Preface
Climate change and demographic trends in the 21st century are placing unprecedented stress on the water resources sector. This evolution raises the potential economic value of well-designed interventions but also complicates their evaluation. To gauge the benefits of projects that reduce future climate risks, such as flood control infrastructures, the severity and intensification of future climate impacts, and the growing vulnerability of future populations must be characterized. When climate risks have the potential to undermine the performance of projects, such as those that supply agricultural or urban water, an analysis of resilience to future climate shocks becomes essential. Assessments of water availability and demand under uncertain climate futures will also be necessary to measure the economic value of water-sector capacity expansions. The analytical methods, tools, and data required to meaningfully characterize fundamentally uncertain climate futures are not common in project evaluation, necessitating an adjustment to standard practice.
The scope and design of project interventions must also reflect evolving social norms that emphasize environmental concerns, sustainable development goals, the need for stakeholder engagement, and normative views in favor of distributive justice. These norms encourage an expansive concept of project designs and interventions. Such interventions might include the use of nature-based water management solutions as a complement to gray infrastructure, or the recycling and reuse of water or other demand side management practices to increase the efficient use of existing water supply infrastructure, while reducing the optimum size of new capacity.
Broader normative goals also widen the evaluation lens for project appraisal and encourage a holistic approach to conceptualizing project outcomes. Watershed protection programs can be connected to carbon emissions, soil erosion, and the welfare of hillside residents, for example, and ultimately traced to changes in downstream flooding and associated risks to agricultural production, urban economic activity, and infrastructures, and to impacts on urban residents.
How to conduct economic analysis in this complex setting is the general subject of this important monograph. It contains ten chapters authored by veteran analysts with deep expertise in their subject areas. The intent is to provide guidance for World Bank Task Team Leaders who face the challenge of producing economic and financial analyses such as those required in project appraisal documents. But the survey of novel methods and applications in the monograph will also be informative for a broader community of applied analysts working in the water resources area, including those situated in think tanks, government departments, development organizations, and academic institutions.
The monograph starts with an overview and then turns to a chapter that addresses uncertainty evaluation for water resources decision-making when uncertainties are deep or fundamental. This chapter emphasizes the utility of innovative robustness-based methods for assessing the value of water projects facing uncertain climate change. The following chapter develops the concepts and tools for evaluating nature-based solutions, such as wetland restoration. Nature-based solutions can be complementary to other policies for mitigating or adapting to the effects of climate risks.
The focus then shifts to stakeholder representation in project development and implementation.
This chapter provides the tools and methods for stakeholder analysis, emphasizing the importance of stakeholder value orientations and the necessity of stakeholder engagement for successful project performance. These three chapters are primarily methods oriented but use practical examples and case studies to illustrate concepts.
The next part of the monograph details methods and guidance for economic analysis in specific water resource areas, including flood protection and drought risk management, urban water supply and sanitation, multipurpose hydropower projects, and climate resilient water use in agriculture. These chapters provide comprehensive evaluation frameworks and use case studies to illustrate them, providing essential guidance to practitioners conducting economic analysis of projects in these areas. Some themes that emerge are the utility of hybrid models of flood risks calibrated using both local and global data, and the use of multi-faced interventions that address more than one management practice, such as improving irrigation efficiency while planting drought-resistant crops. Others include the importance of interdisciplinary collaboration and stakeholder engagement throughout the project development cycle, and the desirability of integrating climate risk and resilience measures at early stages of project designs where design flexibility is greatest. An early identification of tradeoffs not only increases the net-value of water resources investments but allows a more fruitful analysis of the tradeoffs among competing objectives, including those that include distributional effects and impacts on sustainable development objectives.
The final chapter concludes that benefit-cost analysis in the water resources sector must be adapted to address five key challenges: the construction of dynamic baselines in an era of climate change; the use and evaluation of multi-objective policy mixes; the valuation of improved health and environmental quality in low- and middle-income countries, the desirability of assessing the distributional consequences of water policy interventions, and need to develop new policy instruments, tools, and data to address these evaluation challenges. This is not familiar terrain for economic analysts, but new competencies are necessary to address the complexities of water resource management in the present era.
Kerry Krutilla
Professor, O’Neill School of Public and Environmental Affairs
Indiana University
