Advertisement

Environmental and Resource Economics

, Volume 64, Issue 1, pp 59–80 | Cite as

Valuing Water Purification by Forests: An Analysis of Malaysian Panel Data

  • Jeffrey R. VincentEmail author
  • Ismariah Ahmad
  • Norliyana Adnan
  • Walter B. BurwellIII
  • Subhrendu K. Pattanayak
  • Jie-Sheng Tan-Soo
  • Kyle Thomas
Article

Abstract

Water purification might be the most frequently invoked example of an economically valuable ecosystem service, yet the impacts of upstream land use on downstream municipal water treatment costs remain poorly understood. This is especially true in developing countries, where rates of deforestation are highest and cost-effective expansion of safe water supplies is needed the most. We present the first econometric study to estimate directly the effect of tropical forests on water treatment cost. We exploit a rich panel dataset from Malaysia, which enables us to control for a wide range of potentially confounding factors. We find significant, robust evidence that protecting both virgin and logged forests against conversion to nonforest land uses reduced water treatment costs, with protection of virgin forests reducing costs more. The marginal value of this water purification service varied greatly across treatment plants, thus implying that the service offered a stronger rationale for forest protection in some locations than others. On average, the service value was large relative to treatment plants’ expenditures on priced inputs, but it was very small compared to producer surpluses for competing land uses. For various reasons, however, the latter comparison exaggerates the shortfall between the benefits and the costs of enhancing water purification by protecting forests. Moreover, forest protection decisions that appear to be economically unjustified when only water purification is considered might be justified when a broader range of services is taken into account.

Keywords

Ecosystem service Water purification Forest Malaysia Valuation 

Notes

Acknowledgments

This study was funded by the Global Environment Facility through the United Nations Development Programme (MAL/04/G31), with additional support from the Government of Malaysia (through the Ministry of Natural Resources and Environment and the Forest Research Institute Malaysia) and the Center for International Forestry Research (CIFOR). The cooperation of numerous Malaysian government agencies is gratefully acknowledged: the Forestry Department Peninsular Malaysia; the Departments of Agriculture, Drainage and Irrigation, and Statistics; the National Water Services Commission; and the Perak Water Board. We also thank David James and two anonymous reviewers for helpful comments.

References

  1. Abdul Rahim AS, Mohd Shahwahid HO (2011) A panel data analysis of timber harvesting operations and its impact on the cost of water treatment. Aust J Basic Appl Sci 5:598–601Google Scholar
  2. Abdul Rahim N, Zulkifli Y (2004) Hydrological impacts of forestry and land-use activities: Malaysian regional experience. In: Abdul Rahim N (ed) Water: forestry and land use perspectives, Technical Documents in Hydrology No. 70, International Hydrological Programme. UNESCO, Paris, pp 86–105Google Scholar
  3. Alcott E et al (eds) (2013) Natural and engineered solutions for drinking water supplies: lessons from the northeastern United States and directions for global watershed management. CRC Press, Boca RatonGoogle Scholar
  4. Angrist JD, Pischke JS (2009) Mostly harmless econometrics: an empiricist’s companion. Princeton University Press, PrincetonGoogle Scholar
  5. Barten PK, Ernst CE (2004) Land conservation and watershed management for source protection. J Am Water Works Assoc 96:121–135Google Scholar
  6. Beck NL, Katz JN (1995) What to do (and not to do) with time-series cross-section data. Am Polit Sci Rev 89:634–647CrossRefGoogle Scholar
  7. Bennett G et al (2013) Charting new waters. Forest Trends, WashingtonGoogle Scholar
  8. Bruijnzeel LA (2004) Hydrological functions of tropical forests. Agric Ecosyst Environ 104:185–228CrossRefGoogle Scholar
  9. Carlson KM et al (2014) Influence of watershed-climate interactions on stream temperature, sediment yield, and metabolism along a land use intensity gradient in Indonesian Borneo. J Geophys Res Biogeosci 119:1110–1128CrossRefGoogle Scholar
  10. Chichilnisky G, Heal GM (1998) Economic returns from the biosphere. Nature 391:629–630CrossRefGoogle Scholar
  11. Conte M et al (2011) Retention of nutrients and sediment by vegetation. In: Kareiva P et al (eds) Natural capital: theory and practice of mapping ecosystem services. Oxford University Press, Oxford, pp 89–110CrossRefGoogle Scholar
  12. Dearmont D et al (1998) Costs of water treatment due to diminished water quality: a case study in Texas. Water Resour Res 34:849–853CrossRefGoogle Scholar
  13. Department of Statistics (2010) Input-output tables, Malaysia 2005: volume 2. Putrajaya, MalaysiaGoogle Scholar
  14. Dissmeyer GE (ed) (2000) Drinking water from forests and grasslands: a synthesis of the scientific literature. Gen Tech Rep SRS-39, USDA Forest Service, Southern Research Station, Asheville, North CarolinaGoogle Scholar
  15. Dudley N, Stolton S (2003) Running pure: the importance of forest protected areas to drinking water. World Bank and WWF, WashingtonGoogle Scholar
  16. Dunne T (1979) Sediment yield and land use in tropical catchments. J Hydrol 42:281–300CrossRefGoogle Scholar
  17. Dunne T, Leopold LB (1978) Water in environmental planning. WH Freeman, New YorkGoogle Scholar
  18. Ernst C (2004) Protecting the source: land conservation and the future of America’s drinking water. Trust for Public Land, San FranciscoGoogle Scholar
  19. Ernst C et al (2004) Protecting the source: conserving forests to protect water. Opflow 30(1):4–7Google Scholar
  20. FAO (2010) Global forest resources assessment 2010: main report. Food and Agriculture Organization of the United Nations, RomeGoogle Scholar
  21. FAO and CIFOR (2005) Forests and floods. Food and Agriculture Organization of the United Nations, Rome and Center for International Forestry Research Bogor, IndonesiaGoogle Scholar
  22. Ferraro PJ et al (2012) Forest figures: a review of ecosystem services valuation and policies in developing countries. Rev Environ Econ Policy 6:20–44CrossRefGoogle Scholar
  23. Forster DL et al (1987) Soil erosion and water treatment costs. J Soil Water Conserv 42:349–352Google Scholar
  24. Freeman AM III et al (2014) The measurement of environmental and resource values: theory and methods, 3rd edn. RFF Press, Taylor & Francis, OxfordGoogle Scholar
  25. Freeman J et al (2008) Statistical analysis of drinking water treatment plant costs, source water quality, and land cover characteristics. Trust for Public Land, San FranciscoGoogle Scholar
  26. Gartner T et al (eds) (2013) Natural infrastructure: investing in forested landscapes for source water protection in the United States. World Resources Institute, WashingtonGoogle Scholar
  27. Hewlett JD (1982) Principles of forest hydrology. University of Georgia Press, AthensGoogle Scholar
  28. Holmes TP (1988) The offsite impact of soil erosion on the water treatment industry. Land Econ 64:356–366CrossRefGoogle Scholar
  29. Huber PJ (1967) The behavior of maximum likelihood estimates under nonstandard conditions. In: Neyman LM (ed) Proceedings of the fifth Berkeley symposium on mathematical statistics and probability, vol 1. University of California Press, Berkeley, pp 221–233Google Scholar
  30. Hurley T, Mazumder A (2013) Spatial scale of land-use impacts on riverine drinking source water quality. Water Resour Res 49:1591–1601CrossRefGoogle Scholar
  31. Kennedy P (2008) A guide to econometrics, 3rd edn. Blackwell, MaldenGoogle Scholar
  32. Kenny A (2006) Ecosystem services in the New York City watershed. http://www.ecosystemmarketplace.com/pages/dynamic/article.page.php?page_id=4130&section=home&eod=1_
  33. Krishnaswamy J et al (2001) Spatial patterns of suspended sediment yields in a humid tropical watershed in Costa Rica. Hydrol Process 15:2237–2257CrossRefGoogle Scholar
  34. Lembaga Air Perak (n.d.) Laporan tahunan 2010. Ipoh, Perak, MalaysiaGoogle Scholar
  35. McConnell KE, Bockstael NE (2005) Valuing the environment as a factor of production. In: Mäler KG, Vincent JR (eds) Handbook of environmental economics, vol 2. North-Holland, Amsterdam, pp 621–669Google Scholar
  36. McDonald R, Shemie D (2014) Urban water blueprint: mapping conservation solutions to the global water challenge. The Nature Conservancy, WashingtonGoogle Scholar
  37. Mohd Akbar HJ, Rusnah R (2004) Water resources management for domestic and industrial needs. In: Abdul Rahim N (ed) Water: forestry and land use perspectives, Technical Documents in Hydrology No. 70, International Hydrological Programme. UNESCO, Paris, pp 1–15Google Scholar
  38. Mohd Nordin A et al (2000) The effects of raw water turbidity in water treatment process at Sg. Kampar treatment plant. In: Proceedings of environmental seminar, School of Chemical Engineering. Universiti Sains Malaysia, Penang, pp 46–51Google Scholar
  39. Moore WB, McCarl BA (1987) Off-site costs of soil erosion: a case study in the Willamette Valley. West J Agric Econ 12:42–49Google Scholar
  40. Moulton BR (1986) Random group effects and the precision of regression estimates. J Econom 32:385–397CrossRefGoogle Scholar
  41. Murray C, Forster L (2001) A study of pesticide use, farming practices, and community drinking water treatment costs in the Maumee and Great Lakes Basins. Rep. Series AEDE-RP-0013-01, Agricultural, Environmental, and Development Economics, Ohio State University, Columbia, OhioGoogle Scholar
  42. Ogden FL et al (2013) Effect of land cover and use on dry season river runoff runoff efficiency and peak storm runoff in the seasonal tropics of Central Panama. Water Resour Res 49: doi: 10.1002/2013WR013956
  43. Pattanayak SK (2004) Valuing watershed services: concepts and empirics from southeast Asia. Agric Ecosyst Environ 104:171–184CrossRefGoogle Scholar
  44. Pattanayak SK, Wendland KJ (2007) Nature’s care: diarrhea, watershed protection and biodiversity conservation in Flores, Indonesia. Biodivers Conserv 16:2801–2819CrossRefGoogle Scholar
  45. Pattanayak SK, Kramer RA (2001) Worth of watersheds. Environ Dev Econ 6:123–146CrossRefGoogle Scholar
  46. Piper S (2003) Impact of water quality on municipal water price and residential water demand and implications for water supply benefits. Water Resour Res 39: doi: 10.1029/2002WR001592
  47. Postel SL, Thompson BH Jr (2005) Watershed protection: capturing the benefits of nature’s water supply services. Nat Resour Forum 29:98–108CrossRefGoogle Scholar
  48. Sagoff M (2002) On the value of natural ecosystems. Polit Life Sci 21:19–25Google Scholar
  49. Schwabe KA et al (2014) Creation of Malaysia’s Royal Belum State Park: a case study of conservation in a developing country. J Environ Dev. doi: 10.1177/1070496514551173
  50. Sklenar K et al (2012) Source water protection vision and roadmap. PDF Report #4176a, Water Research Foundation, Denver, ColoradoGoogle Scholar
  51. Spiller M et al (2013) Pollution source control by water utilities: characterisation and implications for water management. Water Environ J 27:177–186CrossRefGoogle Scholar
  52. Sthiannopkao S et al (2007) Soil erosion and its impacts on water treatment in the northeastern provinces of Thailand. Environ Int 33:706–711CrossRefGoogle Scholar
  53. Tan-Soo JS et al (2014) Econometric evidence on forest ecosystem services: deforestation and flooding in Malaysia. Environ Resour Econ 59. doi: 10.1007/s10640-014-9834-4
  54. Vincent JR (2011) Valuing the environment as a production input. In: Haque AKE et al (eds) Environmental valuation in South Asia. Cambridge University Press, New Delhi, pp 36–77CrossRefGoogle Scholar
  55. Vincent JR, Hadi Y (1993) Malaysia. In: Council National Research (ed) Sustainable agriculture and the environment in the humid tropics. National Academy Press, WashingtonGoogle Scholar
  56. Vincent JR, Mohamed Ali R (2005) Managing natural wealth: environment and development in Malaysia. Resources for the Future, WashingtonGoogle Scholar
  57. Vincent JR et al (2014) Tropical countries may be willing to pay more to protect their forests. Proc Natl Acad Sci USA 111:10113–10118CrossRefGoogle Scholar
  58. White HL (1980) A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica 48:817–838CrossRefGoogle Scholar
  59. Whittington D (2010) What have we learned from 20 years of stated preference research in less-developed countries? Annu Rev Resour Econ 2:209–236CrossRefGoogle Scholar
  60. Wooldridge JM (1995) Score diagnostics for linear models estimated by two stage least squares. In: Maddala GS et al (eds) Advances in econometrics and quantitative economics: essays in honor of Professor CR, Rao edn. Blackwell, Oxford, pp 66–87Google Scholar
  61. Wooldridge JM (2010) Econometric analysis of cross section and panel data, 2nd edn. MIT Press, CambridgeGoogle Scholar
  62. Zeger SL, Liang KY (1986) Longitudinal data analysis for discrete and continuous outcomes. Biometrics 42:121–130CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  • Jeffrey R. Vincent
    • 1
    Email author
  • Ismariah Ahmad
    • 2
  • Norliyana Adnan
    • 2
  • Walter B. BurwellIII
    • 1
  • Subhrendu K. Pattanayak
    • 1
  • Jie-Sheng Tan-Soo
    • 1
  • Kyle Thomas
    • 1
  1. 1.Nicholas School of the EnvironmentDuke UniversityDurhamUSA
  2. 2.Forest Research Institute MalaysiaKepongMalaysia

Personalised recommendations