Economic Value of Wilderness - Part Four

Economic Value of Wilderness – Part Four

An Economic Perspective on the Relationship Between Wilderness and Water Resources

Authors: James R. Meldrum and Christopher Huber, Research Economist and Economist respectively of the U.S. Department of the Interior, U.S. Geological Survey, Fort Collins Science Center

Source: "A Perpetual Flow of Benefits: Wilderness Economic Values in an Evolving, Multicultural Society," Thomas P. Holmes, Editor, by the Wilderness Economics Working Group of the Aldo Leopold Wilderness Research Institute, Rocky Mountain Research Station, U.S. Department of Agriculture, Forest Service

KEY MESSAGES

●           A disproportionately high percentage of the Nation’s renewable supply of surface freshwater flows from wilderness versus other lands.

●           Watersheds with a higher percentage of water originating in wilderness tend to lie along the major mountain ranges of the United States—the Rocky Mountains, SierraNevadas, and Cascades in the West; the Appalachian Mountains, which span much of the length of the east coast; and the Boston Mountains in northern Arkansas.

●           The economic value of contributions to water supplies from wilderness generally increases as regional water availability decreases.

Introduction

Since 1964, the United States has maintained legally designated wilderness areas for the combined “recreational, scenic, scientific, educational, conservation, and historical use” of the public (Public Law88–577; http:// www.wilderness.net/NWPS/legisAct). The Wilderness Act of 1964 famously established this National Wilderness Preservation System (NWPS) to protect areas “where the earth and its community of life are untrammeled by man, where man himself is a visitor who does not remain…,” with the idea of maintaining the ecological integrity of natural areas. As Hendee and others of the U.S. Department of Agriculture, Forest Service put it, “wilderness managers are, in effect, guardians and not gardeners… [wilderness] managers should not mold nature to suit people. Rather, they should manage human use and influence so that natural processes are not altered” (Hendee and others 1978: 7). They and many others argue that this unique approach to managing a subset of public lands offers three main types of benefits to people: experiential, mental and moral restorative, and scientific.

Other commenters go beyond the basic preservationist ethic (e.g., Nash 1973) and these three types of benefits in arguing for additional values of wilderness to the people of America. Although the wilderness economics literature is sparse, it demonstrates that the public has significant willingness to pay for wilderness and the services it provides (Holmes and others 2016, Loomis and Richardson 2001). These services relate both to active uses, such as recreation and tourism, and to nonuse values (also referred to as passive use values), which relate to existence, option for future use, and bequest to future generations. Many commenters also cite the role of wilderness areas in protecting water resources, including for offsite or downstream users. For example, Morton (1999) maintains that a key role of wilderness is watershed protection, with numerous associated benefits including support for native fish, reduced water treatment costs, and the possibility of selling the water for drinking. Similarly, the North American Intergovernmental Committee for Wilderness and Protected Areas Cooperation (NAWPA) summarizes many benefits from wilderness and protected areas associated with water-related services, including providing consistent supply of “some of the world’s highest-quality drinking water,” as well as water for use for industrial, recreational, and cultural purposes; by fish and wildlife populations; and more (NAWPA 2012). Indeed, some wilderness areas were designated with an explicit purpose of preserving healthy watersheds, such as the Rattlesnake Wilderness in Montana, noted in the Rattlesnake National Recreation Area and Wilderness Act of 1980 (Public Law 96–476) for its use “...by people throughout the Nation who value it as a source of...clean free-flowing waters stored and used for municipal purposes for over a century.”

However, notwithstanding the many other public benefits provided by wilderness, it remains an open question whether the water-relatede cosystem services supported by wilderness areas provide a utilitarian benefit associated with the allocation and management of those wilderness areas. That is, what is the value added by wilderness to water, i.e., the economic benefit of wilderness areas associated with water-related ecosystem services? Understanding such economic benefits is important for evaluating the efficiency of decisions regarding the designation and management of wilderness areas as a unique category of public lands. Importantly, this question requires consideration of the counterfactual: if the lands were not maintained as wilderness, what would be lost in terms of water-related benefits?

Wilderness and Freshwater Runoff

The first step in understanding the relationship between wilderness areas and water resources is to characterize the amount of water associated with these areas and where that water flows.

To characterize the contribution of wilderness areas to total freshwater runoff, we build on the analysis of Brown and others (2016). They report that approximately 25 percent of the water that originates on Federal lands in the conterminous United States comes from areas designated as wilderness.

In addition, the watersheds with higher percentage of water originating in wilderness tend to lie along the major mountain ranges of the United States: not only the Rocky Mountains, Sierra Nevadas, and Cascades in the West, but also the Appalachian Mountains, which span much of the length of the east coast, and the Boston Mountains in northern Arkansas. These major mountain rangers match the spatial distribution of wilderness areas across the continental United States. In fact, the percentage of a watershed’s total water runoff that comes from wilderness is highly correlated with the percentage of land within a watershed that is designated as wilderness (R2 = 0.85).

This analysis demonstrates that, indeed, a disproportionately high percentage of the Nation’s renewable supply of surface freshwater flows from wilderness versus other lands. Whereas 3 percent of the land in the conterminous United States is designated as wilderness, 5 percent of the total runoff for the conterminous United States comes from these wilderness areas.

Wilderness Areas and Drinking Water

Next, we leverage the Forest Service’s Forest to Faucets (F2F) database to take our analysis one step further, linking water supplies to one important source of demand: drinking water. The F2F database pairs runoff data with flow routing, surface drinking water intake locations, and population metrics to estimate the relative importance of watersheds across the country for drinking water (see Weidner and Todd [2011] for details). Twenty-one States have at least 1 wilderness area with a watershed in the top 90th percentile of drinking water importance, and 34 of the 48 conterminous States have a wilderness area that contains a watershed ranked in the top half of all watersheds for drinking water importance.

Similar to above, this analysis identifies important relationships between water supplies and wilderness areas in the Western United States, especially in the States of California, Colorado, Oregon, and Washington. This again reflects, in part, the high prevalence of wilderness areas in the West. However, unlike the above, the Eastern United States tends to have much higher values, based on a “high population density relative to other parts of the country and a greater reliance on surface water than on groundwater” (Weidner and Todd 2011: 15). Thus, despite the low prevalence of wilderness areas in the Eastern United States and their low contributions to overall runoff, there exist many wilderness areas in the East (i.e., in the Northeast and South regions) that rank among the highest in terms of the importance of their watersheds to the drinking water supply.

Thus, this analysis not only demonstrates that many wilderness areas are linked to downstream populations through the important flow of drinking water supply, but it also reflects the relevance of considering how a resource is used for understanding its relationship to society. Overall, this section demonstrates the general relationship between wilderness areas and water supplies. The high prevalence of wilderness areas as the source of runoff that is later used by people suggests that impacts to the water resources—whether to the timing, quantity, or quality of that water— will have impacts on these downstream users. Understanding the magnitude and implications of these effects, however, requires an understanding of the economics of water resources. In the next section, we provide a broad overview of this field of study.

A DEEPER DIVE (rest of article is optional reading!)

The Economics of Water Resources

Water resources have long intrigued economists. Indeed, Adam Smith famously used water as an example of the prima facie paradox of the relative values of water, which is essential to life, versus diamonds, which are not: “Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it” (Smith 1776).

Decisions about water allocation projects, restoration activities, and land management may affect the timing, quantity, and quality of water necessary for society. Economic efficiency criteria provide a useful frame for considering the effects of changes to water timing, quantity, and quality for two reasons: (1) maximizing net economic benefits is an important objective in a world of scarcity and competing uses, and (2) it provides a useful way to evaluate the opportunity costs (forgone benefits) of competing projects or objectives (Young and Loomis 2014: 25). Economists define “benefits” or “value” in terms of the tradeoff individuals are willing to make among alternatives (Segerson 2017). Economic theory says that the policy-relevant case is at the margin, i.e., at the last additional unit of water affected by some action (Hanemann 2005, U.S. EPA 2013), and that the efficient outcome of resource allocation decisions of water-related projects occurs when marginal benefits are equal across all uses (Gibbons 1986). In the context of public goods, where a market may be missing or highly distorted, such as for many uses of water, measuring marginal tradeoffs in monetary terms is especially useful (Habb and McConnell 2002). In fact, water projects in the American West have been a major impetus for needing to understand the benefits and costs of publicly funded projects (see Banzhaf [2010] for a historical perspective). Relevant legislation includes the Reclamation Act of 1902 (PublicLaw 57–161), the Flood Control Act of 1936 (Public Law 74–738), and formal guidance on water projects as first outlined in 1950 by the Inter-AgencyCommittee on Water Resources (Federal Inter-Agency River Basin Committee, Subcommittee on Benefits and Costs 1950). More recently, since 1981 the Federal Government has been instructed to assess the costs and benefits of major spending projects as directed by Executive Order 12291. Other relevant legislation on considering costs and benefits from Federal projects stem from the Clean Water Act (Public Law 92–500); the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) (Public Law 96–510); and theOil Pollution Act (OPA) (101 H.R.1465, Public Law 101–380).

Special Considerations for the Economics of Water

Understanding the economic (marginal) value of water requires special consideration of not only hydrological and physical attributes but also social attributes, including legal and political institutions (see Young and Loomis [2014] for a complete discussion). First, the hydrological and physical attributes of water are complex. Among other things, water is mobile and requires relatively high costs from excluding other potential users in order to establish property rights (Young and Loomis 2014: 4), and supplies can be highly variable over space (as is the case with wilderness) and time. Social attributes of water include concerns about equity associated with a range of factors including the fundamental human need for a minimum amount of water for survival (e.g., Hanemann 2005) and the importance of water in many cultural belief systems and rituals (e.g., Armatas and others 2014, Moon Stumpff 2013), as well as unique legal and political institutions, such as the two main legal regimes to water: riparian rights, common in the Eastern United States, and the prior appropriation doctrine, common in many Western U.S. States. Indeed, water management practices can have profound implications for understanding freshwater resources, even if these practices do not affect the physical water yield of water sources (e.g., Momblanch and others 2017).

In addition to these physical, social, and legal considerations of water, evaluation of economic value also necessitates understanding the characteristics of demand for water (Young and Loomis 2014). These characteristics include identifying who is using the water, the purpose of use, and whether that use is consumptive or nonconsumptive. One common typology of demand for water separates offstream uses, including those by municipal, industrial, and agricultural sectors, from instream uses, such as for environmental services (including providing habitat for aquatic species and supporting outdoor recreation). Offstream uses are typically private and can be classified either by the amount of water withdrawn from the water source (e.g., Maupin and others 2014) or by the amount consumed, which refers to the amount withdrawn minus the amount returned, i.e., water that is physically removed from the basin of origin (Gibbons 1986). Withdrawals often reflect a private need, whereas consumption reflects a reduction in availability of the resource for other uses, and the proportion of water withdrawn that is consumed can vary widely by use (e.g., Solley and others 1998), complicating comprehensive analysis. In contrast, instream uses such as navigation and recreational boating or angling do not remove water from the basin. This means that the water is available downstream for other uses and thus, such uses are typically considered nonconsumptive (Young and Loomis 2014). Relatedly, water use can be characterized as rival, meaning that one person’s use diminishes others’ ability to use it, as in the case with irrigation, or nonrival, meaning that one person’s use does not diminish others’ ability to use it downstream, as in the examples of boating or angling.

In addition to being nonrival and nonconsumptive, instreamwater uses are also typically nonexcludable, meaning it is difficult and expensive to limit those not legally entitled to access, and thus the instream flows that support these uses are often (though not always) considered to be public goods.

Water use can be additionally classified as an intermediateor final good depending on use (Gibbons 1986). For example, water would be considered an intermediate good when used for irrigated agriculture as an input to produce other goods (e.g., crops). Alternatively, water can be considered a final good when directly used by consumers, such as for household needs, boating, or swimming. Gibbons (1986: 4) explains how the concept of value differs between final and intermediate uses of water: as a final good, it is valued directly by the individual consumer, and when it is an intermediate good, its value is derived from the ultimate value of the final good or service.

Economic Value of Water Resources Theory defines economic value in terms of choices among tradeoffs (Segerson 2017); it is useful, though not necessary, to measure value in monetary terms for ease of comparison (Habband McConnell 2002). Willingness to pay (WTP) is a standard metric for monetizing the economic value to people of both market and nonmarket goods and services, including those that arise from water (Brown and others 2007). This measurement links to the concept of preferences among alternatives, in which WTP measures the amount of money an individual would be willing to give up to obtain a good or service (e.g., an additional unit of water) or to avoid a loss in a good or service (e.g., reduced water quality or fishing access).

Methods for measuring the economic value of water vary depending on the context of the use of the water (refer to Gibbons [1986] and Young and Loomis [2014] for an expanded discussion on these methods). For municipal water uses, it is possible to estimate demand curves and price elasticities (that is, sensitivity of consumption to changes in price or quantity supplied), which can be used to estimate marginal values (see Dalhuisen and others [2001] and Espeyand others [1997] for summaries of price elasticities for residential use). For agricultural water uses, basic methods for estimating the marginal value include crop-water production function analyses and farm crop budget analyses (see Scheierling and others [2006] for a review of price elasticities of water demand for irrigation). Like agriculture, industrial uses of water can also be evaluated as inputs to production. As Young and Loomis (2014) note, most of the existing research on water inputs for manufacturing have focused on its use for cooling, process water, and incorporation into other products but can also include hydropower generation and inland navigation. For offstream industrial uses, empirical evidence has shown that water plays a minor role in production when compared to other industrial inputs such as labor and capital. A notable exception is the electricity sector, with an estimated 45 percent of total water withdrawals nationwide attributed to thermoelectric generation in 2010 (Maupin and others 2014), but a large proportion of that water was subsequently returned to the basin and thus not consumed (Solley and others 1998). Mirroring the diversity of uses and their contexts, estimates of the economic value of water range widely both within and across these different sectors. For example,the U.S. Environmental Protection Agency compiled estimates per acre-foot (i.e., 325,851 gallons) for different uses, based on a variety of methods, and found: up to $4,500 for public supply and domestic self-supply; from $12 to $4,500 for irrigated agriculture; from $14 to $1,600 for manufacturing; from $12 to $87 for thermoelectric power; from $1 to $157 for hydropower; and from $40 to $2,700 for mining and energy resource extraction (U.S. EPA 2013).

As described above, most instream water uses are nonconsumptive and nonexcludable, i.e., they relate to public goods. Because public goods are not traded in efficient markets, they do not have observable prices. Thus, nonmarket valuation techniques must be relied upon to elicit associated values (see Champ and others [2017] for additional information on nonmarket valuation). Broadly, nonmarket valuation techniques include revealed preference (estimating value from observed behaviors and actual expenditures in related markets) and stated preference techniques (asking for people’s value based on hypothetical proposed changes to the good or service). Revealed preference techniques infer value from data such as travel costs, residential property values, reported defensive behaviors, and avoided damage costs; these techniques can be applied to public goods that are used by consumers, such as water-based recreation or aesthetic benefits. Stated preference techniques include the contingent valuation method and choice models (conjoint or choice experiments) and are flexible enough to be used to study use values (e.g., angling) as well as nonuse values. Nonuse values include cases where individuals may be willing to pay for conserving a resource for its own sake (existence values) or for future generations (bequest values) regardless of actual use (see Freeman [2003] for the theoretical framework on nonuse values). Nonmarket valuation techniques have been applied to a variety of water-based resources, many of which can be found in summaries of WTP for game fish caught (Johnston and others 2006); surface water quality improvements (Johnston and Thomassin 2010, Johnston and others 2017); water-based outdoor recreation (Recreation Use Values Database 2016, Rosenberger and others 2017); salmon preservation (Weber 2015); river restoration improvements (Bergstrom and Loomis 2017); and conservation of threatened, endangered, and rare species (Richardson and Loomis 2009), many of which are aquatic.

The Added Value of Wilderness to Freshwater Resources

Following the above discussion, an ideal value estimation approach would include both a demonstrable effect of wilderness protection on the water resource (e.g., on the quantity, quality, and/or timing of the waterflows) and a local, theoretically grounded estimate of the economic value of that resource. Carefully designed, case-specific studies using stated preference techniques such as contingent valuation or choice experiments, as thoroughly discussed by Champ and others (2017), offer one approach to generating such information.

Further, techniques such as benefit transfer can provide the latter without conducting original research in a local area, but without the former, it is not clear that an estimated value of the water resource is attributable to wilderness protection; in a counterfactual case of an alternative land use for the same area, would the same level of water resources be provided? In this final section, we discuss possibilities of such an approach for developing more nuanced estimates than those presented above. We consider challenges to some commonly taken approaches and offer suggestions for possible future directions.

Representing a common approach, Johnson and Spildie (2014)overview a series of case studies suggesting economic benefits associated with the water coming from wilderness and other protected lands. These case studie sconsider examples of when costly filtration plants were avoided by municipal suppliers, with “the quality of the natural source” noted as primary justifications for being allowed to avoid these plants. Cited examples of avoided filtration facilities include a $500-million plant for the San Francisco Water Department, an estimated $3-million annual cost of filtration for Portland, OR’s Bull Run surface water source, and a $6- to $8-billion plant for New York City. The last example, in particular, was first highlighted as an example of the value of ecosystem services by Daily and Ellison (2002) and has been cited often since then. Each of these case studies relies on the concept of replacement cost, which requires three conditions: (1) that the ecosystems services provided by the protected lands are equivalent to those that would have been provided by the filtration plants; (2) that the filtration plants would be the next least-cost alternative for providing those services; and (3 )that an equivalent amount of the services would be demanded from the higher cost alternative, if available (see Brown [2017] for thorough discussion of replacement cost and other substitution methods). As Brown (2017: 357–358) discusses, the first two conditions are plausibly satisfied due to the necessity of satisfying Clean Water Act requirements and the fact that filtration plants are the baseline option in most U.S. municipalities, respectively. However, the third condition is most problematic, and indeed, economists tend to agree that “underpriced water resources [have] created an artificial demand for water in urban and industrial as well as agriculture uses…” (Young and Loomis 2014: 26). This suggests that many of these examples should be considered a measure of the upper bound of the benefits because they typically do not consider the impacts that the avoided, but legally mandated, costs would have on how much water people would use if they were required to fully bear those costs. At the same time, the services that would be provided by the avoided filtration plant typically do not include the full portfolio of ecosystem services that would be provided by the protected land, such as the recreation and existence values associated with aquatic habitat in and downstream of protected lands. This, conversely, implies that these avoided cost estimates represent a lower bound of the total value of the relevan tecosystem services. In other words, while the costs of avoided water treatment facilities are suggestive that watershed protection provides high-valued services to the public, these approaches typically can only provide rough approximation of the economic benefits of those services, and it can be difficult to determine whether that approximation is an upper or a lower bound.

In addition, such examples could be strengthened by deeper consideration of the counterfactual for the land management and, relatedly, the scale of natural system change that would be associated with alternative land management. As Latimer (2000) emphasizes, most areas that are managed as wilderness would otherwise be under protection as national forest, park, monument, or wildlife refuge, leaving the level of development that would occur absent the designation as wilderness an open question. That said, certain activities that are precluded by wilderness designation, such as mining and drilling, could potentially have marked impacts on water resources, and information about plans for these activities could support the development of strong counterfactuals. More generally, rigorous estimation of the benefits of wilderness areas on water resources needs to rely on focused case studies built by interdisciplinary teams of researchers, who can connect the specific impacts of wilderness protection status on natural systems to the associated ecosystem service benefits. This is particularly important, as Brauman and others (2007) point out in their detailed review of the nature and value of ecosystem services associated with freshwater resources. Specifically, although they note that “ecosystems with intact groundcover and root systems are generally very effective at improving water quality” (Brauman and others 2007: 77) and that “for water-related services, processes such as soil formation or tree growth are slow in relation to human time frames, making service provision difficult to repair [if degraded]” (Brauman and others 2007: 81), they also emphasize that “in general, effects of land-cover change on hydrologic processes are not measurable until at least 20 percent of a catchment has been converted, although in some places as little as 15 percent or as much as 50 percent conversion may be needed to observe these effects” (Brauman and others 2007:80). Relatedly, Johnson and Spildie (2014) note that although natural lands are generally known to support groundwater recharge, little quantitative information is available on the contributions of wilderness areas to groundwater resources, hampering rigorous study of the associated value.

For example, wilderness areas are often characterized by their lack of roads, and roads in forests are commonly associated with increased erosion and sediment in rivers (e.g., Croke and Hairsine 2011, Mockrin and others 2014). Similarly, deforesting riparian areas can narrow streams and reduce instream processing of nonpoint and point source pollutants (e.g., Sweeney and others 2004); Binder and others (2017) provide a detailed review of the effects of forest management within riparian zones on drivers of aquatic ecosystem health. Warziniack and others (2017) take such results onestep further and model the effect of developing undeveloped forest land on water treatment costs by linking estimates of the increase in turbidity associated with converting a portion of forested land in a watershed with the increase in water treatment costs associated with that turbidity. However, they conclude, “Despite growing desire for a direct measurement of the benefits of watershed/source water protection, the complex nature of ecosystem dynamics, watershed processes, and water treatment technologies precludes easy answers” (Warziniack and others 2017: 18). Similarly, as Dosskey and others (2010: 272) review, “despite a large body of research into water quality functions of riparian zones and the existence of large programs that promote restoration of permanent riparian vegetation in developed landscapes, there have been few direct studies of the responses of stream water chemistry to the loss of riparian vegetation and to its restoration.”

In addition to water treatment costs, stream chemistry is important for fish habitat. Fish habitat is associated with nonmarket benefits from recreational fishing and the existence value of threatened and endangered species. The nature of these benefits suggests the importance of estimating their value through nonmarket valuation techniques, such as contingent valuation, which have been employed with simplified assumptions and models of ecosystem processes and, importantly, can be used to directly estimate the total economic value of alternative management options. For example, Loomis and others (2000) and Holmes and others (2004) both use this approach to estimate the benefits of fully restoring two rivers at around $5 per household per mile, for the Platte River and the Little Tennessee River, respectively. In anothe rvein, a detailed analysis demonstrates the importance of the Yellowstone cutthroat trout (Oncorhynchus clarkii bouvieri) to a variety of stakeholders in the region around the Shoshone National Forest and further links the continued viability of this species to the wilderness-protected condition of high-elevation streams. Again, however, evidence demonstrates the strong importance of context, including physical setting, forest attributes, and fish populations, in determining the effect of forest management or restorationon fish habitat (e.g., Keeton and others 2007, Nislow 2005). Additionally, riparian ecosystems and instream chemistry represent just one component of the broader natural systems intended to be preserved by wilderness allocation and management.

Conclusion

While the Wilderness Act emphasizes the preservation of natural systems and processes in designated wilderness areas, it also explicitly states that these areas are to be managed for the benefits they provide to people. Better understanding of these benefits can inform decisions about the allocation and management of wilderness and of other lands that have the potential to influence these benefits. In this article, we examined the role of wilderness areas in contributing to the benefits provided by water resources to the general public. We found that, indeed, significant volumes of water originate in wilderness, and relatedly, that wilderness areas include many watersheds of high importance for the public’s drinking water supplies. This demonstrates an important link between the public and the way its lands are managed, even when those lands are far from the suburbs and cities where most people live. However, we also found strong spatial heterogeneity in the relationship between water resources and wilderness areas and that it seems possible that at least some of these relationships might be due to coincidences of location rather than the management of the lands as wilderness. Similarly, we note the challenge and importance of determining counterfactuals for the land management if one wishes to estimate the value added to the water resources as they flow through wilderness areas, which often are located in remote, hard-to-access regions by design.

We then presented a series of analyses that attempt to estimate the value added by wilderness to water resources, noting the relevance of many special circumstances of water resources that complicate the field of water economics. We considered “back-of-the-envelope” style estimates of the total economic value of water from wilderness, but we note that they do not reflect the more meaningful total marginal value of that water and that it is inappropriate to attribute the entire value of the resource to the managementof the land. We noted that if the costs of water filtration plants avoided due to upstream protected lands are not passed directly to consumers and the associated effects to demand considered, then such costs only provide an upper bound of the consumers’ WTP for the water’s quality and quantity. Finally, we discussed specific mechanisms through which wilderness management can contribute to the value of water resources and examples of how this value can be understood. Overall, this investigation demonstrates that although relevant interdisciplinary and economic techniques exist, more work needs to be done to confidently estimate the public benefits of wilderness areas through their impacts on water resources.

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