Drinking Water Infrastructure Choice: Infrastructure and Policy vs Mad Max

Hundreds of millions of people around the world depend on polluted water sources for their daily drinking water. Over half of the planet’s population lives in cities. Large cities, alone, represent $21.8 trillion (US$) in economic activity, or 48 percent of global GDP *. As the population in cities continues to grow, without adequate infrastructure improvements, this drinking water, which is both bad in quality and unreliable in availability, will affect the health and well-being of a large portion of our planet’s future inhabitants. While this may not yet be a “Hunger Games” or “Mad Max” scenario, the importance of clean drinking water and the requirement for infrastructure investment to get it, is clear. Capital investment as well as land use policy changes (agricultural best practices, for example) are essential.

The Nature Conservancy (TNC), a leading conservation organization working around the world to protect ecologically important lands and waters for nature and people, has issued a fascinating interactive report on water quality around the world. At this website, Water Blueprint, find a city, find the specific risks to drinking water in that city and the likely solutions to mitigate those risks. Boston, Bogota or Bhubaneswar, the data is there.

Solution categories include: agricultural best practices, riparian restoration, forest protection, reforestation and forest fuel reduction. Download the full document for more information.

Excerpt from “Return on Investment” section of The Nature Conservancy’s Water Blueprint report:

“ How should cities evaluate the return on investment of these conservation activities? When should

conservation be the preferred answer to a water quality problem versus more traditional engineered

solutions? After all, the potential for impact of conservation should be compared, for example, to the

economics of treating water in a utility.

Watershed protection typically offers the greatest return on investment in small watersheds that serve

large cities. The factors that control return on investment of watershed conservation are:

Size of watershed. The total area on which a conservation activity must be conducted to

meaningfully change water quality tends to be larger in larger source watersheds. Working on

areas of hydrological importance, such as high slopes, stream banks, and headwaters can focus

conservation on the areas within the watershed with the greatest return on investment, but

regardless, large watersheds tend to require a greater area of conservation activity.

Population density in source watershed. If watershed protection requires working with many

landowners, costs will increase with the number of people who must be convinced. This helps

explain why the largest watershed protection examples in the world—such as Quito, Ecuador—

tend to occur on public or communal land. While not insurmountable, the transaction costs of

working with many small private landowners can be prohibitive.

Population served. Because large cities have a larger revenue base, the ability of a city or utility

to pay for watershed protection increases with the number of customers.

Treatment technology. Since the complexity of water treatment plants is partly a function of

source water quality (see the section below on cost analyses for utilities), managers of highly

complex water treatment plants are less likely to be concerned with the quality of the source

water. While avoided O&M costs can be significant across all types of water treatment plants,

it is avoided capital expenditures—as in New York City—that are likely to motivate large-scale

investments in watershed protection.

A full evaluation of the return on investment of source watershed conservation for a utility requires

detailed information on the hydrology of the source watersheds, sources of pollutants, and the

treatment processes in use at the water treatment plant. Such a detailed return on investment (ROI)

analysis can only therefore be calculated on a case-by-case basis. However, the general principles

discussed above, combined with the information collected in our dataset of 534 large cities, allow for

rough calculations that can provide guidance about whether source watershed conservation is likely

to be a smart investment for a utility.

As discussed in Chapter 2, a 10 percent reduction in sediment and phosphorus on average reduces

treatment costs by 5 percent, although for individual water utilities this figure may be much higher.

There are other ways that higher raw water quality may reduce costs for utilities. Our study did not

consider the cost of irregular dredging of reservoirs, which can be considerable and has been shown

to be on average roughly the same order of magnitude as the direct savings from reduced treatment

costs. So the estimate that a reduction of sediment and phosphorus of 10 percent might reduce water

treatment costs by 5 percent on average is a conservative one.

Of course, the costs of running a water treatment plant are only one component of overall O&M costs

for water utilities. We are not aware of any global estimates specifically of water treatment plant

O&M for the water sector. One study [2] estimated US $480 billion in expenditures (both capital and

operating expenditures) in the world’s water market. Of this, US $220 billion was capital expenditures

on water or wastewater infrastructure (46 percent), while the rest (54 percent) was operating

expenditures. Out of capital expenditures for water infrastructure, only US $17 billion was for water

treatment plants, around 8 percent of total capital expenditures in the water sector. If this fraction

also applies to operating expenditures, then a rough estimate would be that 8 percent of the US $260

billion in operating expenditures, some US $21 billion, was for water treatment plant O&M.”

*Nordhaus, W., et al., The G-Econ Database on Gridded Output:. 2012, New Haven: Yale University

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Contact: bthornton@assetstewardship.com
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Drinking Water Infrastructure Choice: Infrastructure and Policy vs Mad Max

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