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CHAPTER 5: ECONOMIC ASPECTS OF EUTROPHICATION

5.2. Allocation of Water Resources and Eutrophication

5.2.3. The Economics of Eutrophication

As eutrophication increases, the productive potential for water, under some circumstances, diminishes; the value (potential) of a unit of water cannot be realised. Eutrophication created by an individual can generate costs to other users of the water resource, both consumptive (drinking water) and non-consumptive productive uses (agriculture).

At one extreme, water users may choose water practices, which degrade the productive potential of the resource, increasing eutrophication and causing a reduction in the productive or amenity value of water for other users. This scenario may produce relatively high income, through cost savings, in the short run, but leads to reduced utility from water for others. At the other extreme, water users may reduce - and possibly eliminate - eutrophication thereby reducing income in the short run, due to excessive costs of control, but improve the income for others. There are many points between theses two extremes. The economic impact of eutrophication can be shown in a partial equilibrium framework as discussed later in this chapter.

There is also a temporal element associated with eutrophication. Siltation is not apparent in the short run, however, the long run economic returns from water storage can be reduced. Eutrophication is a complex problem because of the space and time aspect of each management decision (i.e., impact). The economic instruments and policies discussed here focus on a static analysis of the economic impacts. This does not exclude the temporal effects but assumes that market mechanisms will internalise the long run effects.

Eutrophication is most commonly perceived as being a negative externality. The impact of eutrophication may produce positive benefits to some wildlife species but increase the incidence of the algal blooms resulting in costs. It could be argued that an increase in the nutrient levels of water might be of benefit to an irrigator, however this section will focus on negative impacts.

Finally, since a significant portion of anthropogenic eutrophication is a by product of land use then the economics of changes in land use and land use practices must always be considered in the context of the management and control of eutrophication.

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