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No. 214: Socio-economic and sectoral economic analysis of the hydrological intervention in the Rural Development Programme (LDP) and European Maritime and Fisheries Fund (EMFF)

Hasler, B., Dubgaard, A., Eberhardt, J.M., Koed, A., Martinsen, L., Nielsen, J., Støttrup, J. & Wisz, M. 2016. Samfunds- og sektorøkonomisk analyse af vandmiljøindsatsen i Landdistriktsprogrammet (LDP) og Fiskeriprogrammet (EHFF). Analyse af mulighederne for at opgøre de økonomiske effekter baseret på det eksisterende vidensgrundlag. Aarhus Universitet, DCE – Nationalt Center for Miljø og Energi, 104 s. - Videnskabelig rapport fra DCE - Nationalt Center for Miljø og Energi nr. 214. http://dce2.au.dk/pub/SR214.pdf

 

Summary

The report describes and sums up on existing knowledge of the effects, values and costs associated with the implementation of three measures aimed at improving the quality of the aquatic environment. Two of the measures are the construction of wetlands and the set-aside of low laying fens which both are implemented under the Rural Development Programme (RDP). The third measure, which is implemented under the European Maritime and Fisheries Fund (EMFF), encompass a range of different measures aimed at improving the quality of the aquatic environment in streams. The purpose of the project and the report is to conduct welfare- and sector economic analyses of the implementation of the measures based on currently available data.

For the wetland and set aside measures the results of the analyses suggest that their implementation will lead to a welfare economic surplus; these results are considered quite robust. Hence the aggregate value of the benefits, which can be monetized, outweigh the costs independent of whether it is the upper or lower bound value estimates that are used. The difference between the lower and upper value estimates is significant for the GHG reductions, as well as for the nitrogen reductions and recreation. Accordingly, the size of the welfare economic surplus for each of the measures will vary significantly depending on which assumptions regarding the values of the different effects are chosen as the base for the calculations

For wetlands the analysis shows that the value of nitrogen reductions in itself is sufficient to ensure a welfare economic surplus. This result holds independent of whether it is the upper or lower bound value of nitrogen reductions that is chosen as the base for the value calculations. The value of GHG reductions and the value of changes in recreational opportunities are both significant for the implementation of wetlands. However, the extent to which the values on their own are sufficient to outweigh the implementation costs depends on whether the analysis is based on upper or lower bound value estimates.

For set aside the analysis shows that both the value of nitrogen and GHG reductions on their own are sufficient to outweigh the implementation costs. This result holds independent of whether the analysis is based on the upper or lower bound value estimates. Changes in recreational opportunities also contribute positively to the value of the set aside measure. However, the identified value interval is very broad, implying that there is significant uncertainty regarding the welfare economic value of the changes in recreational opportunities.

For the stream measures it has not been possible to assess the value of any of the expected effects. Based on an analysis of existing data it is estimated that implementation of the planned stream related measures is likely to lead to a ten-fold increase in the number of wild trout caught and brought home from Danish streams. The value of this expected increase cannot be assessed due to lack of estimates of the value of increases in the number of wild trout catches applicable in the present context. However, the magnitude of the estimated increase in recreational catches suggests that there will be a positive welfare economic effect of the stream measures. Assuming that the estimated ten-fold increase in recreational catches holds, it is calculated that a value of 115 DKK per kg trout caught will be sufficient to ensure a welfare economic surplus of the measure. Hence, at this unit value the aggregate value of the increased catches matches the implementation costs.

The results of the welfare economic and sector economic analyses are presented in Tables 0.1. and 0.2 in the report. It is noted that the analyses are based on the extent of implementation specified in the draft for the upcoming water management plans from December 2014 (”Udkast til Vandområdeplaner”, Naturstyrelsen, 2014). In cases where it is not possible to assess the values of the effects of the measures, the effects are assessed in qualitative terms. Based on these qualitative assessments it is concluded that most of the effects which currently cannot be quantified and/or valued (e.g. the effects in terms of recreational fisheries and biodiversity) will contribute positively to the welfare economic value of the measures. Accordingly the aggregate benefits presented in Table 0.1 in the report are likely to represent lower bound estimates of the actual aggregate benefits.

Subsidies

The construction of wetlands and the set aside of low laying fens both represent voluntary measures, and farmers are compensated for implementing the measures through subsidies. The compensation has a positive sector economic effect, but seen from the welfare economic perspective the lost production represents an opportunity cost to society. For the stream measures the State provides a subsidy for the municipalities, and costs inflicted on land owners in connection with stream restoration are compensated according to the provisions of the Watercourse Act. The land owner compensations have a sector economic impact. In Table 0.1, the sizes of the compensations are listed for each of the measures.

Sector economic analysis

The sector economic analysis is restricted to the employment effects of the three measures. Thus the income effects of the wetland and set aside measures have already been calculated in connection with the assessments prior to the launch of the draft for the upcoming Water Management Plans, and according to the terms of reference for this project they should not be recalculated. The calculations encompass the negative employment effects caused by withdrawing agricultural land from production, and the positive (one-off) effects resulting from construction activities related to the establishment of wetlands. With reference to Table 0.2 in the report, it is concluded that both the positive and the negative employment effects are minimal.