Upstream land-use and downstream water - Using water treatment costs to value ecosystem services
Abstract: Water purification is commonly referred to as an economically valuable ecosystem service. Yet, the effect of upstream land-use on downstream water quality is poorly understood, and the economic implications even less so. With panel data of upstream land-use, raw water quality and chemical costs for 76 municipal water treatment plants in Sweden, this MSc thesis studies how land-use affects water quality and, consequently, water treatment costs. The findings suggest that land-use affects levels of E. coli (a microbiological pollutant) in downstream water, but the effect of E. coli on treatment costs remains unclear. Instead, turbidity of water is found to increase treatment costs, but no significant effect of upstream land-use on turbidity is found, possibly because of limited data quality. Whereas a recently published study (Vincent et al., 2015) provided econometric evidence that upstream forests reduce water treatment costs, it was only implicitly assumed that water quality was the channel for this effect. By adding water quality data to the analysis, endogeneity concerns are addressed and a better understanding is gained of how ecosystems create value by affecting water quality.
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