410 Int. J. Sustainable Economy, Vol. 3, No. 4, 2011 Is desalination the most sustainable alternative for water-shortage mitigation in Israel? Doron Lavee Department of Economics and Management, Tel-Hai College, Upper Galilee 12210, Israel and Pareto-Engineering Ltd., Netania, Israel E-mail: dlavee@telhai.ac.il Michael Ritov Pareto-Engineering Ltd., Netania, Israel E-mail: michael@pareto.co.il Nir Becker* Department of Economics and Management, Tel-Hai College, Upper Galilee 12210, Israel E-mail: nbecker@telhai.ac.il *Corresponding author Abstract: Significant progress in seawater desalination technology has lowered its costs considerably, making it an attractive option to policy makers in countries facing water shortages. However, in making the decision to implement desalination, two issues are often ignored: firstly, seawater desalination is also associated with external costs. Secondly, alternative measures of managing water shortage may potentially be more cost-efficient. The current study estimates the external costs of desalination, and then compares the full costs of desalination with those associated with three alternative solutions for water supply shortage: increasing wastewater reclamation and reuse, investing in water savers and reducing the amount of water used in the agricultural sector. The main contribution of this paper is thus in providing a complete methodological framework for the evaluation of desalination projects, taking into account both direct and external costs. Contrary to common wisdom, the study reveals that desalination is the least economically efficient and sustainable of all alternatives considered, even without taking into account the externalities involved. Keywords: Israel; desalination; water policy; cost-effectiveness analysis; externalities; water pricing; sustainability. Copyright © 2011 Inderscience Enterprises Ltd. Most sustainable alternative for water-shortage mitigation 411 Reference to this paper should be made as follows: Lavee, D., Ritov, M. and Becker, N. (2011) ‘Is desalination the most sustainable alternative for water-shortage mitigation in Israel?’, Int. J. Sustainable Economy, Vol. 3, No. 4, pp.410–424. Biographical notes: Doron Lavee holds a PhD from Ben Gurion University, Department of Economics in 2005. He is a Senior Lecturer (from 2009) and also Head of the Economic and Management Department at Tel-Hai Academic College (from 2009). He also co-directs a consulting group specialising in cost-benefit analysis projects related to water and environment. Michael Ritov has a BA and MA in Economics from the Hebrew University of Jerusalem. He works as an Economist at Pareto-Engineering Ltd., an Israeli consulting firm specialising in cost-benefit analysis projects related to water and environment. Nir Becker is with the Department of Economics and Management at Tel Hai College and a Senior Research Fellow at the Natural Resources and Environmental Research Centre at the University of Haifa. He has published 36 refereed articles. In his research, he utilises concepts such as optimisation techniques, game theory, cost benefit analysis and valuation methods. He holds a BSc and MSc from the Hebrew University in Jerusalem and a PhD from the University of Minnesota. His main interest is with natural resources and environmental economics. 1 Introduction Water consumption in Israel has been growing rapidly over the years. By 2015, total water demand is forecasted to reach about 2,500 million cubic meters (MCM) annually (Gvirtzman, 2002), while annual renewable water resources total only about 1,400 MCM. This, according to forecasted water demand in the two main sectors (domestic and agricultural), assuming the price of water remains unchanged. In recent years, seawater desalination has been increasingly viewed as a basic instrument to solve problems of water scarcity. This is true not only in Israel but also in other parts of the world (Dolnicar and Schafer, 2009; El-Fadel and Alameddine, 2005; Yuhas and Daniels, 2006). Until 2006, only about 30 MCM were desalinated in Israel annually (out of a total of more than 1,500 MCM used). However, in 2006 a desalination plant in Ashkelon began operation, producing 100 MCM each year. The national plan is to increase desalination capacity to 1,000 MCM per year within the next ten years. This will amount to 100% of the forecasted urban water demand in 2020. In the past, desalination was a relatively expensive solution (compared to conventional water production alternatives) and was thus implemented only in isolated places. However, the costs of water supply in recent years have risen in most places (as water shortage necessitated production from marginal water sources) while at the same time the cost of desalination has declined (Karagiannis and Soldatos, 2008; Reddy, 2005, 2008; Zhou and Toll, 2004). Desalinated water was considered an environmentally safe solution, increasing total supply. By diluting desalinated water with regular water (within the regular water supply system), it is possible to increase the total amount of 412 D. Lavee, M. Ritov and N. Becker water available for drinking purposes (Glueckstern and Priel, 1998) and for agricultural uses (Lavee, in press; Samit, 2001). However, more recently it has been argued that desalination has certain significant negative environmental impacts that should be taken into account (Altayaran and Madany, 1992; Azis et al., 2000; Einav et al., 2002). In particular, desalination plants are associated with three major negative environmental impacts: 1 significant energy consumption, leading to air pollution and greenhouse gas emissions 2 use of land along the limited coastal area of the country1 3 potential damages to marine life and resources, particularly due to the discharge of residual salt to the sea. An analysis which internalises these externalities may reveal more efficient means to deal with water supply shortage, such as investing in water savers equipment, introducing water saving measures, increasing water reuse and considering reallocation of water between different uses. The purpose of this paper is to quantify these external effects and then use the results to compare desalination with other alternatives for mitigating water shortage. Specifically, three such alternatives will be considered: wastewater reclamation and reuse in agriculture, investment in water savers equipment and reduced water consumption by the agricultural sector. This paper continues as follows. Section 2 provides background regarding water policy in Israel. Section 3 presents a full evaluation of both the direct and external cots of desalination, while Section 4 describes the costs associated with the three other proposed alternatives for mitigating the water shortage problem. Section 5 summarises and concludes the findings. 2 Background: water policy in Israel 2.1 General background Israel has a semi-arid climate with significant fluctuations in annual precipitation. It suffers intermittently from series of very dry years during which annual evapotranspiration may be greater than annual precipitation. Israel’s water potential is derived from four types of sources: groundwater or aquifers, natural surface reservoirs, storm run-off and recycled domestic and industrial effluent. Total annual renewable water resources equal about 1,400 MCM, most of which are derived from three major sources – the Coastal and Inland Mountain Aquifers, and Lake Kinneret (the Sea of Galilee). The availability of water from these sources is limited by the annual recharge rate and by the need to maintain a minimal water table level. Withdrawal of water in excess of the recharge rate, i.e. allowing the water level to fall below the minimum, would lead to the intrusion of brines and deterioration of water quality, such that some of the water would potentially no longer be suitable for either domestic or agricultural use. The annual operational volume of the Coastal Aquifer is about 280 MCM, that of the Inland Mountain Aquifer is about 330 MCM, and that of Lake Kinneret is about 400 MCM. Despite the risk of water quality deterioration, over-extraction of aquifer water Most sustainable alternative for water-shortage mitigation 413 has continued intermittently for more than 30 years. In recent years, however, it has increasingly been understood by policy makers that this type of over-extraction must stop, and solutions to the water shortage problem must be found elsewhere. Indeed, water policy in Israel has always been focused on mitigating water shortage. An important point in this respect is that as most of Israel’s water sources are shared with its neighbours, any steps taken to mitigate water shortages in Israel may also have a positive effect on its neighbours, as they reduce pressure for over-extraction of existing sources. This is true both regarding the Coastal and Inland Mountain Aquifers (shared by Israel and the Palestinian Territories) and the Lake Kinneret and Jordan River system (shared by Israel, Syria, the Palestinian Territories and Jordan). Specifically, government policy has advanced two main solutions: wastewater treatment and reuse, and, more recently, seawater desalination. 2.2 Wastewater reuse in Israel In 1953, Israel drafted the world’s first set of standards for wastewater reuse, and effluent recycling emerged as a central element of Israeli water policy. At present, 91% of all municipal sewage in Israel is treated, 73% of which is then reused in agriculture, thus contributing roughly one-fifth of Israel’s total supply. Typically, the effluents reaching farm operations come from nearby cities, with the exception of Tel Aviv’s metropolitan wastewater treatment plant, from which roughly one-quarter of the country’s sewage (130 MCM/year) is conveyed 100 km southward to the Negev desert. Treatment is based on an activated sludge process that incorporates additional nitrogen removal. After treatment, the water is piped to spreading bases where it is injected into the ground for recharge of a regional aquifer. Here the water undergoes additional filtering and seasonal storage before it is pumped for irrigation. Concerns about the effect of sewage recycling initially focused on public health and gave authority to the Ministry of Health to oversee matters of effluent treatment and reuse. Starting in 1992, a new standard for secondary treatment facilities required a maximum concentration of 20 mg/l biological oxygen demand (BOD, a measure of organic pollution in wastewater) and 30 mg/l for total suspended solids (TSS). However, this ‘20/30’ secondary sewage treatment level proved inadequate for a variety of reasons. The range of crops that can be grown at this treatment level is relatively narrow because of the presence of pathogens in the effluents. Directly consumed vegetables as well as many fruits, e.g. cannot be irrigated with recycled wastewater at this treatment level. The salinity in the wastewater poses risks to soils and freshwater sources. Boron compounds, common in detergents, are not efficiently removed and accumulate in recycled wastewater, contributing to soil structure problems. Moreover, during the 1980s, industrial solvents such as toluene and benzene began to appear in Israeli rural well samples. Their presence was attributed to inadequate sewage treatment and widespread irrigation with effluents. It thus became clear that effluent standards at 20/30 levels – which make sense in regions such as Europe, where the river dilution factor is considerable – are insufficient in arid environments, where wastewater supplies most of the baseline flow in naturally ephemeral streams. Ultimately, ecosystem recovery in Israeli rivers must be based on higher quality effluents. In April 2005, the Israeli government approved the recommendations of an expert committee that increased the stringency of sewage treatment requirements. Maximum BOD and TSS were reduced to 10 mg/l. The standard 414 D. Lavee, M. Ritov and N. Becker contains a long list of new criteria for salinity as well as concentrations of boron, heavy metals and nutrients. The criteria are dichotomous, with limits set for agricultural irrigation often differing from those set for wastewater discharged into streams. For example, an ammonia standard of 20 mg/l is set for agricultural reuse, whereas concerns about eutrophication led to a stringent 1.5 mg/l requirement for discharge into streams. The banning of boron in detergents has already resulted in reduced wastewater concentrations. The estimated cost of the 10-year phase-in of advanced tertiary sewage treatment is $220 million (Lavee, in press). The economic burden of meeting the new standards will be much less significant in the large municipal facilities than in the non-mechanised smaller plants that produce a quarter of the country’s effluents. 2.3 Desalination in Israel Desalination constitutes the most recently adopted component of Israel’s water management strategy. In the past, high costs limited the scope of desalination to Reverse Osmosis facilities in remote southern agricultural communities and at the Red Sea resort town of Eilat, where no viable alternative water source existed. Today, the combination of modern membrane technologies, reduced energy consumption and the economies of scale associated with mass production yields very-high-quality drinking water production at Israel’s Mediterranean coast at a cost of less than $0.60 per CM (Dreizin, 2006; Tal, 2006). These new economic dynamics led to a 2002 government decision to construct five new Reverse Osmosis desalination plants over the coming years. The facilities are expected to produce more than 315 MCM/year, adding about 15% to present drinking water supplies. The first of these plants was constructed near the city of Ashkelon, and went into operation in 2006, producing 100 MCM annually. More recent plans call to increase desalination capacity to 1,000 MCM per year within the next ten years. 3 Desalination costs Dreizin et al. (2008) report the contracted price for the three large desalination plants constructed in Israel in the last five years. The lowest is that of the desalination plant near the city of Ashkelon – 50.9 cents per 1 CM. This is one of the lowest cost estimates found in the literature, and indeed, the actual delivery price has risen significantly above the contract price due to an increase in energy costs (a price escalation mechanism was built into the contract). Nevertheless, for the purpose of the estimations in this paper we will use this price, which is equivalent to 2 NIS per CM. In addition to the direct costs of desalination, project appraisal requires taking into account its external costs as well, and these may be considerable. Specifically, seawater desalination is associated with three major negative environmental impacts: air pollution and greenhouse gas emissions, use of land along the coastal area and damages to marine life due to the pumping of seawater into the plant and the discharge of residual salt. We will discuss each of these impacts in Sections 3.1–3.3. Most sustainable alternative for water-shortage mitigation 415 3.1 The costs of air pollution and greenhouse gas emissions Desalination plants consume significant amounts of energy. Indeed, 30–50% of the total cost of the desalination process is associated with energy consumption (Samit, 2001). Moreover, in Israel, the plants must operate on a continuous basis, hence the potential for using alternative energy sources for this purpose is very limited, and the plants must rely on conventional fossil-fuel power. In addition to the direct costs associated with the consumption of the required energy, there are also external costs reflecting the pollution emitted when energy is generated to meet this demand. Several studies have examined this issue. For instance, Stokes and Horvath (2006) make the point that when considering different water supply alternatives, a full life cycle energy assessment must be carried out for each. Looking at California, which suffers from water shortage due to population growth, they compare between desalination, importation of out-of-state water and water recycling. They find that desalination is associated with significantly greater energy demand than the other two alternatives, such that the environmental costs of the corresponding air pollution are considerable and must be taken into account. A certain limitation of the study, however, is that sources on which the monetary values attributed to the different pollutants are based on somewhat dated (from the early 1990s) studies. Nisan and Benzarti (2008) analyse different types of desalination plants (making use of different types of fuels), taking into account both the direct energy costs and the external costs associated with emissions. They conclude that when externalities are taken into account, systems based on nuclear technology are by far superior to fossil-fuel-based plants. Karagiannis and Soldatos (2010) also consider the externalities of desalination, focusing on greenhouse gas emissions. In the context of the Greek islands, they investigate under what conditions it would be economically worthwhile to invest in desalination plants based on renewable energies rather than in plants using fossil-fuels. They find that such an investment may indeed be warranted under reasonable assumptions regarding the environmental cost of CO2 emissions. They do not consider other air pollution emissions. This paper continues in this line, using up-to-date methodologies and resources, and focusing on the damages caused by the four major pollutants released during energy generation from conventional sources: particulate matter (PM10), NOX, SO2 (all of which are associated with human health risks) and CO2 (the main greenhouse gas). To assess the emission costs we use estimates from a study conducted by Pareto-Engineering Ltd. (an Israeli consulting firm specialising in analysis of the economic implications of environmental issues) for the Israeli Ministry of the Environment (Pareto, 2008). As regards NOX, SO2 and PM10, Pareto (2008) cost estimates were based on the results of the European project Cost Assessment for Sustainable Energy Systems (CASES, 2008). This project used the methodology developed within the Extern-E project for the evaluation of the externalities of energy generation (Bickel and Friedrich, 2005), and presents pollution costs on a per ton basis for each country in the European Union as well as neighbouring countries (north African and eastern European countries). These costs were estimated using simulations taking into account climate, population density and epidemiological studies linking pollutant concentrations and morbidity and mortality rates. Using this dataset, Pareto (2008) estimated adjusted pollution costs for Israel on the basis of two parameters: population density in the surrounding region (within a radius of several hundred km) and national income (as measured by GDP per capita). As regards CO2, Pareto (2008) estimates are also based on the value provided by 416 D. Lavee, M. Ritov and N. Becker the CASES project – arrived at by an analysis of both model simulations concerning the potential damages of global warming, and the avoidance costs of reducing CO2 emissions. This value (19€/ton) was then adjusted to economic conditions in Israel on the basis of the ratio between GDP per capita in Israel and that in the European Union (as the damage in this case is of a global nature, regional population density is of course irrelevant). To calculate pollution costs per kWh of electricity generated, we use data on average emissions during electricity generation in Israel, as reported by the Israeli Electricity Company (IEC, 2010). Finally, as desalination of 1 CM requires 4.25 kWh of energy, in order to assess the external costs of desalination we multiply the per kWh pollution costs by 4.25. The results are presented in Table 1. As can be seen in the table, the total environmental costs attributed to air pollution and greenhouse gas emissions equal 13.13 cents per 1 CM of desalinated water. 3.2 Use of land along the coastal area Desalination plants in Israel are most often built along the coastline. This creates an external cost which is represented in Equation (1). C AV×DP Q (1) where C is the cost per cubic meter of water produced, AV is the average monetary value of coastline property per unit area, DP is the area of relevant coastline appropriated by desalination plants and Q is the quantity of desalinated water produced in cubic meters. The alternative value of those areas taken up by desalination plants should thus be taken into account. Desalination of 100 MCM requires about 100 m of shoreline and 7 ha of territory (Dreizin, 2006). A weighted average of the different values of the Israeli shorelines is provided in Kivun (2006). The report compels estimates based on market values such as lost development opportunities and non-market values which are mainly related to recreational opportunities. It reveals a maximum annual value of 190 NIS per 1 m2 of shoreline. There are an estimated 14 ha of territory lost due to desalination with a total value estimated at 27 million NIS per year. Dividing by the 200 MCM of desalinated water yields an additional 0.135 NIS per CM. Table 1 Air pollution externalities of desalination Pollution costs per ton emitted ($/ton)a Average emissions during Emission costs per Emission costs per 1 electricity generation kWh generated CM of desalinated (gram/kWh) (cents/kWh) water (cents/CM) SO2 6,468 1.6 1.03 4.40 NOX 3,746 1.7 0.64 2.71 PM10 9,232 0.05 0.05 0.20 CO2 19.39 707 1.37 5.83 Total a 13.13 Values in Pareto (2008) were stated in €. They have been converted to $ using an exchange rate of 1.3075. Source: Pareto (2008), IEC (2010) and authors’ calculations. Most sustainable alternative for water-shortage mitigation 417 3.3 Damage to marine resources In recent years, a growing body of literature is concerned with the environmental impacts of seawater desalination. Pitzer (2003), for instance, studied the issue of the residual salt concentration and its impact on marine life when dumped back to the sea. Sadiq (2002) examined the impact of the desalination plant in Ras Tanajib, Saudi Arabia, on marine life in the vicinity of the plant and found significant remainders of metals along the shore. Altayaran and Madany (1992) analysed the effect of the desalination plant in Sitra, Bahrain on water quality in the nearby area, and highlighted potential harmful effects in parameters such as water temperature and salinity. Yuhas and Daniels (2006) looked at the environmental impact of the desalination plant in Tampa Bay, Florida, and found significant causes for concern. They concluded that at the current technology level and given the significant uncertainty concerning environmental impacts, desalination should be avoided when possible, while other water management means such as groundwater use, water recycling, water saving technologies and water price increases are preferable. The above mentioned studies all focused on monitoring and describing the physical effects of desalination plants on the nearby environment, highlighting areas where desalination may have a negative impact. No studies on the issue, however, have been carried out to provide monetary estimates of these impacts. Accordingly, this section will only describe the potential damages to marine resources, without valuating them. Marine life in the vicinity of a plant is impacted by its operations primarily due to both the discharge of salt residuals and the pumping of seawater into the plant (Einav et al., 2002; Zhou and Toll, 2004). Specific sources of risk include: x high salt concentration of the residuals: 63K ppm relative to 35K ppm, which is the natural level of salt concentration in the seawater x higher temperature at the discharge site relative to the natural temperature of the sea x desalination residuals characterised by high turbidity rates compared to the natural seawater turbidity rate x low oxygen level of the residuals, compared to the natural seawater level x dumping of chemicals used in the pre-treatment stage x dumping of metals and other inorganic materials which accumulate during the desalination process. All of these impacts may be harmful to marine life. For example, metals can poison reproduction areas for some fish species, high chloride concentration can cause high sedimentation levels which in turn may have a negative impact on Phytoplankton beds, and higher temperatures can have a negative impact on the reproduction capability of some marine organisms. Unfortunately, we do not know of any study that has tried to estimate the dollar value of these damages, and therefore we do not include this element in our estimation of the negative externalities of desalination. However, we can thus safely assume that our bottom-line estimate for total negative externalities of desalination constitutes only a lower bound, as it does not incorporate damages to marine resources. 418 4 D. Lavee, M. Ritov and N. Becker Alternatives for mitigating water shortage In this section, we examine alternatives for mitigating water shortage. There are two basic approaches to manage water scarcity – demand and supply management (Becker, 2001; Hurlimann et al., 2009). Demand management solutions may include increasing the price of water, introducing trade in water allotments (totalling the available amount of renewable water supply), etc. Supply management alternatives may include import of water from countries with abundant water sources, production of water from marginal sources such as wastewater or seawater, etc. With respect to the supply side, it should be examined whether the potential exists to reduce water shortages in a cheaper and more efficient manner (compared to desalination), at least in the short-run. In this paper, we examine one such policy – increased wastewater reuse in agriculture. On the demand side, we examine two potential policies: reducing water consumption by the agricultural sector (by raising prices), and investing in water savers so as to reduce domestic water demand. Our comparative analysis of the alternatives is based on the criterion of costeffectiveness. That is, the preferred alternative is the one which produces an additional cubic meter (or saves one) at the lowest cost, taking account both direct costs and externalities. 4.1 Wastewater reuse in agriculture This solution may be associated with several key advantages: 1 Relatively low cost (as described below). 2 A double-dividend element (as this solution removes pollutants from the environment). Without treatment, wastewater pollution reaches the rivers and groundwater and may cause serious damages. Thus, a certain degree of treatment is required regardless of the final use of the water. 3 Sustainable solution for the long run: the amount of wastewater is positively correlated with the size of the urban population and its income level. Thus, using treated wastewater to increase water supply may help to address future increases in water demand for agricultural purposes, or alternatively may allow less reliance on freshwater sources. By 2015, available wastewater supply in Israel is forecasted to reach about 515 MCM per year Lavee (In press). Currently, the agricultural sector uses about 399 MCM of treated wastewater annually. This means that if steps are taken to ensure treatment and reuse of the additional amount of available wastewater, demand for freshwater may be reduced by almost 116 MCM, equal to about 23% of the planned desalination capacity. In addition, this type of solution may be implemented faster than desalination. To analyse the feasibility and efficiency of increasing reuse of domestic wastewater in agriculture, we must assess the following: 1 the cost of treatment required to bring the wastewater to a level suitable for reuse in agriculture 2 the cost of delivering the water from the treatment plant to the point of use 419 Most sustainable alternative for water-shortage mitigation 3 the costs associated with the removal of wastewater from rivers and groundwater (which would need to be carried out regardless of potential reuse) 4 the environmental benefit of such a policy. It is thus necessary to differentiate between the costs required to allow use of treated wastewater in agriculture, and those associated with the basic treatment of wastewater (required to prevent pollution), which must be borne by the national economy regardless of potential reuse. The true costs of increased use of recycled wastewater in agriculture are the additional costs required to upgrade water quality level beyond that required for pollution prevention, and the costs of conveying the water from the treatment plants to the fields where they are to be used. The costs associated with the current treatment standards, as well as the costs of conveying the treated wastewater to discharge in rivers or the sea should be subtracted from the total costs of the project. Two treatment standards are relevant for this analysis. 4.1.1 The 20/30 treatment standard The current treatment standard in most wastewater treatment plants in Israel. Since this standard is required in order to prevent pollution, i.e. regardless of potential reuse in agriculture, the costs required to attain it should not be taken into account in the current analysis. 4.1.2 The Inbar Committee standard This higher standard is named after a public committee formed in 2001 with a mandate to set new standards for wastewater reuse. The standards which were adopted by the government in 2005 are presented in Table 2. Table 2 Wastewater treatment standards proposed by the Inbar Committee Parameter Unit Maximum concentration Electric conductivity dS/m 1.4 Chloride mg/l 250 Sodium mg/l 150 Boron mg/l 0.4 pH 6.5–8.5 SAR (mmol/l)0.5 BOD mg/l 10 COD mg/l 100 TSS mg/l 10 Fecal coliforms col/100 ml 10 Dissolved oxygen (DO) mg/l >0.5 Residual Cl mg/l 1 Source: Lavee (In press). ~5 420 D. Lavee, M. Ritov and N. Becker Lavee (in press) carried out a detailed analysis of 22 prospective treatment plants. As wastewater must be treated to the 20/30 treatment standard regardless of its use (to avoid environmental damage), Lavee (in press) identifies the added cost of treating wastewater to meet the Inbar Committee standards (which allow for increased use of treated wastewater in agriculture), and estimates it at 1.85 NIS per CM. This estimate includes both construction and operation costs over the plant’s lifetime. It also includes the additional cost associated with transporting the water from the treatment plants (often located in close proximity to urban centres) to the agricultural fields, subtracting the costsavings achieved by replacing the need to deliver the treated wastewater to the rivers or the sea for disposal. 4.2 Investing in water savers An alternative to the increasing water supply is of course to reduce demand. One way in which this may be achieved is to invest in water savers, so as to reduce total urban demand. Currently, urban water consumption in Israel is estimated at 758.5 MCM annually. Investing in water-saving equipment may reduce total urban consumption by about 25% (Dar, 2002). The average cost of such equipment is estimated at 300 NIS and its average lifetime is about three years. An average household consumes about 250 CM annually, such that about 60 CM would be saved. Calculating the perpetuities on the investment and dividing by water consumption reveals that the cost of this investment is 1.7 NIS per CM. Thus, this measure is less costly than desalination, even when ignoring the negative externalities of the desalination process. 4.3 Reduced agricultural water consumption Another alternative for demand management is reducing agricultural water consumption. To compare this alternative to desalination, we will assume that the planned 315 MCM of desalinated water will be taken away from the agricultural sector (without providing any replacement water) and analyse the impact this will have on the sector. A welfare analysis for the agricultural sector is presented in Figure 1. Agricultural water consumption is estimated in the last few years at about 566 MCM per year. To estimate the effect of a potential price increase on the agricultural sector we need to first estimate its water demand curve. This was done by estimating the value of the marginal product of the 45 crops grown in Israel, per CM (Becker, 2001). The marginal product values were then listed in descending order so as to generate a demand function for water. Figure 1 presents the results for a semi-logarithmic function which was found to have the best fit for functional form (the figure is based on Equation (2). P 16.11 – 2.394 ln(W ) (2) R2 = 0.88 where P is the price of water, in NIS and W is the total amount of water used, in MCM. The average price paid for water by farmers in Israel is estimated at 1.39 NIS per CM. The average cost of water production from conventional sources is estimated at 1.79 NIS per CM. Multiplying the difference by total agricultural water consumption (566 MCM), we estimate the total water subsidy in Israel at 226 million NIS annually. Since the increased profitability to farmers is estimated at 170 million (change in consumer surplus Most sustainable alternative for water-shortage mitigation 421 between 1.79 and 1.39 NIS per CM) NIS annually, the net loss of the subsidy is estimated at 56 million NIS per year. If we reduce the amount of water allocated to the farmers to 251 MCM (=566 – 315), we find that the market price which clears the market for this amount is 2.88 NIS per CM. The associated loss in the consumer surplus is estimated at 609 million NIS per year. This can be seen as the area A + B in Figure 1. However, only area B constitutes true cost (since area A is considered transfer payment from the farm sector to the government), and this is estimated at 234 million NIS. Dividing this figure by the lost 315 million CM, we get 0.74 NIS per lost CM. One argument that must be taken into account in this context is that agriculture creates positive externalities. According to Ayalon et al. (2004), the net externalities (positive minus negative) per 0.1 ha are estimated at 335 NIS. Through the agricultural water demand function it is estimated that increasing the price of water to 2.88 NIS per CM will take out 10,746 ha from production (by taking out of production those crops that cannot sustain the higher price). The associated external benefit lost with that amount is thus estimated at 35,999,100 NIS, corresponding to 0.11 NIS per CM. This brings the total cost of reducing the water available for agricultural use to 0.85 NIS per CM, still lower than the cost of desalination (even ignoring the negative externalities of the desalination process). 4.4 Comparing the alternatives A comparative analysis is presented in Table 3. As can be seen in the table, water desalination is the most expensive of all alternatives, even without taking into account the externalities involved (which account for 7% of the total cost). In fact, if all other alternatives are utilised first, the construction of planned future desalination plants may be delayed by about 10 years. Figure 1 Welfare changes in the agricultural sector due to a price increase (see online version for colours) 422 D. Lavee, M. Ritov and N. Becker Table 3 Comparative analysis of water-shortage mitigation alternatives Desalination Direct costs (NIS per CM) 2 External costs (NIS per CM) 0.266 Total costs (NIS per CM) 2.266 Wastewater Reduced consumption treatment Water savers in agriculture 1.85 1.7 0.74 1.85 1.7 0.85 0.11 Total project costs (million NIS) 453 215 323 268 Amount of water saved or added (MCM) (200) (116) (190) (315) Source: Authors’ calculations. 5 Summary and conclusions Water shortage is a given fact of life in many countries. In semi-arid regions where several alternatives exist to mitigate the problem, a comparative analysis is required to allow for informed decision making. There are two basic approaches to deal with the problem: increasing supply and reducing demand. However, it appears that much of the suggested policy measures choose to focus only on the first approach. Analysing two supply enhancing alternatives and two demand management options, we have shown that desalination appears to be the most expensive of all alternatives considered. Furthermore, it is estimated that by first applying the other three more costeffective measures, construction of planned future desalination plants may be delayed by about 10 years. As current plans in Israel call for increasing annual desalination capacity by hundreds of millions of CM, potential savings in this area are quite significant. Wastewater treatment and water savers were found to be the most efficient alternatives to alleviate water scarcity, followed by an additional cut in agricultural (fresh) water. This is true even without taking into account the negative externalities of desalination projects. The main conclusion that may be drawn from this study is that future desalination projects should be postponed until more cost effective means are exhausted first. Future studies should attempt to quantify in greater detail the external effects of both desalination and agricultural landscape, as these two features will determine the optimal timing of construction of new desalination plants. References Altayaran, A.M. and Madany, I.M. (1992) ‘impact of a desalination plant on the physical and chemical-properties of the seawater, Bahrain’, Water Research, Vol. 26, No. 4, pp.435–441. Ayalon, O., Tzaban, H., Avnimelech, Y., Amdor, L. and Feler, N. (2004) Sustainable Agriculture: How to Internalize Externalities in the Farming Sector? Haifa: Israel: S. Neeman Institute at the Technion. Azis, P.K., Al-Tisan, A.I., Al-Daili, M., Green, T.N., Dalvi, A.G.I. and Javeed, M.A. (2000) ‘Effects of environment on source water for desalination plants on the eastern coast of Saudi Arabia’, Desalination, Vol. 132, Nos. 1–3, pp.29–40. Becker, N. 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(2006) ‘Seeking sustainability: Israel’s evolving water management strategy’, Science, Vol. 313, No. 5790, pp.1081–1084. Yuhas, E. and Daniels, T. (2006) ‘The US freshwater supply shortage: experiences with desalination as part of the solution’, Journal of Environmental Planning and Management, Vol. 49, No. 4, pp.571–585. Zhou, Y. and Toll, R.S.J. (2004) ‘Evaluating the costs of desalination and water transport’, Working Paper, Research Unit Sustainability and Global Change Centre for Marine and Climate Research. Hamburg: Hamburg University. Note 1 Land use as of itself does not constitute a direct externality. However, as land value is usually not included in Israel in cost estimates of desalination projects (as prospective sites are usually owned by the government), the value of potential alternative uses is not taken into account (most often recreational uses).