Cost Benefit Analysis of a Catchment Management Scheme using the Avoided Cost Method

Catchment-based management approaches to improving water quality have become a popular alternative in recent years to costly water treatment which deals with the consequences of water quality issues rather than tackling them at source. These schemes have the potential to deliver multiple benefits including improvements to water quality, carbon benefits, enhanced biodiversity, greater amenity value, reduced flood risk and benefits to the local economy. However, more evidence is needed to demonstrate their cost-effectiveness. This paper reports on a cost-benefit analysis of a catchment management scheme called the Land Incentive Scheme (LIS) undertaken in the Derg catchment on the Ireland/Northern Ireland border. To calculate benefits, the Avoided Cost Method is used which provides a lower bound on the economic value of the water quality improvements secured by the scheme. Projected over a 30-year period, estimates of the benefits and costs of the LIS show that for every £1 invested there would be £3.36 worth of benefits. The majority of cost savings are achieved because regulatory breaches trigger substantial capital and operational spend that could be avoided with effective catchment management. This study shows that ‘Avoided Cost’ is a credible valuation method which can provide compelling evidence for water companies and policymakers to support investment in catchment-based approaches.