Policy Nook — Policy Note: Benefit Cost Analysis of Water Investments in the Anthropocene

Peer Reviewed
20 November 2023

Dale Whittington, Richard T. Carson, Thomas Sterner


Water management is becoming increasingly challenging. The core problem in many locations is an old one: water scarcity will increase as demand rises due to population and economic growth. Conditions in the modern Anthropocene — higher temperatures, continental drying, higher evaporation, and non-stationary hydrology — will add complexity.

The Anthropocene is usually taken to mean the period when humans are the main driving force for the development of planet Earth. The planet is 4.5 billion years old, and modern humans have been around for just a few hundred thousand years. They have already fundamentally altered the physical, chemical and biological systems of the planet. Since the end of World War II, human impacts have increased dramatically. This is sometimes known as the Great Acceleration, when global income, widescale natural resource extraction, carbon dioxide (CO2) emissions, habitat destruction, and species extinction have all risen rapidly.1 It is hard to point to any single characteristic, but the Anthropocene has brought us closer to various physical limits — sometimes referred to as “planetary boundaries” (Rockström et al. 2009). We are now confronted with a number of new large-scale environmental and resource issues, including the possibility of tipping points or regime shifts. Interactions between various environmental problems may increase the risk of moving past those tipping points.

In the Anthropocene, existing water supplies will need to be used more wisely and, where possible, new supplies developed. Water professionals will need to grapple with the possibility of catastrophic and irreversible environmental change (Sterner et al. 2019). The benefits and costs of both price and non-price policy instruments will have to be carefully assessed to balance supply and demand over time in an environment where the climate is starting to evolve at an increasing rate.

The use of benefit-cost analysis (BCA) in the water sector will likely become more important than ever in the Anthropocene. This policy note describes six key issues that benefit cost (BC) analysts will need to rethink as they estimate the benefits and costs of policies, investments, and regulations designed to address water problems in the Anthropocene: (1) optimizing net benefits within quantity constraints; (2) forecasting the business-as-usual dynamic baseline rather than assuming a static status quo; (3) treatment of multiple sources of risk; (4) evaluating system-wide consequences; (5) the question of standing, that is whose benefits and whose costs count; and (6) how to incorporate equity and distributional issues. None of these are new issues to the field of BCA. However, BCA practitioners will need to sharpen their skills in order to adapt the method to conditions likely to be faced in the Anthropocene (World Bankforthcoming).

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Publication reference
Whittington, D., Carson, R. T., & Sterner, T. (2023). Policy Nook — Policy Note: Benefit Cost Analysis of Water Investments in the Anthropocene. Water Economics and Policy. https://doi.org/10.1142/s2382624x23710054
Publication | 22 November 2023