The use of economic valuation as a tool for prioritizing investment
Shadow pricing is a valuation methodology that can be used to assess choices regarding activities discharging by-products which, although they have no market value, may have significant envi- ronmental impact, such as wastewater (Hernández-Shancho et al, 2010). This method is useful for helping to prioritize management options relevant to wastewater management and treatment, taking into account both the economic and environmental aspects. Table 2 shows the price of water, and the average shadow prices for the
five undesirable outputs of wastewater treatment. The negative value reflects the environmental value of damage avoided, or in other words, environmental benefit. Here, for example, action to reduce phosphorus levels would have the greatest environmental benefit per unit volume, followed by nitrogen (Jenkins et al, in press). The overall environmental benefit resulting from the treat- ment of wastewater can be shown in the volume removed per year and its shadow price (Table 3) (Jenkins et al, in press).
Table 2: Reference price of water treated (€/m3) and shadow prices for undesirable outputs (€/kg). (Jenkins et al, in press) Destination
River Sea Wetlands Reuse
Reference price water €/m3
0.7 0.1 0.9 1.5
N
Shadow prices for undesirable outputs (€/kg) P
SS
− 16.353 − 4.612
− 65.209 − 26.182
− 30.944 − 7.533
− 103.424 − 79.268
Table 3: Environmental benefit of treatment in €/year and €/m3 (Jenkins et al, in press) Pollutants
N P
SS
DOB COD Total
Pollutant removal (kg/year)
4,287,717 917,895 60,444,987 59,635,275 113,510,321
Environmental value pollution (€/year)
98,133,996 50,034,733 448,098 2,690,421 13,364,429 164,671,677
The greatest environmental benefit is associated with the removal of nitrogen because it represents nearly 60 per cent of the total profit. The next most important factor is phosphorus with a percentage weight of 30 per cent. It is important to note that the removal of these nutrients creates most of the environmental benefit (90 per cent) resulting from the treatment process. This is because these pollutants have the highest shadow prices. Even though large vol-
Environmental value pollution (€/m3)
0.481 0.245 0.002 0.013 0.066 0.807
%
59.6 30.4 0.3 1.6 8.1
100.0
umes of suspended solids are removed from wastewater during treatment, their low shadow price means that their removal contrib- utes a very low percentage (0.3 per cent) of the total environmental benefit. The share of the environmental benefit accounted for by or- ganic matter (COD and BOD) is only 9.7 per cent because, despite the fact that a great deal is removed during the treatment process, their shadow prices are comparatively low (Jenkins et al, in press).
61
− 0.005 − 0.001 − 0.010 − 0.010
BOD
− 0.033 − 0.005 − 0.117 − 0.058
COD
− 0.098 − 0.010 − 0.122 − 0.140
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