Value of Water: EPA Studies Importance of Water to U.S. Economy

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By James Laughlin, WaterWorld Editor

Water is vital to a productive and growing economy in the U.S., directly and indirectly affecting the production of goods and services in many sectors. Still, few people stop to consider its importance and value. For most consumers throughout the country, water costs less than a penny per gallon at the tap, and buried infrastructure is out of sight and mind as long as the water is flowing.

The Environmental Protection Agency is conducting a study on the importance of water to the U.S. economy with the goal of providing information that supports private and public sector decision-making, and identifying areas where additional research would be useful. The EPA hopes to learn more about the complex interrelationships between the use of water in one sector of the economy and the economic activity in others. The agency also wants to better understand how water resources contribute to economic activity at a local, regional or national level.

As part of the study, the EPA developed a background report that provides a baseline understanding of how water resources are used in the U.S. and the data and methods available to analyze the economic importance of water. EPA also supported the writing of a set of papers by experts to supplement existing information and to present current economic analyses. Last fall, the EPA held a technical workshop to discuss the literature review and the expert papers, and to gather feedback.

Aurel Arndt, General Manager/Chief Financial Officer, Lehigh County Water Authority, was among a select group of speakers at the technical workshop. He serves on the AWWA Water Utility Council and provided a municipal utility perspective.

For the municipal water industry, the challenge is fully understanding the value of water, relating that information to the true cost of providing service and further communicating that message to customers.

"People make the equation that the value of water is simply reflective of the water rate or charge that they have to pay. There's not a holistic view that takes into account all the alternative uses of water that there may be and the aspects of the water supply operation that we have to contend with," Arndt said.

"That whole concept of the true cost of water is somewhat difficult to explain and has very limited recognition by the water consuming public," he said. "True cost includes all the alternative uses for water and the planning and allocations among the various competing uses."

Chris Rayburn, Director of Subscriber and Research Services, Water Research Foundation (WRF), also spoke at the workshop. In 2005, WRF released a report that examined "The Value of Water: Concepts, Estimates and Applications for Water Managers," compiled by Stratus Consulting.

creek

"Each utility faces their own unique challenges and opportunities when it relates to the value of water," Rayburn said. "Truly, from an economic point of view, it's full value costing. That cost is both the fixed cost of maintaining the infrastructure, the delivery, the treatment, and it's also the value of the good that you are providing, which is safe, aesthetic, yet affordable tap water."

The current EPA research program is going far beyond the municipal water market and is attempting to look at all aspects of water use and the impact of that use on the economy.

Agriculture, energy production and the public supply of water account for more than 90 percent of off-stream water use in the U.S. However, the "value" of water goes beyond off-stream uses. Rivers, lakes and oceans provide a natural highway for commercial navigation, as well as places to swim, fish and boat, helping to fuel economic activity in the recreation and tourism industry. Nearly every sector of the economy is influenced in some way by water.

Seven expert papers were funded as part of this study to examine various aspects of water use in the U.S. economy. Topics included how urban economic growth and employment can be affected by constraints on the availability of water supply, water use and agricultural production, and lessons learned from short-term supply disruptions. CH2M HILL also authored a paper for the project that focuses on the changing value of water and implications for five key industrial sectors.

In conducting the study, the EPA is hampered by a lack of specific data about the value of water and its economic impact. Some reasons why there is not more detailed information on the value of water include a lack of market transaction data, limited pricing data because water rights are only infrequently bought and sold, and altered prices because of subsidies. Also, the price charged for water often fails to reflect the full cost of its use.

Part of the challenge in considering the value of water is understanding the difference between cost, price and value. Cost refers to the expense of producing and delivering a unit of water. Price refers to the rate charged to a customer for the unit of water delivered. Value, on the other hand, is a more ambiguous concept and one that is harder to measure.

It is difficult to determine water's value because it depends upon multiple dimensions — the volume of water supplied, where the water is supplied, when it is supplied, whether the supply is reliable, and whether the quality of the water meets the requirements of the intended use.

The value of water "all depends on where you sit," Arndt said. "If you're someone involved in the fisheries, the quality of the water is significant and can have a different economic value than for some other user who is looking at it purely for cooling purposes like the power industry."

The Lehigh County Authority (LCA) serves more than 20,000 customers across 16 townships and provides wastewater service in 13 municipalities. Among its customers are the Samuel Adams Brewery, water bottlers, a Coca-cola plant, and a Kraft Foods plant.

"Almost every organization in some way, even in the very minimal sense of sanitation, requires water to establish an employee presence in a community. In the case of the organizations we serve, the bottlers and the Kraft food plant, water is a key ingredient in producing those products," said Arndt. "They need reliable service on an ongoing basis, but also the services need to be cost competitive so they are able to compete effectively with other competitors."

fishing

From the utility perspective, the value of water is based around the concept of a safe and reliable public water supply, said Rayburn.

"Each utility's circumstance can be very unique to their community and their relationship with their governing body and customer base," he said.

Communicating the value of water and the costs involved in providing water services is a critical first step in solving many of the problems faced by the municipal water industry, Rayburn said. Arndt agreed.

"Fundamentally it's an ongoing educational issue," Arndt said. "Unfortunately, people are thinking about tomorrow or next week, and not so much five or 10 years down the road. They don't necessarily see the cost of the alternative measures and steps you have to take to make sure you are not only planning for the normal day to day, but sometimes unwelcome and extreme circumstances that might come along."

"We are making capital investments that in some cases have 100 year lives," he noted.

To learn more about the EPA's study "Importance of Water to the United States Economy," visit water.epa.gov/action/importanceofwater/index.cfm.


Value of Water: Resources

American Water's website includes a special section devoted to the value of water: www.amwater.com/learning-center/value-of-water.html. Topics covered include:

  • The Value of Water - E-Learning Course
  • Water's Worth - Understanding the value of clean water
  • White Paper - The Value of Water
  • White Paper - Challenges In The Water Industry: The Tap Versus Bottled Water Debate

Xylem Inc. maintains a page devoted to the value of water and the global water crisis: http://www.xyleminc.com/valueofwater/. The site includes a video of Xylem CEO Gretchen McClain discussing the company's 2012 Value of Water Index. Also on the site:

  • Value of Water Interactive Report
  • Value of Water Highlights
  • Value of Water Infographic
  • Value of Water Poll

Yarra Valley Water in Australia recently 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. A copy of the paper can be found here (login required, registration is free): http://www.trucost.com/published-research/95/white-paper-valuing-water-to-drive-more-effective-decisions

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