UK: The Environmental and Social Value of Leakage Reduction (in context with other Resource and Demand Management Alternatives), 1998

The Situation

During the 1999 Periodic Review of price caps, water companies in England and Wales were required to develop a full analysis of the wide set of water management options available to them for submission to both the environmental and economic regulators. NERA was commissioned by UK Water Industry Research and the National Rivers Authority to estimate the environmental and social costs and benefits of the options.

NERA's Role

NERA's study provided guidance on the categories of environmental and social costs, how to avoid double-counting market and non-market values, and how to treat the "sunk costs" of completed capital schemes. In addition, NERA identified the key environmental and social costs and benefits that required estimation in this context, and produced practical guidance on how each should be valued. Finally, NERA developed a series of practical case studies to help companies identify the necessary work for their Periodic Review submissions.

NERA's approach was to consider the issues from the water supply planner's point of view. NERA identified how supply-demand balance valuations should be extended beyond financial calculations to cover environmental and social costs and benefits and how, in practice, appropriate values for these wider costs and benefits could be estimated in the context of planning exercises.

The Result

The guidance set out in NERA's study was widely used by water companies for the 1999 Periodic Review.