Category Archives: Water

319 – Reducing water pollution from agricultural fertilizers

I gave a talk to the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) on July 16, 2019, exploring ways to reduce water pollution from agricultural fertilizers.

Many methods have been proposed to reduce water pollution from agricultural fertilizers. The list includes use of nitrification inhibitors, land retirement, vegetation buffer strips along waterways, flood-plain restoration, constructed wetlands, bioreactors, cover crops, zero till and getting farmers to reduce their fertilizer application rates.

Last year, while I was at the University of Minnesota for several months, I reviewed the literature on these options and came to the conclusion that the option with the best prospects for success is reducing fertilizer application rates. It’s the only one of these options that is likely to be both effective and cheap.

In my talk, I made the case for agencies who are trying to reduce pollution to focus on reducing fertilizer rates.

In brief, I identified three key reasons why there are untapped opportunities to reduce fertilizer rates.

1. Some farmers apply more fertilizer than is in their own best interests. Surveys in the US suggest that something like 20 to 30% of American farmers could make more profit if they reduced their rates. If it was possible to identify these farmers and convince them of this, it would be a rare win-win for farmers and the environment.

2. Even those farmers who currently apply fertilizer close to the rates that would maximize their profits could cut their rates without sacrificing much profit. Within the region of the economically optimal rate, the relationship between fertilizer rate and profit is remarkably flat. New estimates by Yaun Chai (University of Minnesota) of this relationship for corn after corn in Iowa indicate that farmers could cut their rates by 30% below the profit-maximizing rate and only lose 5% of their profits from that crop. For corn after soybeans, the equivalent opportunity is for a 45% cut!

3. Some farmers believe that applying an extra-high rate of fertilizer provides them with a level of insurance. They think it reduces their risk of getting a low yield. However, the empirical evidence indicates exactly the opposite. When you weigh up the chances of an above-average yield and a below-average yield, higher fertilizer rates are actually more risky than lower rates. In addition, price risk interacts with yield risk to further increase the riskiness of high rates.

I think there is a real opportunity to explore these three factors in more depth and try to come up with policy approaches that could deliver reduced fertilizer usage in a highly cost-effective way. Some of it would just be about effective communication (e.g. the design of “nudges”, as popularised in behavioural economics) while some might require a modest financial commitment from government or industry. One idea is to offer something like a money-back guarantee to those farmers who agree to reduce their rates by a specified amount. If they lose money as a result, they get compensation. Because of the flatness of the fertilizer-profit relationship, the payments required would usually be very small.

I recorded the presentation to OMAFRA, and it’s available here.

Further reading

Pannell, D.J. (2006). Flat-earth economics: The far-reaching consequences of flat payoff functions in economic decision making, Review of Agricultural Economics 28(4), 553-566. Journal web page * Prepublication version here (44K). * IDEAS page

Pannell, D.J. (2017). Economic perspectives on nitrogen in farming systems: managing trade-offs between production, risk and the environment, Soil Research 55, 473-478. Journal web page

306 – Economics of green infrastructure in cities: some essentials

During the recent Conference of the CRC for Water Sensitive Cities in Perth, I was interviewed about some of the essential points that non-economists need to be aware of when thinking about the economics of water-related investments in cities. The video is now available.

My team has been part of the CRC since it started back in 2012. In the interview I talk a bit about the work we’ve already done and what we’re doing now, and then identify my three top tips for non-economists: that benefits from an investment relate to the differences in outcomes with versus without the investment (not before versus after); that the timing of benefits and costs can matter greatly to the economic results; and that you need to account to a range of risks that might cause any particular investment to deliver less than you’d hoped.

These issues are spelt out more in the video (13:50 long), which you can see right here.

Further reading

Pannell, D.J. (2015). Ranking projects for water sensitive cities – a practical guide, CRC for Water Sensitive Cities: here

Web site for our CRC project: here

305 – Feeling virtuous: what’s it worth?

We all like to feel good about ourselves. A product that makes us seem virtuous to others, or even to ourselves, would be worth paying more for than its strictly utilitarian value.

That was one of our hypotheses behind a surprising result in some recent research. We were trying to measure the benefits of installing a rainwater tank on an urban property in Perth. We did this by measuring the premium in house sale prices for houses that already had a rainwater tank installed, compared with similar houses that did not.

The results left us deeply puzzled. First, the price premium was enormous: around $18,000. Now the water in a typical tank, when full, is worth about $3, and a tanks lasts for about 15 years. That means that to use enough tank water to make the $18,000 price premium worth paying, you would you would have to use a full tank of water and refill it from rainfall about twice each day every day for the whole 15 years (assuming a 5% interest rate on your home loan). But that’s way beyond actual levels of rainwater use, and it doesn’t rain that much or that frequently in Perth anyway!

We were left scrambling for explanations for the high price premium. As I started off saying, an obvious one is the feel-good factor from knowing that one is contributing to water conservation. It could be a bit like organic food. Some of the price premium for that could reflect people’s concerns about environmental impacts of agricultural chemicals (as well as perceived health impacts).

Another possible explanation is that people may misjudge how much the water captured in the tanks is worth. Water from the tap really is most extraordinarily cheap, whereas the most common experience of paying for water for most people is bottled water, which is most extraordinarily expensive. So it would be understandable to some extent if people got this wrong. We cannot tell from the house sale data what is in peoples’ minds (e.g. about water cost), only the overall result.

A third explanation could be that our statistical analysis was faulty. If you look at the paper you’ll see that we tied ourselves in knots, testing the robustness of the stats in ways that are far beyond my own statistical skills (thanks co-authors), but we couldn’t make the result go away.

There was one more puzzle we couldn’t solve, as well. The price premium for rain tanks is far above the cost of installing a tank, so why doesn’t everybody with a house to sell invest in a rain tank? In fact only a small minority of houses sold do have them. I guess they aren’t aware of the potential price hike.

On the other hand, we don’t know what would happen to the premium if the proportion of houses with installed tanks was to increase substantially. It is likely that the greater supply of tanks would drive down the price premium to some extent.

Further reading

Zhang, F., Polyakov, M., Fogarty, J. and Pannell, D. (2015). The capitalized value of rainwater tanks in the property market of Perth, Australia, Journal of Hydrology 522, 317-325. Journal web site ♦ IDEAS page (includes link to freely downloadable version of the paper)

298 – Potential value from restoring urban drains

I remember as a child playing in the stormwater drains near my home in suburban Perth. The drains were straight, steep-sided, fenced off (to keep us out) and the banks were bare grass, but the water contained little fish, called gambusia, that we loved to catch, not caring that they were actually feral pests.

These days, there is growing interest in restoring urban drains to something approaching a natural stream, including natural vegetation on the surrounding land. In a study funded by the CRC for Water Sensitive Cities, we set out to measure the benefits from restoring a particular drain in Perth.

gambusiaThe drain in question was Bannister Creek, which is really close to my childhood home and those other drains I played in.

In 1979 the creek was straightened, deepened, and made into a traditional drain. During the 1980s and 1990s, the area was urbanised, leading to loss of the wetland system and riparian vegetation, nutrient-rich runoff from lawns and gardens, runoff from industry, and increased erosion and pollution problems in the catchment. Additionally, during high-rainfall events, the increase in the volume and speed of water surging through the now straightened and steeply-banked Banister Creek main drain had become a public-safety risk.

In response, a volunteer group formed (the Bannister Creek Catchment Group), with the aim of improving the creek/drain, including a project to rehabilitate a section of it to a “living stream”. The aim was that this would provide flood-mitigation, local amenity benefits, improved water quality, and slower flow velocity.

The restoration project, from 2000 to 2002, involved giving the creek a more natural shape, with meanders, riffles, fringing sedges, gentle sloping banks, and thick vegetation on the banks.

The transformation from drain to living stream can be seen in Figure 1, which tracks the evolution of the area through time.


Figure 1. Drain restoration over time.

Figure 2 shows the changes at ground level. They were pretty dramatic.


Figure 2. Before and after drain restoration.

To estimate the impact of these changes we examined changes in house prices in the area. We used a statistical model to separate out the various influences on house prices, so that we could isolate the influence of the drain restoration.

This approach means that we are capturing the benefits to local residents, but not possible benefits to others, and not ecological benefits that local residents are unaware of. We expect that the measured benefits would include aspects of amenity, recreation and environmental values.

The results were really interesting, and somewhat surprising in their magnitudes. We found that the restoration project had an influence on property prices over a distance of about 200 metres from the creek. Given that the restored section of the creek was about 320 metres long, quite a large number of property values were affected.

In the first few years after project commencement, property values in the area actually fell, probably reflecting a negative attitude to the substantial earthworks that were required.

However, by 2007 the impact had become very positive. On average, the sale prices of houses in the area rose eventually by an average of 3.9 to 4.7% due directly to the restoration project. Considering only these benefits, the costs of the project were only about 25 to 50% of the benefits.

Overall, the results were very encouraging about the prospects for this type of project to deliver worthwhile benefits to the community.

Further reading

Polyakov, M., Fogarty, J., Zhang, F., Pandit, R. and Pannell, D. (2016). The value of restoring urban drains to living streams, Water Resources and Economics Journal web site ♦ IDEAS page

292 – Walking the Thames Path

My wife is a keen walker and has been angling to get me to do a long walking holiday with her for years. I finally said I’d do it, provided we avoid hills. She chose the Thames Path, which is not only flat, but also supremely beautiful and really interesting.

thames01Day 1 of walking, source to Ashton Keynes. The source is dry, as it usually is. About a kilometre “downstream” there is a gushing spring where the flow really starts. At this stage the Thames is just a narrow stream and the water is crystal-clear. We get stuck in a water-logged field and stung by nettles but still have a lovely first day. In Ashton Keynes the infant Thames runs down the main street, between the road and people’s houses, requiring mini bridges for cars at each house.

thames02Day 2, to Cricklade. The path departs from the Thames for a bit and takes us between a series of man-made lakes, which are the result of old gravel mining. I saw an otter in one of them! It is striking that as soon as we reach a paddock where cows have access to the river, the water goes from almost perfectly clear to cloudy.

Day 3, to Upper Inglesham. We walk under a busy road (the A419) near Cricklade, but after that it’s very peaceful and mostly remote from people. Apart from locals walking their dogs, we’ve seen only one pair of Thames walkers going upstream so far.

thames03Day 4, to Kelmscott. Just before Lechlade-on-Thames the river suddenly widens and becomes navigable to motor boats. Soon after that, we reach the first of many locks (there are 44 on the Thames). It is fascinating watching how they work. In the village of Kelmscott is the home of William Morris (famous 19th century designer, writer and socialist activist) and we enjoy looking inside his home which is open to the public this day.

thames04Day 5, to Newbridge. As on most days, there is a bit of the path that departs from the bank, presumably because of an uncooperative landholder. Chimney Meadows Nature Reserve is lovely. We meet a woman from the Wildlife Trust which manages the Reserve and learn how they manage meadows quite actively to maintain their appearance. We’re seeing increasing numbers of slow-moving power boats, mostly long, narrow canal boats.

Day 6, to Eynsham. Another day, another beautiful walk. We are amused by the toll bridge charging 5p per car crossing between Swinford and Eynsham. The locals we meet are mostly delightfully enthusiastic about us walking the Thames. We are also struck by how many of them have relatives in Australia – almost all of them, it seems.

thames05Day 7, to Oxford. We pass a beautiful wood and the first significant hill close to the river. We start to meet more other walkers. Signs of civilisation increase steadily as we approach Oxford. Close to Oxford the river feels more managed. We spend several days in Oxford, resting and exploring all the amazing things.

Day 8, to Abington. Beyond Oxford, it quickly becomes beautiful and verdant again. We meet Margaret and Gordon, septuagenarians who are also doing the Thames Walk. I hope we’re as fit as they are at that age. In Abingdon we learn about their eccentric tradition of throwing thousands of buns off the top of the County Hall to the crowds massed below, to celebrate significant royal events.

thames06Day 9, to Dorchester-on-Thames. Yesterday we both felt that we could have walked further, but today (which is not much further) we feel worn out by day’s end. It’s another beautiful day walking right by the water the whole way. Dorchester has many really old buildings. We stay at the Fluer de Lys Inn, built in 1520. These really old places tend to be rather crooked; the floor level in our room varies by about 20 cm.

Day 10, to Steatley. A long day of walking, with by far the worst weather of the trip. It rains heavily and consistently, the path gets muddy and then, unusually and unfortunately, the vegetation closes tightly in on the path. We get completely drenched pushing through it. The insides of my boots could not have been wetter if I’d walked in the river. We are so cold and uncomfortable when we reach Moulsford that we pike out and get a taxi the last few km to Streatley.

thames07Day 11, to Reading. After yesterday’s rain I fear we’ll be up to our knees in mud today, but it mostly isn’t bad. Near Whitchurch-on-Thames, the path goes up a hill and through a wood – one of the most beautiful stretches of the whole walk. The last part of today’s walk is into Reading, making it the least natural part of the walk. In Caversham (over the river from Reading) I visit the Fox and Hounds Hotel where, in April 1960, teenagers John Lennon and Paul McCartney played in public as a duo for the only time. This was well before the Beatles were playing regular gigs.

Day 12, to Henley-on-Thames. The river is very much wider than it was in the early days of our walk. The Saturday market is packing up when we make it into Henley. This market has been going since the 13th Century. Two other notable things about Henley are that it is world famous for its rowing regatta, and it’s where my grandfather lived up until 1910. He later took up rowing, and won the Kings Cup in the Western Australian crew of 1927.

thames08Day 13, to Marlow. I feel a bit melancholy knowing this is our last day. There is a lot more development along the bank today than we’ve previously seen. We’ve seen some pretty expensive houses along the way since about Abingdon, but today takes the cake. One place we get to walk through seems like it could be owned by a billionaire. Still, it’s a lovely walk. We celebrate the conclusion with a cup of tea in Marlow, and then get a ferry back to Henley where we’re staying.

Overall, a wonderful experience. I hope we get an opportunity to do the rest of the walk into London at some stage.