Evaluating Adaptive Efficiency in Environmental Water Recovery: Application of a Framework for Institutional Cost-Effectiveness Analysis

Abstract

The first empirical application of an established framework for evaluating the adaptive efficiency of policy and project options — the Institutional Cost-Effectiveness Analysis (ICEA) framework — is documented in this paper. The application involves cost-effectiveness comparison of six projects for environmental water recovery in the Murray-Darling Basin, Australia, managed by the New South Wales (NSW) Government under three programs: The Living Murray Initiative; the NSW Wetland Recovery Program; and the NSW Rivers Environmental Restoration Program. Focussing primarily on one of the projects — the Darling Anabranch Pipeline Project (DAPP) — allows an in-depth account to be presented of the ICEA framework’s application. Abatement and transaction costs, and public and private subsets of these costs, were accounted for in the applications. The adaptive efficiency of the DAPP (a “water-saving project”) is found provisionally — i.e., without accounting quantitatively for institutional lock-in costs — to exceed that of the five other environmental water recovery projects (including two “market-purchase projects”) evaluated. This finding is significant given a tendency for economists to presume that environmental water recovery is generally achieved more efficiently through market-purchase projects. With water management, and environmental management more broadly, exposed to increasing uncertainty, adaptive efficiency will grow in importance as a metric for economic evaluation. The application of the ICEA framework documented in this paper can guide researchers in applying this metric to evaluations of projects and policies implemented in, or proposed for, this domain.