# Presentation: 485422

## Integrating Ecological Risk Assessment and Economic Analysis in Watersheds

- Randall Bruins
- National Center for Environmental Assessment
- EPA Research and Development

**Notes:**
The NCEA has studied the integration of ERA and economic analysis in the context of wsd mgmt, and has recently issued a report of its findings.  The full reference is given in your summary sheets, and I understand you have been provided with copies of the report.

## Topics

- I.	Ecological risk assessment and ecosystem valuation
- II.	Clinch Valley case study
- Watershed Ecological Risk Assessment
- Economic Analysis
- III.	A proposed integration approach
- IV.	Ongoing applications

**Notes:**
I’ll begin my presentation with a few comments about the importance of ERA to the valuation problem.

Next, I’ll present one of three case studies EPA has conducted.

I’ll follow that by presenting a proposed integration approach, and conclude by discussing some ongoing work.

## I.	Ecological Risk and Ecosystem Valuation

- Ecological risk reduction
- A key focus of many EPA actions
- A central component of ecological benefits assessment
- Ecological risk assessment (ERA)
- EPA’s approach for determining or predicting risks
*Guidelines for Ecological Risk Assessment* (1998)

**Notes:**
Many EPA actions are partly or wholly concerned with reducing ecological risks, so understanding those risks is key to determining the benefits of EPA’s actions.  EPA’s Guidelines for ERA, published in 1998, do not prescribe particular methods for risk estimation; instead, they outline a set of steps for designing an assessment that will address stakeholder values and mgmt objectives, for conducting analyses, and for using the outcomes to characterize the risks in terms that are relevant to those values and objectives.

## Watersheds

- Unit for analysis and management
- Five ERA case studies (1993 ~ 2000)
- Three economic studies (1999 ~ 2003)

**Notes:**
Wsds are an important unit for the analysis and mgmt of aquatic ecosystem risks.  In 1993, EPA initiated five case studies of ERA at the level of the wsd, at the starred locations.  Later, in an effort to study the economic integration problem, EPA funded economic studies at the three locations with the circled stars.

So these studies proceeded in two phases; they were NOT integrated at the outset.

## Case Study Goals

- Ecological risk assessment
- Identify key sources, stressors, ecological endpoints
- Characterize risks
- Economic analysis
- Use risk assessment findings
- Conduct decision-relevant analyses

**Notes:**
The case studies had the following goals:

For the ERA phase, the goals were to i.d. key sources, stressors, and ecological endpoints and to characterize the risks.

For the economic analysis phase, the programmatic goals were more general and exploratory: to use the ERA findings in decision-relevant economic analyses.

## Economic Case Studies

- Big Darby Creek, Ohio
- O.H. Erekson, O.L. Loucks, Miami University (Ohio)
- Contingent valuation of suburban development alternatives
- Hedonic value (still ongoing)
-  Middle Platte River, NE
- R. Supalla, University of Nebraska
- Game theory model of interstate conflict over water for endangered bird species

**Notes:**
I have been asked to focus my presentation on the Clinch Valley case study.  Therefore, I will just briefly mention the two economic case studies that will not be discussed today.  

A study in the Big Darby Creek wsd of Ohio used contingent valuation to compare suburban development alternatives as to their ecological and economic effects.  A complementary hedonic study is not yet completed.

A study of an interstate conflict over the provision of water needed by endangered species in the middle reach of the Platte R. employed a game theory model.  You may refer to the report for further information on these studies.

## II. Clinch Valley Case Study

**Notes:**
Now I’d like to move to a description of the Clinch Valley case study.  This wsd, located in SW Virginia and NE Tennessee, is an economically depressed area with an unusually high diversity of fish and mussel species, including many rare species, and has been the subject of conservation efforts by several agencies and NGOs.

## Slide 8

**Notes:**
Sources of stress include urban areas, coal mining and processing, transportation corridors and hazardous spills, and cropping and grazing practices extending to the water’s edge, and beyond.

## Watershed Ecological Risk Assessment

- Assessment Team
- U.S. Environmental Protection Agency
- U.S. Fish and Wildlife Service
- The Nature Conservancy
- Tennessee Valley Authority
- U.S. Geological Survey
- Assessment Report
- U.S. EPA (2002). Clinch and Powell Valley watershed ecological risk assessment. National Center for Environmental Assessment, Washington, DC; EPA/600/R-01/050. Available at <http://www.epa.gov/ncea>

**Notes:**
To conduct a W-ERA, an assmt team was assembled that drew from these groups and had access to existing ecological data sets.  A report detailing the assmt effort and its findings is available from EPA.

## Conceptual Model:Sources and Stressors

***Conceptual Model:******Sources and Stressors***

**Notes:**
The assmt was guided by conceptual models of hypothesized relationships between sources, or human activities, stressors produced by those activities, and [next slide]

## Conceptual Model:Effects on One Endpoint

**Notes:**
important environmental changes.  This diagram shows the effects on one endpoint, mussels; a separate model was produced for effects on the other endpoint, fish.

## Riparian zone analysis

***Riparian zone analysis***

- Fish index of biotic integrity (IBI) at this sampling point,

- was optimally explained by land cover in a
- riparian area of this size

**100 m**

**Min**
**500 m**

**Max**
**1500 m**

**Notes:**
In the analysis phase, the W-ERA studied temporal trends in mussel diversity, and it also examined various spatial correlations between land use or habitat quality on the one hand and biological integrity of the fish or benthic community on the other.  This slide highlights one of these analyses that later became relevant to the economic study.  Analysis of fish community integrity vs. riparian land cover at various spatial scales showed that for a given point of interest there is an optimal riparian zone width (100 m) and range of upstream lengths (at least 500 m and up to 1500 m) within which the land cover-IBI correlation is maximized, suggesting that riparian zone restoration within this envelope would be most effective.

## Risk Characterization

- Up to 55% of stream fauna variability explained by land uses
- Sedimentation, habitat degradation and toxics most important stressors
- Forested riparian areas associated with higher biological condition
- Native fish and mussels are geographically restricted and highly vulnerable

**Notes:**
In the risk characterization phase, the correlations revealed by the data were interpreted to describe expected adverse effects and uncertainties.  Here are some of those conclusions.  Note especially the third point: Forested riparian areas tend to be associated with higher biological condition.

## Economic Study Team

- University of Tennessee (grantee)
- James Kahn (economist)
- Steven Stewart (economist)
- Oak Ridge National Laboratory
- Robert V. O’Neill (ecologist)
- Amy Wolf (anthropologist)
- Held several meetings with ecological risk assessment team

**Notes:**
The economic study team was lead by economists from the University of Tennessee (both of whom have since moved to other institutions) and scientists from Oak Ridge National Lab.  Members of this team held several meetings with ERA team members.

## Economic Analysis Goal and Rationale

- Goal:
- Value biodiversity changes for risk-relevant management scenarios
- Rationale for method:
- People lack experience in “buying” environmental goods
- People _do_ evaluate real-world choices as alternative attribute-bundles

**Notes:**
The goal of economic analysis was to value biodiversity changes for risk-relevant management scenarios.  The investigators’ rationale for choosing conjoint analysis, as opposed to contingent valuation, was that people lack experience in “buying” environmental goods, so it is hard to make the CV task realistic.  On the other hand, people DO evaluate real-world choices as alternative attribute-bundles.  Just as each car that one considers for purchase may be seen as different bundle of certain attributes such as capacity, comfort, style, reliability and price, so too people can understand that public policy choices result in states of the world that differ across attributes having to do with ecological quality, regional quality of life and cost.

## Conjoint Analysis Method

- Describes a choice in terms of  3 – 6 attributes
- Survey presents a series of choice sets in which attribute levels vary independently
- Model estimates each attribute’s contribution to probability of a choice
- Inclusion of a payment attribute enables WTP estimates

**Notes:**
Thus, the conjoint analysis method describes an choice in terms of  3 – 6 attributes, pretested with respondents for understanding and significance.  
The survey presents a series of choice sets in which the levels of these attributes are varied independently.
The model then estimates each attribute level’s contribution to the probability of a choice.
Inclusion of a payment as one of the attributes enables WTP to be estimated.

## Approach

- Define hypothetical policy
- Define ecological, recreational and economic (i.e., agricultural) attributes affected
- Mail survey to sample of valley residents
- Estimate conjoint model

**Notes:**
The approach used in this study was to define a hypothetical policy that was relevant to wsd mgmt goals and 
to define ecological, recreational and economic attributes of the Clinch Valley that would be affected.  The survey was mailed to 400 valley residents from whom 76, or 23%, provided complete responses that could be used to estimate the conjoint model.

## Choice Attributes

| Attribute | Attribute Levels |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
| Agriculture-free zone | 25 yards Clinch /
10 yards tributaries |  | 10 yards Clinch /
5 yards tributaries |  | none |  |
| Aquatic Life | full recovery |  | partial recovery |  | continued decline |  |
| Sportfish | increase |  | no change |  | decrease |  |
| Songbirds | increase population |  |  | no change |  |  |
| Agricultural income | no change |  |  | $1 million/yr decrease |  |  |
| Cost to Household 
($ per year) | $100 | $75 | $50 | $25 | $10 | $5 |

**Notes:**
At left are the six attributes defined in this study, and the levels over which each attribute could vary are also shown.  As described to respondents, in order to preserve the unique quality of the wsd, policies could hypothetically be established whereby farmers along the Clinch R. or its tributaries would be compensated for maintaining an agriculture-free zone along the waterway.  This is similar to policies that were actually being piloted successfully in various parts of the wsd under grants obtained by the Nature Conservancy.  In the survey, however, the policy would be funded by a tax paid by households.  There were two possible levels for the width of that ag-free zone as well as a status quo choice.  There were also 6 different possible payment levels.

## Sample Choice Set

|  | Option A | Option B | Option C:
No New Action |
| --- | --- | --- | --- |
| Agriculture-free zone | 10 yards Clinch/
5 yards tributaries | 10 yards Clinch/
5 yards tributaries | none |
| Aquatic Life | full recovery | partial recovery  | continued decline |
| Sportfish | no change  | increase | no change |
| Songbirds | increase | increase | no change |
| Agricultural income | no change | no change | no change |
| Cost to Household 
($ per year) | $50 | $50 | no change |

- Please check the option that you would choose:
- 	Option A	Option B	 Option C
- 	□	  □	□

**Notes:**
Here is a sample choice set.  Please notice that the attributes vary independently of one another.  For example, both options A and B in this particular set present the same policy option and the same cost, but show different effects on aquatic life and sport fish.  These variations allow the model to be estimated.  In each choice set, the respondent can also select “no new action.”  Each respondent saw eight different choice sets.

## Advantage of Conjoint Approach

| Implied willingness to pay (compared with status quo) |  |  |
| --- | --- | --- |
| ATTRIBUTE | level | Implicit price ($) |
| AG-FREE ZONE | small (10/5 yards) | 21.12 |
|  | large (25/10 yards) | 9.27 |
| AQUATIC LIFE | partial recovery | 2.55 (NS) |
|  | full recovery | 25.18 |
| SPORT FISH | decline | -22.03 |
|  | increase | 17.97 |
| SONG BIRDS | increased population | 2.39 (NS) |
| AG INCOME | $1M decrease | -4.76 |

**Notes:**
This slide, showing some of the numerical results, illustrates the power of the conjoint method.  Respondents’ WTP for various attribute levels can be differentiated.  For example, the narrower ag-free zone was much preferred to the wider zone.  In contrast to full recovery of aquatic life, WTP was not significant for partial recovery -- nor for an increase in songbirds.  Using these values, mean individual compensating variation, or welfare change, could be estimated for any real policy whose dimensions could be described within this attribute space.

## Ways to Build Upon This Demonstration

- Clarify the usefulness of welfare estimates in Clinch Valley management decisions
- Quantitatively link the risk and conjoint models
- Estimate impacts of the riparian policies on the attributes
- Make attributes and levels more precise

**Notes:**
This study was conducted for purposes of research and demonstration.  Further steps would be needed in an actual use for decision-making purposes.

First and foremost, before undertaking such a study, one would need to clarify the usefulness of estimates of individual welfare change to the decision-making process.  For example, if existing riparian restoration programs were to be funded more widely, who would have to make the decision and how would they decide?  Would estimates of this kind be persuasive?  This study did not address that question.

Second, a quantitative link between the risk and conjoint models would be needed in order to derive welfare measures for a real policy proposal.  Establishing this link would have required, first, estimating the real costs and ecological and recreational impacts of the real policy.  To do so would have been difficult because respondents favored a zone of about 10 m width, whereas risk models required 100 m for reasonable explanatory power.  Second, it would have required wording the attributes and levels in a more precise way that would allow their calibration to ecological endpoints.  For example, to what level of IBI change do “full” or “partial” recovery correspond?  What does “full recovery” really mean, when species extinctions have already occurred, and transportation spills could cause further extinctions at any time?

## III.	Proposed Integration Approach

- Interdisciplinary planning and problem formulation
- Decision context determines tools
- Use integrated conceptual models
- Specify management alternatives to allow interdisciplinary analysis
- Quantitatively relate ecological and economic endpoints

**Notes:**
Next, I will discuss the conceptual approach for integrating ERA and economic analysis that is proposed in our report.  

First, our critical analysis of the case studies indicated that an interdisciplinary approach for Planning and problem formulation is essential.  Put simply, ecologists and economists must collaborate from the outset.  A clear understanding of the decision context will determine the analytical tools needed.  Conceptual models should be developed that illustrate ecological and economic cause and effect.  This point is highlighted because I will return to it later.

Next, ecological risk assessors should do more than just characterize baseline risks.  They should employ risk models to determine system responses to management alternatives.

Finally, quantitative relationships need to be drawn between ecol and econ endpoints.

## Slide 23

**Notes:**
Here is the proposed approach, as diagramed.  Note that, in Problem formulation, an integrated conceptual model is used.  As compared to ERA, more emphasis is given to the formulation of mgmt altvs (at upper right), so that these altvs can be analyzed, based on multiple disciplines (shown by the dark arrows), and broadly com-pared.  Decisions are seen as frequently negotiated, and implemented in adaptive fashion, sometimes requiring reiteration of design and analysis.

Now I would like to focus for a moment on the two central boxes – Analysis and characterization of altvs, in which the disciplinary analyses are carried out, and comparison of alternatives.  There are many ways to accomplish these steps, but the methods used should be as complete as possible.  I will briefly describe three possible approaches.

## Analysis Approaches:1. Monetize All Changes

***Analysis Approaches:******1. Monetize All Changes***

**Notes:**
The most familiar approach is Cost Benefit Analysis, in which ecological, market-based and health or sociocultural effects of each altv are monetized.  Altvs may then be compared on the basis of economic efficiency as well as equity, sectoral impact and other changes that cannot be quantified or monetized.

## Analysis Approaches:2. Integrate Using Stated Preference

- ANALYSIS & CHARACTERIZATION OF ALTERNATIVES

- Ecological Risk

- Health or Sociocultural

- Economics

**Quantify endpoint**
**changes where**
**feasible**

**Qualitatively **
**describe**
**other changes**

**Quantify endpoint**
**changes where**
**feasible**

**Qualitatively **
**describe**
**other changes**

**Quantify financial costs **
**and market-based**
**economic effects**

**Qualitatively analyze **
**equity, economic impact**

- COMPARISON OF ALTERNATIVES

**Express primary changes**
**in common language**

**Stated preference**
**study**

**Express primary changes**
**in common language**

**Express equity effects, impacts**
**in common language**

**Estimate net **
**social benefits**

**Notes:**
A related approach relies on the use of stated preference techniques, such as contingent valuation or Conjoint analysis, to accomplish some of the integration that otherwise is done by monetization.  That is, rather than monetize ecological and other effects, these are all described in meaningful terms in a stated-preference instrument,  Equity effects and economic impacts could also be included.  Survey responses then reveal how the respondents implicitly integrate these factors.

## Limitations of Clinch Valley Application

***Limitations of Clinch Valley Application***

**Notes:**
This second approach was used, in part, in the Clinch Valley study, as shown by the white boxes.  The diagram shows that the approach was not sufficiently complete to allow real comparisons.

## COMPARISON OF ALTERNATIVES

**Qualitatively describe all unmodeled changes**

**Quantify**
**endpoint**
**changes where**
**feasible**

**Qualitatively **
**describe**
**other changes**

**Create linked model**
**allowing feedbacks**

**Adjust management**
**alternatives, reiterate**

- Ecological Risk

- Health or Scoiocultural

- Economics

- ANALYSIS & CHARACTERIZATION OF ALTERNATIVES

**Compare quantified**
**and nonquantified**
**endpoint changes**

**Compare economic**
**equity, impact**

**Compare quantified**
**and nonquantified**
**endpoint changes**

**Notes:**
A third approach envisions the use of linked models of ecological and economic system behavior to simulate long-run effects of management altvs, and to optimize mgmt designs.

## Integrated conceptual models
Sources, stressors, ecological endpoints
Ecosystem services and economic values
Management alternatives
National rule application
Site specific application for water quality standards (designated use attainment)

- Sources, stressors, ecological endpoints
- Ecosystem services and economic values
- Management alternatives
- National rule application
- Site specific application for water quality standards (designated use attainment)

***IV. Ongoing Applications***

**Notes:**
Finally, I would like to describe some ongoing applications of this approach, centered on the use of integrated conceptual models as analytical and communication tools.  Like the conceptual models used in the ERA, an integrated model shows the relationship between Sources, stressors and ecological endpoints.  In addition it includes ecosystem services and economic values.  Finally, it shows in diagram fashion how proposed management altvs would affect endpoints, services and values.

Ongoing work is applying these models in two contexts: evaluating benefits of national rules and communicating the trade-offs inherent in local decisions that affect water quality.

## D r a f t

**Notes:**
This is a conceptual model of ecological benefits resulting from a rule that imposes new requirements on cooling water intakes to reduce the impacts on populations of aquatic organisms killed by the intake. At the top is the stressor, the cooling water intake, and the management practice, or BAT.  The shaded box is a fish population model.  Below that are services, and then economic values.  Each numbered arrow represents a data and/or modeling requirement.
The diagram was developed by a small team of ecologists and economists from the OW, the NCEE and the ORD.  It was then presented to a larger, interdisciplinary group tasked with determining what improvements in methods and data were needed in order to improve benefits estimation.  The diagram enabled the larger group to begin working productively in a very short time, and to produce consensus recommendations in about 5 hours.

## Watershed Conceptual Model Template

***Watershed Conceptual Model Template***

**Notes:**
We are developing a series of conceptual models to be part of a report that would help wsd mgrs to better involve communities in complex and costly decisions about water quality.  This is a general template for model development.  
The yellow box, box 1, shows two ecosystems, linked in upstream-downstream fashion, that provide services to society.
In box 2, we consider that stressors are imposed by land uses or other pollution sources, and these stressors have welfare effects.
Box 3 shows that management options can be superimposed, and have their own costs.
The next two slides focus on areas within the gray box, Box 2.

## D r a f t

**Notes:**
A model of a specific problem is shown next.  In this hypothetical example, unrestricted grazing and the growing of crops in the riparian zone of an intermittent stream provides market benefits but reduces other values.

## D r a f t

**Notes:**
Installation of grazing controls and restoration of riparian vegetation eliminates certain stressors and reduces others, with negative impacts on some services and positive impacts on others.

## Slide 33

**Notes:**
In conclusion, I have briefly touched on one way to apply the principles of integrated analysis to ecological assessment problems – that is, through the use of conceptual models.  Other approaches are more fully elaborated in EPA’s Ecological Benefits Assessment Strategic Plan, which is currently under development.