Weighing up an investment is about comparing its costs and benefits; this should be remembered in the case of water protection measures. If decision-making is focused solely on the costs, the various benefits that water protection can provide both locally and at Baltic Sea level will be ignored. These benefits – which may outweigh the costs – cannot be gained without water protection investments.
Thus, in order to make wise decisions, decision-makers should be aware of the overall and long-term impacts of investments. Such information is required when deciding whether or not to implement a project, or which one to choose from the alternatives.
Cost-benefit analysis as a decision-making tool
A cost-benefit analysis (CBA) is a tool for evaluating the overall benefits and costs of investments. For example, it enables comparisons between current costs and future environmental benefits. As a result, it provides information on how worthwhile the considered investment would be for society in the long run.
A cost-benefit analysis also takes account of non-monetary impacts, e.g. environmental benefits. This is achieved by using financial methods to turn such impacts into monetary values. Monetary values are usually based on the willingness to pay for a better environment.
Lessons learned from cost-benefit analysis case studies of the CITYWATER project
A cost-benefit analysis of five water protection measures implemented by municipalities around the Baltic Sea was conducted as part of the EU Life+ co-funded project CITYWATER. One of the study’s key findings was that every local water protection measure had been worthwhile and represented a crucial step towards getting local waters and the Baltic Sea into good condition.
The studied case measures are introduced in Examples. In Instructions & Recommendations you will find support in how to identify the need for and perform a cost-benefit analysis (CBA). Further information on the CITYWATER study, as well as the CBA method in general, can be found in Extras.
In the map below, you will find examples of water protection measures related to this topic. These actions were selected from the Bank of Actions – if you are interested in browsing other water protection actions, visit the Bank of Actions.
Oil spill prevention
Research and monitoring
Shipping and boating
Strategies and programs
Aerator investment in Liepaja WWTP
Actor: Liepajas Udens (Liepaja Water) ● Year: 2015 ● Address: L?biešu iela 33 Riga, Latvia
The municipal company Liepaja Water invested in new aerators and a new PC-program in wastewater treatment plant during 2008–2010.
The municipal company Liepaja Water (Liepajas Udens) takes care of the sewerage system and wastewater treatment in the city of Liepaja, in addition to providing drinking water. Liepaja Water invested in the replacement of new aerators and new PC-program in 2008–2010. The main reason for replacing the three old aerators with five new ones was that there were many problems with the old aerators since 2002 and they were close to the end of their lifespan. Aerators are important equipment in the biological treatment process. Due to new technology of aerators also the PC-program that controls the whole process had to be replaced at the same time.
The investment have reduced the nutrient loading to the sea in two ways. The new aerators provide improved aeration in the biological process and this increases the treatment efficiency in this phase of the process. In addition, the new program improves the controllability of the whole process due to less frequent bypass situations and other problems related to the controllability. Annually the nitrogen load is reduced by 18,000 kg N/y and phosphorus load by 1,000 kg P/y. In addition, the annual energy consumption was reduced by a third, 0.8 MWh/y, which provides also climate associated benefits and energy cost savings.
Depending on how the protection of the Baltic Sea develops in the future, the annual social benefit from nutrient reductions to the sea are 0.1–1.5 M€/y. When overall costs and benefits during the expected 15-year lifespan are summarised, the estimated net benefit of the investments is between 2.1 M€ and 18.6 M€. According to the results, this single investment in a WWTP seems to be worthwhile from both a global and local perspective.
The impacts and the net present value of this action were assessed in the cost-benefit analysis study conducted in the EU Life+ funded project CITYWATER. Further information of the study can be found from !
Web page: http://www.liepajas-udens.lv/
Guidelines & Recommendations
Guidelines & Recommendations
How do I know whether a cost-benefit analysis is needed?
A cost-benefit analysis (CBA) is a useful tool, recommended when gathering information in support of decision-making. How do we identify the need for a CBA?
The following cost-benefit approach will help you to learn more about the case under planning and to discern whether CBA or other methods are needed. It will also help you to understand what needs to be taken into account when assessing the overall impacts of water protection actions. These recommendations were drawn up as part of the EU Life+ project CITYWATER.
The various alternatives to a cost-benefit analysis – which should you choose?
Performing a cost-benefit analysis and, in particular, monetising the full range of impacts may require more than the available time, data, expertise and other resources. Alternative methods may therefore be useful. The following is based on Boardman et al 2014 (see Extras).
Qualitative cost-benefit analysis
This is an alternative to a conventional cost-benefit analysis. It involves a partial cost-benefit analysis, monetising as many of the project’s impacts as possible. The other impacts are quantified using other numerical values. If the impacts cannot be evaluated in quantitative terms, their relative importance should be estimated in qualitative terms.
A qualitative CBA is useful when seeking information on the project/policy rather than comparing alternatives. Since not all of the variables are of the same value, ranking the alternatives may be challenging or even impossible.
When considering a certain impact, e.g. nutrient reduction, a common question concerns the issue of how to achieve the largest nutrient reduction at minimum cost. A cost-effectiveness analysis is a method of pinpointing the most cost-effective alternative, while focusing on the costs and main beneficial impact. This gives the relationship between the measured impact and the total costs of a project/policy throughout its lifespan.
A cost-effectiveness analysis is useful if the desired effect is easily measurable and there are no other impacts related to the project/policy alternatives. Since a cost-effectiveness analysis focuses only on the costs and main impact, other important benefits may be ignored, leading to a sub-optimal choice from among the alternatives
How to perform a cost-benefit analysis?
The main steps presented below are based on Boardman et al 2014 (see Extras), and can be applied to water protection. However, since every project/policy and analysis is unique, you should take account of factors specific to your project when running through these steps.
General recommendations based on CITYWATER cost-benefit analysis case studies
The cost-benefit analysis study conducted for the EU Life+ co-funded project CITYWATER provided an overview of how to apply a cost-benefit analysis to water protection measures at municipal level. The following recommendations are based on the study results:
Designed water protection
- Implement different kinds of water protection measures, in order to obtain the broadest set of benefits possible
- Prefer measures connected to other fields of environmental protection, in order to maximise the benefits of each single measure
Cost-benefit approach supporting water protection
- Use cost-benefit analysis as a tool for bringing the benefits of water protection to decision-making, for choosing among potential measures, or for improving the efficiency of implemented measures
- To obtain material for an impact assessment, put more effort into water protection research and data compilation.
Utilise existing information
- Make use of the information provided by the CITYWATER study (see Extras) to support the implementation of water protection work at local level.
- Use the existing networks, for example the Baltic Sea Challenge, for sharing ideas, experiences and best practices regarding water protection as a form of support for your own work.
Below, you will find further information, useful reading and useful links on this topic.
Cost-benefit analysis of CITYWATER
A cost-benefit analysis of five different water protection measures implemented by municipalities on the shores of the Baltic Sea was conducted as part of the EU Life+ co-funded project CITYWATER. Below, you will find the full study report, the executive summary and the marginal benefit report, which was an annex to the study
Punttila, Eliisa. 2014. Cost-benefit analysis of municipal water protection measures: Environmental benefits versus costs of implementation. City of Helsinki Environment Centre publications 21/2014. Helsinki: City of Helsinki & EU Life+ project CITYWATER Benchmarking water protection in cities.
Link to the full report
Punttila, Eliisa. 2015. Executive Summary. Cost-benefit analysis of municipal water protection measures: Environmental benefits versus costs of implementation. Helsinki: City of Helsinki & EU Life+ project CITYWATER Benchmarking water protection in cities.
Ahlvik, Lassi & Ahtiainen, Heini. 2014. Marginal benefits of reducing nutrient loads to the Baltic Sea. Helsinki: MTT Agrifood Research Finland & City of Helsinki, EU Life+ project CITYWATER - Benchmarking water protection in cities.
Link to the report
Other cost-benefit analysis studies
The Baltic Sea - Our Common Treasure. Economics of saving the Sea. Swedish Agency for Marine and Water Management, Report 2013:4. The international research network BalticSTERN, with partners in all countries around the Baltic Sea, combines ecological and economic models to make cost-benefit analyses and investigates possible cost-effective solutions for Balitc Sea related environmental problems. The results are compiled in the report “The Baltic Sea – Our Common Treasure. Economics of Saving the Sea” directed to decision makers.
Link to the report
Cost-benefit analysis method
The following guidebooks provide further information on the cost-benefit analysis method.
Boardman, A., Greenberg, D., Vining, A., & Weimer, D. 2013. Cost-benefit analysis. Concepts and practice. (International ed of 4th revised ed ed.). Harlow: Pearson Education Limited.
European Commission Directorate-General for Regional and Urban policy. 2015. Guide to Cost-Benefit Analysis of Investment Projects Economic appraisal tool for Cohesion Policy 2014-2020.
Link to the guide
HM Treasury. 2011. The Green Book: Appraisal and Evaluation in Central Government. Treasury Guidance. London: TSO.
Link to the book