the interconnectedness of the resources is clear.

As demand for each of the resources grows, examining tradeoffs will become especially important. For example, biofuels may be developing into a viable alternative to petroleum, but the implications for water resources will be considerable. The UHERO Project Environment team will be working with the Research Institute for Humanity and Nature to develop a framework capable of quantifying such tradeoffs. The project will focus heavily on coastal regions in the Asia-Pacific “Ring of Fire”. For more on economic approaches to water and energy management, visit UHERO’s Project Environment.

---Christopher Wada

Coastal Zone Management in Hawaii

Hawaii has 750 linear miles of coastline that include all of our beaches, an array of cliffs, bays and other features that count among our most treasured natural resources. Development of these resources is a key source of economic growth, but ensuring that this development is carried out in a manner that preserves, protects and (where possible) restores them is important for their long term value.

Since 1975 a permitting system administered by each county has been the primary vehicle for managing development of the coastal zone. To support decision making in the permitting process, The UHERO Project Environment team collaborated with the State Office of planning to review the way benefits provided by the program are evaluated.

Project Environment was asked to identify a set of key ecosystem services to study, selecting the services on the basis of their measurability and expected value. The final list included public access, beach and shoreline protection, marine resources, and scenic and open space. Other important but difficult to measure benefits, discussed but not incorporated in the methodological assessment, include those related to cultural values and practices.

The UHERO team visited various project sites in each of the four counties across the state and concluded that benefits of the permitting process are very site-specific, rendering a statewide assessment via benefit transfer – a valuation method that adjusts estimated values from studies completed in other locations – impractical. Instead, original valuation methods were recommended for each site, depending on the type of ecosystem service protected or enhanced, site characteristics, and the type and number of users, among other things. For example, an encroachment removal and dune restoration project at Charley Young Beach (Kihei, Maui) was estimated to have doubled the usable beach width, while expanding view corridors, reducing erosion, and replenishing sand dunes. Estimating the value of each of those benefits requires different data and methods.



The final report discusses potential valuation methods for seven case studies throughout Hawaii, and includes a primer on valuation methods, with pros and cons, as well as data requirements for each. For more on economic valuation of environmental services in Hawaii, visit UHERO’s Project Environment.

-- Christopher Wada

What is a Watershed and Why Does it Matter?

Over the years, the term “watershed” has evolved from signifying the divide separating one drainage basin from another to the drainage basin itself. A drainage basin or catchment area is a section of land drained by a river and all of its tributaries. Watersheds come in all shapes and sizes, and the U.S. Environmental Protection Agency estimates that there are 2,267 watersheds in the United States and Puerto Rico alone. In Hawai‘i, much of the water captured in our watersheds eventually drains into subsurface groundwater aquifers.

Watershed conservation activities (e.g. feral animal control, non-native weed control, native reforestation) can increase the amount of water captured as groundwater recharge, which is especially important given that groundwater provides 99 percent of Hawaii’s domestic drinking water. The benefit of a healthy watershed becomes even clearer when one considers the increasing trend in water scarcity owing to a growing population, rising per capita income, and climate change. Ecosystem services generated by a watershed area extend well beyond groundwater recharge provision, however.

A previous UHERO study estimates that the present value of ecosystem services generated by natural capital embodied in the Ko‘olau Watershed is in the range of $7.4-14.0 billion, assuming that the state of the watershed remains at the status quo and groundwater is optimally managed. While the benefits associated with water resources ($4.7-9.2 billion) are by far the largest, a variety of other ecosystem services also generate substantial value: species habitats ($0.5-1.4 billion), biodiversity ($0.7-5.5 million), subsistence ($34.7-131 million), hunting ($62.8-237 million), aesthetic values ($1-3.1 billion), commercial harvest ($0.6-2.4 million), and ecotourism ($1-3.0 billion). Other services which are difficult or impossible to quantify, such as cultural importance, increase the total value further.

-- Chris Wada

Financing Watershed Conservation without Shrinking the Economy

In his recent State-of-the-State address, Governor Abercrombie urged lawmakers to consider either an increase in the conveyance tax on high-priced real estate transactions or a 10-cent fee for single-use plastic checkout bags to finance his watershed protection initiative, “The Rain Follows the Forest,”

The proposed taxes, however, have a downside. While they are expected to generate $10 million and $15 million respectively, such taxes can shrink the economy unnecessarily by discouraging investment and artificially raising the price of basic needs.

Nonetheless, a healthy watershed is critical and preserving it requires a stable financial foundation. We describe and analyze one financing alternative in a new UHERO research paper. We found that by financing conservation investments with bonds and paying back those bonds out of a portion of increased benefits to groundwater consumers, the watershed initiative can be realized in a win-win fashion. Unlike the proposed bag and real-estate taxes, there would be no adverse consequences for the economy, yet the environment would still be improved, and water users in both the present and the future are made better off.

A variety of ecosystem services, including groundwater recharge, improved water quality, climate control, recreation, scenic amenities, and cultural values all rely on a healthy watershed. The State Legislature has already recognized the importance of these services by partially funding Governor Abercrombie’s watershed protection initiative in 2012. The question of how to finance the rest of the $11 million per year investment over the next ten years, is hopefully informed by this research.

Roumasset, J., Wada, C.A., 2013. A dynamic approach to PES pricing and finance of interlinked ecosystem services: Watershed conservation and groundwater management. Ecological Economics 87, 24-33.

James Roumasset and

Christopher Wada


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Financing Watershed Conservation

In November 2011, Governor Abercrombie and State officials launched a watershed protection plan entitled, “The Rain Follows the Forest”. The initiative’s goal is to double the current level of watershed protection – approximately 10% of priority watershed areas throughout Hawai‘i are currently protected – over the next ten years at an estimated cost of $11 million per year. Restoration actions would include construction and maintenance of fencing, feral ungulate removal, invasive plant control, and reforestation of native species.

The projected annual cost of $11 million is a large step up from the $1.25 million that was allocated to the 11 watershed partnerships across the State in 2011. However, a study commissioned by the State Department of Land and Natural Resources (DLNR) and undertaken by OmniTrak Group, Inc. in October 2011 found that 78% of survey respondents from a sample of Hawai‘i residents were supportive of such an increase. The result seems to suggest that the public recognizes the need to protect the source of our freshwater and the benefits such actions would provide.

UHERO research was prominently featured in DLNR’s legistative initiative. The DLNR Fact Sheet  notes that one of the most measurable benefits of watershed protection is enhanced groundwater recharge, citing a 2004 UHERO study (Pitafi and Roumasset) showing that a mere 1% loss in recharge in the Ko‘olau Mountains could cost O‘ahu $42 million in present value. The report also cited another UHERO study (Roumasset et al.) that estimated that the total net present value of ecosystem services provided by the Ko‘olau forests is between $7.4 and $14 billion. When considering the fact that forests are also important for water quality, climate control, biodiversity, and cultural, aesthetic, recreational, and commercial values; the benefit-cost ratio of watershed conservation investment is extremely high -- especially compared to physical infrastructure projects being pursued by the State and local governments.

As of May 2012, the State Legislature has partially funded the watershed protection initiative with $2.5 million in Capital Improvement Projects (CIP) funds and $2.5 million in special funds. Governor Abercrombie’s office again acknowledged UHERO’s research in the announcement of the State watershed action plan, which calls for increased funding in future years. Bond financing watershed conservation through the CIP program is an important precedent. Like building roads and schools for the future, investing in natural capital such as our watersheds increases net present value by ensuring that valuable ecosystem services are sustained in the long run.

In the future, DLNR will be seeking to put the initiative on more sustainable financial footing and plans to work with UHERO on examining alternative methods of finance. One possible item for future consideration is the extent to which watershed investment should be paid for by direct beneficiaries of the additional captured recharge. Much of the benefits generated would accrue to future water users, who will face higher water prices due to rising costs and increased water scarcity. A recent UHERO study (Roumasset and Wada) outlined a method for determining the benefits of watershed conservation by year and constructing a tax structure to pay off the requisite bond, based on the proportion of benefits received by each generation. One way to implement the tax is an appropriate adjustment of the rate schedule for water use.

--James Roumasset and Christopher Wada

Pitafi, B., J. Roumasset. 2004. Watershed Conservation and Efficient Groundwater Pricing. Prepared for the Agricultural and Applied Economics Association Annual meeting, Denver, CO, 2004. University of Hawai`i at Mānoa.

Roumasset, J., J.B. Kaiser, N. Krause, D. Mecham and J. Wooley. 1998. Environmental Valuation and the Hawaiian Economy. University of Hawai‘i Economic Research Organization.

Roumasset, J., C. Wada. 2010. A dynamic approach to the pricing and finance of interlinked ecosystem services: Watershed conservation and groundwater management. UHERO Working Paper Series #2010-12.


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