USask projects asks, ‘what’s water worth?’

But there’s a huge non-market value to the life-sustaining liquid that goes far beyond the price utilities charge for domestic and industrial water use. 

That vital aspect is typically left uncalculated by policy- and decision-makers in Canada because this country simply doesn’t collect the data or have the tools needed to assess the value of services that water provides to the economy and society-at-large. 

Now, an ambitious two-year project, co-led by University of Saskatchewan (USask) researcher Dr. Patrick Lloyd-Smith (PhD), aims to fill the knowledge gap with Canada’s largest ever co-ordinated effort to establish what freshwater is worth. 

“Just because it doesn’t have a price doesn’t mean it doesn’t have a value,” he said. 

Non-market valuation is a fairly active field in environmental economics, said Lloyd-Smith, assistant professor in the Department of Agricultural and Resource Economics at USask’s College of Agriculture and Bioresources. 

The services freshwater provides—whether by naturally absorbing pollutants, serving as a repository for wastewater, providing aesthetic value to landscapes, or imparting a sense of well-being and security to Canadians worried about the impacts of climate change—typically remains untallied, he said. 

“We want to improve economic valuation estimates of water in Canada,” said Lloyd-Smith. “Canada really lags behind other parts of the world, such as Europe and the United States, which have more comprehensive economic valuation estimates for water quality and incorporate them into decision-making on sustainable water use.” 

Lloyd-Smith, fellow resource economists Dr. Roy Brouwer (PhD), co-lead from the University of Waterloo, Dr. Vic Adamowicz (PhD) of the University of Alberta, and Dr. Diane Dupont (PhD) of Brock University, are working with UWaterloo water expert Dr. Helen Jarvie (PhD) to develop, test, and apply state-of-the-art valuation methods to freshwater. The USask-led pan-Canadian Global Water Futures (GWF) program awarded the team $300,000 for the project. 

The project’s goal isn’t to set a price on every last drop of water in every lake, river, or wetland in Canada, Lloyd-Smith said. That would be an unimaginable number and one that’s not particularly useful since no one is talking about getting rid of the water. 

Rather, his team is interested in ascribing a price to water quality and changes in that quality because that’s what is relevant for real-world decision-making. 

“So, if the quality of water goes from its current state to an improved state, or the government passes a regulation that water quality has to exceed a certain objective, what is the economic value of that change?” he asked. “For the most part, we are interested in providing these values estimates to policymakers.” 

One readily available assessment method is tied to the impact water quality has on people’s recreational behaviour, he said. Understanding to what extent people are willing to travel farther or pay more to access a clean lake instead of a less pristine lake tells us something about the tradeoffs they are willing to make between money and water quality, said Lloyd-Smith. 

The price gap between what people will pay for homes or cabins at a “good” lake in comparison to a one with lesser quality water is another valuation method.  

However, there’s a broader set of benefits from high quality water unrelated to direct use. That esoteric calculation involves perception: “People might have an economic value just for the idea that Canada is a place with clean lakes,” said Lloyd-Smith. 

For instance, a resident of downtown Toronto or Vancouver might still hold economic value for lakes in Northern Canada and a willingness to contribute to their conservation, even if they never intend to visit these sites. 

Obviously, there are challenges in trying to measure this, said Lloyd-Smith. But he notes there’s a lot of evidence to suggest that these values are really important, such as when setting environment liability in courts or establishing the appropriate level of compensation of aquatic ecosystem damage from huge spills or release of contaminants.  

He points to the 2010 Deep Water Horizon oil spill disaster in the Gulf of Mexico as an example where the damages went far beyond the immediate costs of cleanup, reclamation, and direct economic costs to determine what BP, the company responsible, should pay. 

While economists estimated the value of lost recreational days in the affected five states at close to $700 million, Americans responding to a survey to gauge the value they’d assign to the damage to beaches, marshes, animals, fish, and coral pegged the figure at $17.2 billion—a value used as part of United States court proceedings against BP to establish restitution costs.  

“So, part of our project will be to engage in a structured conversation with individuals—primarily  through surveys—to understand their preferences for different water quality improvement programs in Canada and if they are willing to pay more taxes to fund these.”  

Researchers plan to use “stated preference surveys” which have been shown to be effective in environment-related research projects. These surveys are carefully designed to learn how much people value certain environmental goods or services—in this case, water quality—by asking them how much they are willing to pay to preserve or improve these services, or would want in compensation for the loss of a benefit, such as turning a clean lake into a tailings pond. 

“For example, a question would be something like: ‘say the government brought in a program that improves water quality in Lake X from unsafe for swimming to safe for swimming, and it will cost you $50 a year. Vote yes or no to that program. Now, what if it costs $100? What if the cost is $500?’  

“From their responses we can understand the tradeoff people would be willing to make for a very specific change in water quality.” 

Conservation of ecologically beneficial wetlands, especially on the Prairies, is a contentious issue. While society in general benefits from services such as water purification, wildlife habitat, and carbon absorption that wetlands provide, it’s landowners who bear the costs through lost production and having to work round these areas, cutting into farm profits. 

The research team is using two methods to assess the value of wetland services on farms, starting with stated preference surveys to understand people’s willingness to financially support wetland conservation for such intangible benefits as providing habitat for wildlife and species at risk. 

They also are considering a wetlands certification program. The idea is to see if consumers would pay a higher price for products from farmers whose operations are certified as wetlands friendly. 

“We want to see if there’s a demand for these types of products,” said Lloyd-Smith. “We could then compare the price premium consumers are willing to pay to the cost to the landowner of maintaining or restoring a wetland on their property.” 

The worth of direct wetlands services such as purifying water or reducing pollutants can be calculated by estimating avoided treatment costs or not having to build bigger treatment plants. 

As for the value of wetland carbon sequestration, Lloyd-Smith said the team can tap into global numbers established by those scientists who have shouldered the massive job of costing out damages associated with increased carbon in the atmosphere and social costs of climate change.  

Lloyd-Smith is clear that the economic valuation of water is one part of a larger conversation about the value of water that goes beyond this one project. 

“We can’t measure everything, so we do the best we can. We start by measuring what we are confident in measuring and then work our way up.” 

The aim of the research project is to provide value estimates for use by governments in decision-making, he said.  

“The federal government has a rule that any program or policy they bring in that has a substantial impact on the economy requires a benefits-cost analysis, realizing that some of these are going to be immeasurable,” he said. “That means we don’t have to measure all of the potential benefits of water; we just have to do enough to better inform these assessments.”