April 7, 2016
A Cost-Benefit Analysis
A 2014 report from CGLR and Mowat calculated that if extremely low water levels persisted until 2050, the adverse effects on the Great Lakes economy could reach $18.82 billion (USD).
This report builds on that previous research by assessing previously identified mitigation strategies under a similar extreme low water level scenario. It assesses the costs and benefits of these approaches under this water level scenario for four key Great Lakes sectors.
Water levels in the Great Lakes are in a constant state of flux. This is good; natural fluctuations are essential to a healthy ecosystem. But sustained periods of extreme water levels are potentially costly, both for the economy and the environment. In June 2014’s Low Water Blues, we estimated the direct economic costs of an extreme low water level scenario on selected sectors in the Great Lakes and St. Lawrence River System (GLSLS). The results were revealing and, given missing data on a wide range of sectors and impacts, may prove conservative.
This report builds on this research by assessing previously identified mitigation strategies under a similar extreme low water level scenario. We assess the costs and benefits of these approaches under this water level scenario for four key Great Lakes sectors:
- Commercial shipping and harbours
- Tourism and recreational water activities
- Waterfront properties
- Hydroelectric generation
Although the International Joint Commission (IJC) has noted the capacity of key GLSLS interest to adapt to water levels within historical upper and lower ranges, it warns that levels outside of these ranges would require certain interests to adopt more systematic responses than they have undertaken to date. In this regard, experts have advanced three broad approaches:
- Raising water levels in Lake Michigan-Huron by installing fixed structures in and around the St. Clair River, a process known as restoration.
- Raising or lowering water levels, as conditions dictate, on the entire GLSLS using new and existing dam-like structures, channel excavations and region-wide regulation plans, a process known as multi-lake regulation.
- Creating a structured, iterative and bi-national process of improving responses to changing water levels through long-term monitoring, modelling and assessment of hydrological trends and their impacts, a process known as adaptive management (AM).
Data and methodological constraints preclude a cost-benefit analysis (CBA) of all of these approaches. Instead, we attempt to provide the first comprehensive economic CBA of existing proposals to restore water levels on Lake Michigan-Huron using previously-studied structural options. We also provide qualitative analyses of the two remaining approaches — multi-lake regulation and AM — and assess the political viability of all three approaches.
We assess mitigation strategies with a focus on water levels in Lake Michigan-Huron. Our focus on Lake Michigan-Huron is not arbitrary; it was the hardest hit of the Great Lakes during the low-water spell of 1999 to 2013, and remains highly vulnerable to extreme lows, which is critical given the region’s massive shipping, tourism, hydroelectric and cottage industries.
We identify a number of previously-studied structures that are capable of generating positive economic net benefits under our worst-case low water level scenario. The most promising of these interventions, according to our analysis, is a series of sills in the upper St. Clair River. But we stop short of recommending specific interventions for three reasons.
First, our estimates are modest. In our best-case scenario, restoration could yield almost $250 million USD in benefits from now to 2064. It is possible these estimates are conservative: they apply a four per cent discount rate, incorporate conservative estimates of several impacts and exclude costs that our structures would mitigate. However, it is also possible that our estimates are liberal: they exclude costs associated with restoration and assume a worst-case low water level scenario. This is of course problematic: if restorative structures, which are only capable of raising water levels, are not viable under our low water level scenario, then they are not viable at all.
Second, our estimates are limited by the same uncertainties associated with any analysis of this nature: uncertainty about fluctuations in water levels; uncertainty about the impacts of water levels on ecological and economic outcomes; and uncertainty about the costs and benefits of interventions.
Finally, restoring water levels — no matter what the net regional benefit may be — faces formidable political obstacles. Virtually any effort to raise or lower water levels is likely to benefit some groups at the expense of others. This is a major constraint, as policymakers are reluctant to adopt structures that harm major interests. This does not preclude intervention if policymakers can find ways of resolving redistributive conflicts. But as we will argue, these solutions may be difficult to find.
These challenges have raised interest in multi-lake regulation — raising or lowering water levels, as conditions dictate, on the entire GLSLS using dam-like structures, channel excavations and region-wide regulation plans. This approach would allow the region to better cope with sudden and dramatic changes in water supplies and could ease tensions between stakeholders in flood- and non-flood prone regions. It could also present opportunities for habitat enhancement and restoration. But multi-lake regulation is no panacea. It is ecologically risky; would not eliminate the risks of extreme water levels; and would involve billions of dollars in excavation, construction and operation and maintenance costs.
This brings us to our third approach: adaptive management (AM). AM does not involve managing or raising water levels (though it can be combined with these approaches). Rather it is a structured, iterative process of improving responses to changing water levels through long-term monitoring, modelling and assessment of hydrological trends and impacts. It was recently endorsed by the International Upper Great Lakes Study as the most economical and politically practical means of adapting to the uncertainties and costs surrounding water levels, which explains the IJC’s recent efforts to strengthen bi-national cooperation in this area. We draw two conclusions from our analysis. First, the economic viability of restoration requires further research. Future CBAs ought to build on our work by including ecological impacts; additional economic impacts; more sophisticated modelling of economic outcomes; a wider range of hydraulic scenarios; better cost estimates of engineering structures; and, if existing proposals are incapable of redressing political and environmental hurdles, promising proposals for new engineering structures (indeed, most of the proposals we analyze were developed several decades ago).
Second, future research needs to grapple with the politics of adapting to and mitigating the impacts of climate change in the Great Lakes and St. Lawrence Region. Decisions over boundary and transboundary water levels today are taken by unofficial consensus, where virtually any group can veto measures expected to significantly harm their interests. Researchers ought to admit this constraint and find ways of redressing it. Ultimately, this means identifying policies and structures capable of eliminating or limiting redistributive conflicts and environmental risks.
The shortcomings of our study limit the recommendations we can make. However, one key recommendation emerges from our research which, if implemented, would help all interests adapt to changing water conditions and improve the quality of future research. We advise the Canadian and US governments to approve the IJC’s proposals to strengthen AM on a bi-national basis. Specifically, we advise them to establish a Levels Advisory Board (LAB) capable of facilitating monitoring and modelling of hydrological trends and their impacts. This approach is not without political and administrative costs. But it is the most politically practical means of addressing fluctuating water levels: it is not as controversial as restoration or multi-lake regulation, and would help all actors, regardless of their preferences over water levels, by providing them with more, and better, information on hydrological conditions.
AM is also a necessary, albeit insufficient, condition for structural interventions. Neither restoration nor multi-lake regulation has any chance of approval unless uncertainty over their impacts is reduced. Systematic monitoring and modelling would not eliminate this uncertainty, but it would mitigate it, perhaps opening the door to a more reliable analysis of engineering options.
April 7, 2016