The Economics of Evaluating Water Projects Hydroelectricity Versus O
This book presents research on a kind of water use conflicts that is becoming more and more common and important: How to best manage moving water in times of increasing demand for electricity as well as environmental services. How should decisions be made
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Per-Olov Johansson
Bengt Kristr¨om
The Economics of Evaluating Water Projects Hydroelectricity Versus Other Uses
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Prof. Per-Olov Johansson Stockholm School of Economics Department of Economics Stockholm Sweden
Prof. Bengt Kristr¨om Ume˚a University and SLU Centre for Environmental and Resource Economics Ume˚a Sweden
ISBN 978-3-642-27669-9 e-ISBN 978-3-642-27670-5 DOI 10.1007/978-3-642-27670-5 Springer Heidelberg Dordrecht London New York Library of Congress Control Number: 2012934149 c Springer-Verlag Berlin Heidelberg 2012 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)
Preface
The main purpose of this book is to present research on a kind of water use conflicts that probably will become more and more common and important as time goes by. In times of increasing demands for electricity as well as environmental services the question arises how to best managing moving water. Should more be diverted to or from electricity generation? That is the kind of timely question which this book addresses. We develop a simple general equilibrium model of a small open economy which is used to derive a cost-benefit rule that can be used to assess projects that divert water from electricity generation to recreational and other uses (or vice versa). The cost-benefit rule is used to evaluate a proposed change at a Swedish hydropower plant. According to the proposal, water is diverted from electricity generation to the natural river channel (dryway) creating environmental and recreational benefits. We present a framework for assessing the costs and benefits of small perturbations of current hydropower regulatory regimes. The framework integrates several key issues, including, but not limited to: a contract between the hydro power plant and another party (local residents) generating the general equilibrium cost-benefit rule; the contract is a corner stone of our referendum-style contingent valuation study; the tax system in the status quo; (partial) foreign ownership of the plant; trade in electricity; trade in renewable energy certificates; trade in carbon emission permits; externalities of replacement power (generated in other
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