ew2 wk1 d1 4
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http://cmimarseille.org/_src/EW2_wk1/EW2_wk1_D1-4.pdfTRANSCRIPT
Continued -
In complement to Moroccan case
Using economic analysis Using economic analysis
to inform policyto inform policy--makingmaking18
Price elasticity of water demandPrice elasticity of water demand
� = how does demand react to price
� Ratio of variation rates. Observed demand variation divided by price variation
� If - 10 % of demand due to + 10 % of price, price elasticity ratio = - 0.1 / 0.1 = - 1
� If - 1 % of demand due to + 10 % of price ����, price elasticity ratio = - 0.1
� If demand is reduced by 20% due to a 10% price raise, price elasticity is - 2
19/
CostCost--Benefit analysisBenefit analysis
� For a given project
� Sum of costs over considered period
� Annual depreciation of capital
� Operating expenditures
� Financial costs
� Opportunity costs
� Environmental costs
� Sum of benefits (= values) over considered period
� Economic benefits: outputs & economic impacts to the economy
� Environmental benefits: value of enhanced / preserved environmental services
20/
How account for different chronological How account for different chronological
profiles?profiles?
Costs
+
-
time
Benefits
Costs
+
-
time
Benefits
Project A
Project B
Solution: discountingSolution: discounting
Costs
+
-
time
Benefits
Costs
+
-
time
Benefits
Project
A
Project
B
Reducing future values
Proportionally to how far we are from their occurrence (“year from now”, “y”)
Based on current interest rates (“i ")
Sum of discounted values = “Net Present Value”(see excel formula)
Valuing ecosystem servicesValuing ecosystem services
Eco. Functions Use - Service
Replace
Replacement cost Sustain and loose
Cost of damages
Mitigate (protect from
consequences)
Protection cost
2 balances of costs and prices2 balances of costs and prices
24
Capital
charges
Operating and maintenance
Economic
externalities
Environmental
externalities
Opportunity costs
Water billStrict balance
Water
charges,
taxes, …
Large balance
Assessing the recovery of costs Assessing the recovery of costs
by corresponding pricesby corresponding prices25/ Costs
Capital
charges
Operating and maintenance
Economic
externalities
Environmental
externalities
Opportunity costs
Price paid (example)
Environmental taxes
Water bill
Other water
charges
Subsidies
External costs
Opportunity costs
Residual costs Borne by…
Environment and its users
The other activities
The tax-payers
The user of water service
The user of water service
The user of water service
Paid by…