An Economic Analysis of Green v. Grey Infrastructure
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Water Environment Association of Ontario 2019 Annual Conference, Toronto, Ontario, April 16, 2019 by Robert J. Muir, M.A.Sc., P.Eng., Fabian Papa, MBA, P.Eng. Presentation reviews policies and regulations in Ontario promoting cost-effective infrastructure servicing. Summarizes the assessment of cost effectiveness of grey, green and blended green and grey flood damage reduction strategies on a system-wide basis. Identifies triple-bottom-line benefits of erosion mitigation reduction and water quality improvements due to green infrastructure implementation. Details of the analysis are presented in the proceedings paper also included here: https://www.cityfloodmap.com/2019/03/an-economic-analysis-of-green-v-grey.html The analysis indicates benefit cost ratios for flood control and other benefits and assesses funding impacts on stormwater utility fees in a case study in the City of Markham. Markham's current Flood Control Program consisting largely of grey infrastructure is shown to be cost-effective with benefits exceeding costs by 2 to 1 based on insured loss deferral (and a higher ratio considering higher total losses). Green infrastructure is shown to be less cost-effective at delivering flood control and the cost for achieving water quality benefits exceeds the estimated willingness to pay 'value' of those benefits. The analysis suggests that a critical, strategic evaluation of green infrastructure implementation targets is required prior to system-wide implementation, given cost concerns.
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An Economic Analysis of Green v. Grey Infrastructure
- 1. Water Environment Association of Ontario- Annual Conference - 2019 An Economic Analysis of Green v. Grey Infrastructure Robert J. Muir, M.A.Sc., P.Eng. Manager, Stormwater, City of Markham Fabian Papa, M.A.Sc., MBA, P.Eng. President, FP&P HydraTek April 16, 2019 - Toronto, Ontario 1
- 2. OUTLINE 1) Infrastructure Cost Policies 2) History of Cost-Benefit Analysis 3) Green Infrastructure Policy and Costs 4) Research Gaps and National Guidelines 5) Markham Case Study – Grey and Green Infrastructure Strategy Benefits and Costs 2
- 3. Provincial Policy Statement (2014): “Infrastructure … shall be provided in a coordinated, efficient and cost-effective manner ….” Infrastructure for Jobs and Prosperity Act (2015) O. Reg. 588/17 (2017) : Asset management plans must show “For each asset category, the lifecycle activities that would need to be undertaken … and the costs of providing those activities.” These activities must also consider “the lowest cost to maintain the current levels of service” Class Environmental Assessments (2015): For wastewater projects “Economic Environment includes commercial and industrial land uses and activities. It also includes the financial costs associated with the alternatives, including construction, operation, maintenance, and property costs.” Regulating Infrastructure Cost in Ontario 3Provincial Policy Statement 2014 Infr. for Jobs and Prosperity O Reg 588/17 Municipal Class EAs
- 4. History of Cost-Benefit Analysis (CBA) 4 • Long-standing requirement to evaluate feasibility of flood reduction projects: Eckstein 1958: “Feasibility is interpreted to mean that ‘the benefits, to whomever they may accrue, are in excess if the estimated costs’, following a requirement specified in the Flood Control Act of 1936.” Watt 1989: “It is therefore reasonable to require that all projects that provide or improve flood protection be justified economically before public funds are allocated” “benefits should exceed cost by a sufficient margin” https://files.onhttps://nparc.nrc-cnrc.gc.ca/eng/view/accepted/?id=7b18d8c9-6c5f-425f-8338-ac4a24f8170bario.ca/infrastructure_update_2017-_eng_0.pdf Watt 1984:
- 5. CBA in Ontario Flood Control Class EAs ... Rare 5 • No formal requirement for Cost-Benefit Analysis in economic evaluation. Dillon Consulting Limited 2004: Evaluated flood control on a catchment- by-catchment basis in Stratford storm system Master Plan. Prioritized works to guide subsequent Class EA study in high benefit / cost ratio locations. https://files.onhttps://nparc.nrc-cnrc.gc.ca/eng/view/accepted/?id=7b18d8c9-6c5f-425f-8338-ac4a24f8170bario.ca/infrastructure_update_2017-_eng_0.pdf Stratford City-Wide Storm System Master Plan: 0.77 0.06 0.53 0.15 Benefit / Cost Ratios
- 6. Cost Benefit Analysis is Like Jazz Flute 6
- 7. CBA for Federal Reg’s and Grants ... Mandatory 7 • Canadian government requires CBA to evaluate new regulations and disaster mitigation grant applications. Treasury Board 2007: Regulations that impose a cost of $1M or more on stakeholders require monetized benefit and cost evaluation. Infrastructure Canada 2018: Return on Investment (ROI) analysis for eligible projects must show benefit / cost ratio of 2:1 or more, with deferred socio-economic and environmental costs (benefits). https://files.onhttps://www.tbs-sct.gc.ca/rtrap-parfa/analys/analys-eng.pdfTreasury Board Report 2017-2018: Disaster Mitigation Adaptation Fund Guide: https://files.ontario.ca/infrastructure_update_2017-_eng_0.pdf Treasury Board of Canada Secretariat Canadian Cost-Benefit Analysis Guide Inftrastructure Canada Disaster Mitigation and Adaptation Fund Strengthening the Resilience of Canadian Communities
- 8. Ontario Green Infrastructure Policy 8 • Ministry of Environment and Climate Change (now Ministry of Environment, Conservation and Parks) draft LID manual proposed Ontario-wide targets. Did not address costs. “Excessive costs alone shall not be considered an acceptable constraint” (first draft) Draft No. 2 LID Manual: https://drive.google.com/open?id=1NHtrjCglDgox4tYISLU5LLZYS32Ea4MN
- 9. Made-in-Ontario Environment Plan • “This plan will ensure we balance a healthy environment with a healthy economy.” • Highlights frustration of taxpayers who see “hard-earned tax-dollars being put towards policies and programs that don’t deliver results”. 9https://prod-environmental-registry.s3.amazonaws.com/2018-11/EnvironmentPlan.pdf Ontario Environment Plan:
- 10. Green Infrastructure Capital Cost Review • Costs from various sources (1200+ projects) have confirmed magnitude of cost issue and need to assess lifecycle costs and cost effectiveness. 10 https://www.cityfloodmap.com/2018/05/are-lids-financially-sustainable-in.html https://www.cityfloodmap.com/2018/07/green-infrastructure-capital-and.html Ontario Tenders : Philadelphia, NY Costs : Ontario Tenders Philadelphia Clean Waters $575,000 per ha $568,000 per ha $783,000 per imp. ha New York State
- 11. Reliability of Cost Benefit Analysis 11
- 12. Intact Centre on Climate Adaptation Weathering the Storm: Developing a Canadian Standard for Flood- Resilient Existing Communities Insurance Bureau of Canada Combatting Canada’s Rising Flood Costs: Natural Infrastructure is an underutilized option Natalia Moudrak Dr.Blai r Feltmate Some Research Overstates Benefits, Incomplete on Costs • Cites ‘meta-analysis’ benefits as real “Performance monitoring results” for flood damage reduction (e.g., Pelly’s Lake wetland case study). • Omits cost-effectiveness of the recommended measures: “cost rankings are not normalized with consideration of performance effectiveness” • However Press Release promotes “solutions that can be deployed practically and cost-effectively within communities” 12 https://goo.gl/Y3vWzx ICCA Weathering the Storm Report Review: https://goo.gl/iCFoyS IBC Report Review: https://goo.gl/iCFoyS CBC Ombudsman Review:
- 13. 13 National Research Council Guidelines • NRC is developing Guidelines on Undertaking a Comprehensive Analysis of Benefits, Costs and Uncertainties of Storm Drainage Infrastructure in a Changing Climate https://drive.google.com/open?id=1W8CT2iEs-vdE-KhT87B441k8ciQZ13SLNational Research Council Guidelines Scope of Work :
- 14. Markham Case Study • Analysis of city-wide Flood Control Program costs and benefits initiated to: i) estimate DMAF project Return on Investment for flood control ii) evaluate green infrastructure (LID) cost- effectiveness for: • Flood control • Watercourse erosion repair mitigation • Water quality improvements (based on willingness to pay) 14https://www.markham.ca/wps/portal/home/neighbourhood-services/water-sewer/projects-and-programs/06-projects-and-programs Markham Flood Control :
- 15. Other Green Infrastructure Benefits • Reduced Heat Island Effects • Keeping Cats Cool • Keeping Rob Safe … not quantified in study. 15
- 16. Markham Case Study – Strategies (Flood Control) • Focus on 25% of city (pre-1980s areas) (brown shaded areas in image) 16 • Strategy A grey infrastructure (current program incl. one central wetland) • Strategy C green infrastructure • Strategy D 90% grey 10% green West Thornhill Unionville Markham Village Steeles Ave. E Hwy 407 Pre-1978 Subdivision Registration – No Major Drainage Design
- 17. Markham Case Study - Benefits • Flood control benefits – Deferred damages based on scaled regional reported claims • Erosion control benefits – Lower creek repairs based on lifecycle costs (green only) • Watershed quality benefits – Willingness-to-pay for water quality improvements based on Rouge R. source control study (green only) 17 https://www.cityfloodmap.com/2019/02/an-economic-analysis-of-green-v-grey.htmlWEAO paper :
- 18. Losses($B) Ontario Catastrophic Losses - Water Damage Water Damage Loss (Benefits) • Insured losses at a regional scale – Insurance industry datasets • Probability distribution of losses gives expected annual damages (EAD) – Ontario EAD = $292 M / year • Total loss > Insured loss • Deferred loss < Total loss • Markham proportion of Ontario population = 2.54% (similar to GDP share) 18 https://www.cityfloodmap.com/2019/02/an-economic-analysis-of-green-v-grey.htmlWEAO paper : Assume insured loss = deferred loss (benefits) Total loss ≈ 1.8 x Markham EAD = $ 7.13 M / year EAD
- 19. Markham Case Study - Costs • Grey infrastructure – Capital - completed, tendered, & designed projects, Class EA estimates, program costs – O&M – equivalent to existing lifecycle program costs • Green infrastructure – Capital – average of unit cost for all LID types (excl. green roof) – O&M – per Philadelphia clean waters pilot lifecycle costs 19
- 20. 1 10 100 1000 10000 Downspout Program. Backwater Valve Pgm. Sanitary Upgrades Storm Upgrades Green Infr. Retrofit Option Markham Flood Control Program Activities and Costs Cost($M) $3 M $1300/ha $27 M $11,000/ha $253 M $120,000/ha $1.7 B $726,000/ha
- 21. 1 10 100 1000 10000 Downspout Program. Backwater Valve Pgm. Sanitary Upgrades Storm Upgrades Green Infr. Retrofit Option Flood Control Strategies - 50 Shades of Grey to Green Cost($M) Strategy A (grey) Strategy C (green) Strategy D (grey + green)
- 22. Annual Costs and Benefits 22 -70 -60 -50 -40 -30 -20 -10 0 10 20 -70 -60 -50 -40 -30 -20 -10 0 10 20 Strategy C Strategy B Strategy A Flood Benefit Erosion Benefit Quality Benefit Cost Strategy A (grey) Strategy C (green) Strategy D (grey + green) Benefits/year $MCost/year $M (insured losses only) (“willingness to pay”)
- 23. Annual Costs and Benefits 23 -70 -60 -50 -40 -30 -20 -10 0 10 20 -70 -60 -50 -40 -30 -20 -10 0 10 20 Strategy C Strategy B Strategy A Flood Benefit Erosion Benefit Quality Benefit Cost Strategy A (grey) Strategy C (green) Strategy D (grey + green) Benefits/year $MCost/year $M Benefit / Cost = 2.52 (100% flood) Benefit / Cost = 0.27 (41% flood) Benefit / Cost = 0.91 (88% flood) Residential Stormwater Fee = $ 3,800 /yr Residential Stormwater Fee = $ 47 / yr (insured losses only) (“willingness to pay”) Residential Stormwater Fee = $ 150 /yr
- 24. Conclusions • Cost-benefit analysis for infrastructure investments is making a comeback (Disaster Mitigation Adaptation Fund (DMAF) project funding requires minimum 2 to 1 benefit/cost ratio). • NRC’s upcoming cost-benefit guidelines can support more consistent & thorough cost-benefit analyses, improving reliability & decision making. • Case study evaluates grey & green infrastructure strategies and shows: – Markham’s current Flood Control Program (low cost / no regret programs, extensive grey infrastructure & isolated green projects) is cost-effective with projected benefits over twice the costs. – Benefits for green infrastructure implementation warrant detailed study on cost, and willingness to pay for quality improvements given unfavourable benefit/cost from a system-wide lifecycle perspective. 24
- 25. Stay Classy WEAO - Thank You Questions ? More Rob : Blog: www.CityFloodMap.com Podcast: Open During Construction on iTunes Twitter: @RobertMuir_PEng More City of Markham : Web: www.markham.ca Twitter: @CityofMarkham 25 More fp&p: Web: http://www.fabianpapa.com/ Twitter: @fpp2006
Editor's Notes
- Let’s start by reviewing the policies and regulations that compel us to consider cost for infrastructure. Look at how cost-benefit analysis has been applied in the past. Review green infrastructure policies and cost questions. Then look at some recent case studies where cost-benefit analysis has been applied and look ahead to national guidelines I’m involved in. Then wrap up with a Markham case study that assesses grey, green and blended strategies for flood control and also other watershed benefits. How can the case study guide provincial policies and the national guidelines.
- There are many drivers for assessing infrastructure cost efficiency in Ontario from the high level PPS goals saying infrastructure should be coordinated, efficient and cost effective. To do that we have to look at whole systems. And the Jobs and Prosperity Act says our asset management plans have to look at lifecycle costs of our activities – holistically – end to end and maintain service levels at the lowest cost. And Class EA’s behind many of our projects look at cost of alternatives – all costs, construction and long term O & M. We need to look at whole systems and whole lifecycles to understand costs.
- This is a long standing principle in water resource management where we accept that projects like those providing flood protection must be justified economically, benefits exceeding costs. Eckstein said that feasibility means that benefits are in excess of costs This goes back to the 1930’s in the US. In the past cost benefit analysis was done for large projects and the US Army Corps of Engineers produced guidance for it and encouraged system-wide analysis. Watt in Hydrology of Floods in Canada reminds us that flood protection must be economically justified. Benefits should exceed costs.
- Look back locally, cost benefit analysis have been rare in Ontario Class Eas. There is no formal requirement to do CBA. An exception is the Stratford storm master plan from back in my Dillon consulting days. We looked at catchment by catchment damages and costs and ranked areas for further action and study. Some areas like in the east we would get 6 cents of benefits for each dollar spent so there was no justification to go ahead.
- What do cost benefit analysis and jazz flute have in common? They are both making a comeback. And if you’re not careful when you do it you can get burned.
- In fact cost benefit analysis for new federal regulations and grants is becoming mandatory.
- Following objections to the proposed approach taken in this document which included formal push-back from WEAO, particularly in relation to the statement on “excessive costs” in the initial version, we understand that this language has been removed from the current draft of the document.
- Environmental planning in Ontario is now taking a turn towards greater consideration of costs. As the Ontario Environment Plan says, balancing environment and economy. And that is to avoid frustration with policies and programs that don’t deliver results.
- A closer look. I’ve compiled 24 Ontario project costs, reviewed details for Philadelphia’s Clean Water Pilot – that’s over 1100 projects, and over a hundred New York projects and the overall cost of $800,000 per impervious hectare or $500,000-$600,000 are justified, so not at all cheap. The question becomes: What sort of value-for-money are we receiving in terms of performance for these investments?
- You may say “They’ve done studies you know.”, on cost effectiveness of new technologies. Well, I’d offer this Anchorman comment that “60% of the time it works all the time.” Well there are several recent studies that touch on cost benefit analysis but like Panther cologne only partially deliver on the results.
- And as a result can overstate benefits and have an incomplete look at costs. [REVIEW SLIDE] So there can be a lot of hype surrounding analysis that may not be thorough, complete or reliable.
- So NRC is developing guidelines to help support reliable , consistent benefit cost analysis and also to consider uncertainties and a changing climate. These are team members. Markham’s Flood Control Program is one of the case studies. Given the gaps in some of the recent reports and challenges I’ve see in some DMAF applications these guidelines will not come soon enough.
- The Markham case study. This looks at our city-wide flood control program. Cost benefit analysis for projects in the program was recently rolled into our DMAF application. But it started as a means to comment on Ministry of Environment LID policies and Bill 139. Today we are carrying this analysis forward as a NRC guideline case study. The benefits we start with are flood mitigations but we have also looked at other benefits … at erosion mitigation and water quality improvement.
- The Markham case study focuses on pre-1980’s development areas, about 1200 hectares, corresponding to older settlements of Thornhill, Unionville and Markham Village where infrastructure retrofits would provide the most benefits. Those are the brown areas on the maps. Strategy A is our current program, mostly grey infrastructure but one big central wetland pond. Strategy is all green infrastructure in 25% of the city. And Strategy C is a 90-10 grey green split in those old areas.
- This shows Markham’s Flood Control activities (LIST THEM) and their costs – notes it’s a log scale. We have sanitary downspout disconnection and backwater valve subsidies - No Regrets Programs. Grey infrastructure. Sanitary and storm sewer upgrades – 27 million and 253 million Green infrastructure. These are enhanced and engineered assets like infiltration trenches and bioswales. 1.7B for a quarter of the city. No regrets programs cost a million or so each. $1300 per hectare. Sanitary upgrades 27 million and storm upgrades 253 million. That’s 11 thousand to 120 thousand per hectare. Green infrastructure 1.7 billion for a quarter of the city. $726 thousand per hectare, sized for flood control benefits, over 50 mm storage. What’s in our program now are the first 4 items – we do have one large wetland retrofit in one project though – but mostly its grey infrastructure and pipe upgrades.
- We have worked up a range of strategies using all grey to all green in a quarter of the city. Strategy A is our approved plan – mostly grey. Strategy C all green Strategy D is 90-10 grey and green in the old parts of the city. Note that Strategy B is not shown to simplify the presentation, although it is available in the accompanying paper.
- So what are the benefits and costs of each strategy? This breaks up the benefits into flood control – the blue bar - equal for all, erosion benefits – the black – its very small almost imperceptible compared to flood benefits. And the green represents water quality benefits of for the all green and 10% green strategies only – for C those willingness to pay values exceed the flood damage reduction benefits (which is perhaps a sign that the unit value applied is overly optimistic and would not likely pass any test of reasonability). And the costs: For Strategy A benefits exceed costs by 2.5 to one – that’s great and we were awarded full DMAF funding for this strategy since its over the 2:1 minimum. Strategy C’s benefit cost ratio is about a tenth of that – flood reduction accounts for 41% of the overall benefit. And Strategy D with 90-10 grey-green – that’s 2.5% of the City with a green infrastructure retrofit – has benefits just less than costs – 0.91 ratio What does this mean to funding? Strategy A is our current program with an annual residential stormwater fee of $47 per year Strategy C would increase the fee to about $3,800 per year Strategy D would triple the fee to about $150 per year
- There are as many questions as answers in in this analysis. #1 Why is there such limited rigorous analysis of system-wide lifecycle costs in our industry? Class EAs just do qualitative rankings and design to standards. #2 Do our standards adequately reflect economics? Should we be funding even higher levels of service where benefit-cost ratio is favourable? Less when its not? #3 How do we quantify environmental benefits? The green infrastructure ‘willingness to pay for water quality” benefits from Marbek exceed the flood control benefits – is that reasonable? And could you get a quarter of households to pay $100 a year more for their local water quality improvements? That a 10% Markham tax increase. #4 Despite the large water quality benefits, the green infrastructure strategy B benefits are far below the costs. Even for 2.5% of he City getting green infrastructure in Strategy C benefit/cost is below one. So the question is, stepping back, how do we implement green infrastructure in Ontario knowing that we need a much more strategic approach and not a blanket approach to setting targets? Ask me some of these questions and I’ll offer some answers at the end. #1 Why no rigorous system wide analysis? municipalities, even those who participate in national benchmarking, have gaps in data and can’t readily provide lifecycle costs to guide EA evaluations – small municipalities may not track costs and in large ones the data is spread across many departments Many are content to extrapolate the applicability of a few pilots to whole systems because they have no accountability for costs Ministry of Environment previously said excessive cost was not a constraint …. I think the new Environment Plan is taking a different approach #2 I think we should prioritize funding based on cost-effectiveness because funding is scarce – DMAF was oversubscribed on the first draw for example. #3 I don’t know how to quantify environmental benefits – but it appears that erosion benefits in our case study are not significant, and water quality benefits are huge – in theory – would costs to cover those benefits be supported by the public? #4 How can we implement green infrastructure strategically? We need system wide planning, prioritization and budgeting first and then we can assess where – a generic, blanket approach does not look to be economically sustainable.
- .. for DMAF grant applications. This is great news because we have scare resources and have to prioritize funding. .. better decision making. That means project prioritization and policy making. Ideally something like the Treasury Board follows now for new regulations. This is NOT meant to imply that the results of this particular analysis apply universally, but rather to demonstrate the importance of conducting a properly thorough and rigorous assessment that is context-specific in order to produce meaningful and useful results that can soundly support investment decisions so as to maximize the value achieved for the money spent.