An Economic Analysis of Green and Grey Infrastructure - TRIECA Conference 2019
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TRIECA Conference , 2019, An Economic Analysis of Green and Grey Infrastructure Benefits and Costs, 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 Presentation reviews regulations on policies on infrastructure cost, provides a history of cost benefit analysis, reviews Ontario green infrastructure policy and cost considerations, identifies research gaps in cost benefit analysis, evaluates the costs and benefits of grey, green and blended grey and green infrastructure strategies considering full lifecycle costs and system-wide implementation in the City of Markham. Analysis is based on this upcoming WEAO paper https://www.cityfloodmap.com/2019/03/an-economic-analysis-of-green-v-grey.html
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An Economic Analysis of Green and Grey Infrastructure - TRIECA Conference 2019
- 1. TRIECA Conference - 2019 An Economic Analysis of Green and Grey Infrastructure Benefits and Costs 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 March 21, 2019 - Brampton, 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 Class EAs ... Very 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 Guidelines: 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. Ontario-Wide Draft Policy Cost Implications • “Estimates suggest that green infrastructure adaptation costs could be as high as $400,000 per hectare, inclusive of recently tendered construction projects. This means that the long-term province-wide costs to developers and municipalities—and, ultimately, the end consumer and economy—total hundreds of billions of dollars.” (Bill 139 Review 2017) Hectares Urban Land x Cost Per ha = Initial Capital Cost 852,000 x $390,000 = $332 B 10 https://drive.google.com/open?id=1az42-2TZrcmRm2uHVcxG6mc3LBtb8vv- https://www.cityfloodmap.com/2016/11/green-infrastructure-solution-to-urban.html Bill 139 Review: Initial Cost Assessment :
- 11. 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. 11 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
- 12. Reliability of Cost Benefit Analysis 12
- 13. 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” 13 https://goo.gl/Y3vWzx ICCA Weathering the Storm Report Review: https://goo.gl/iCFoyS IBC Report Review: https://goo.gl/iCFoyS CBC Ombudsman Review:
- 14. 14 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 :
- 15. Excellence Markham Framework: Financial Performance is a key outcome of … ”how we run the joint” Cost Efficiency Principles in Markham 15
- 16. 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) 16https://www.markham.ca/wps/portal/home/neighbourhood-services/water-sewer/projects-and-programs/06-projects-and-programs Markham Flood Control :
- 17. Markham Case Study - Strategies • Focus on 25% of city (pre-1980s) 17 • Strategy A grey infrastructure (current program incl. one central wetland) • Strategy B green infrastructure • Strategy C 90% grey 10% green West Thornhill Unionville Markham Village Steeles Ave. E Hwy 407
- 18. 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) 18 https://www.cityfloodmap.com/2019/02/an-economic-analysis-of-green-v-grey.htmlWEAO paper :
- 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 $726,000/ha
- 21. 1 10 100 1000 10000 Downspout Program. Backwater Valve Pgm. Sanitary Upgrades Storm Upgrades Green Infr. Retrofit Option Strategies - 50 Shades of Grey to Green Cost($M) Strategy A (grey) Strategy B (green) Strategy C (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 B (green) Strategy C (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 B (green) Strategy C (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 (mandatory for disaster mitigation grant applications (DMAF)). • NRC’s upcoming cost-benefit guidelines can support more consistent & thorough cost-benefit analyses, improving reliability & decision making. • Markham case study evaluating current grey and alternative green infrastructure strategies shows: – City’s current Flood Control Program (low cost programs, extensive grey infrastructure projects, 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. 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 Corp 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.
- 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.
- Are green infrastructure costs a big thing? Yes. OSPE flagged this in late 2017 using some initial projects costs. The Ontario GDP is 825 billion so 300 billion is a big number which warrants a closer look.
- 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 5-600,000 are justified so we are looking at half a trillion dollar in Ontario capital cost.
- 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.
- Why is Markham a good fit for a case study looking at costs? Well we received the a Gold Award for a quality from Excellence Canada for our corporate strategy. And Financial Performance is one of 4 key outcomes of the strategy, meaning it is “how we run the joint”. The math is pretty simple – every $1.3 M in annual spending results in a 1% tax increase. It is a great responsibility working for a municipality - I get to put other people’s money where my mouth is… when my mouth says I want to implement policies, programs and projects.
- 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 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. Whats in our program now are the first 4 items – we do have one large wetland retrofit in one project though – but mostly its grey infrastucture 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 B all green Strategy C is 90-10 grey and green in the old parts of the city.
- 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 B those willingness to pay values exceed the flood damage reduction benefits. 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 B’s benefit cost ratio is about a tenth of that – flood reduction accounts for 41% of the overall benefit. And Strategy C 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 Strategy B would increase the fee to about $3,800 Strategy C 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.