An applied methodology for the quantification of socio-economic valuation of groundwater resources in Malta

Abstract

Groundwater resources provide a myriad of economic benefits to businesses, consumers and society at large, from supporting agricultural holdings in the cultivation of crops to ensuring food security and the provision of clean water to households and tourists alike. Nonetheless, there are significant lacunae in the valuation of groundwater as an economic resource, particularly from a policy perspective. This is probably the result of two polarizing intellectual forces. On one hand, the difficulty in the accurate estimation of non-market benefits has fuelled a reluctance to approach this subject in policy circles – so much so that some new economic models shun it completely. On the other hand, the old adage of “what gets measured, gets valued” might be very relevant in this case, especially since while attention has frequently been drawn to negative externalities through the polluter pays principle, less attention has been devoted to positive externalities that emanate directly (or indirectly) from the supply of groundwater. Against this backdrop, this paper seeks to develop a tractable approach for the valuation of groundwater resources across their various uses in Malta, a small island EU member state. Malta provides a compelling context for the undertaking of such an analysis. As a small island state in the middle of the Mediterranean with a semi-arid climate and a fast-growing population, Malta’s natural water supplies are not sufficient, even if used sustainably. However, this has also spurred innovation and forward thinking aimed at managing and conserving such resources. The focus of this research is on the private use of groundwater across two broad market segments, namely agriculture and industry, given that these constitute the two main private abstractors of groundwater in Malta (beyond government for public water supply). This study proposes a framework for the identification, characterization and – where possible – the quantification of social demand for groundwater. The framework follows the social demand model in mainstream economics that captures both private financial benefits resulting from each sector’s use of these resources (e.g., enhanced agricultural productivity) as well as the external benefits emanating from water use (e.g., recreational value and food security, wider employment creation). These values are estimated using a variety of recognized approaches ranging from productivity and market-based methods to values derived from general equilibrium-based input-output models which identify the economic impact of groundwater use across these sectors. The benefit-transfer method – notwithstanding its limitations – is also considered an option. We utilize these results to highlight the need for the valuation of such resources, with a number of policy recommendations as well as suggestions for future research in this area. The framework’s inherent flexibility means that it can also be applied to other countries.