The Economic Benefits of The Atoyac Basin’s Restoration in Puebla, Mexico

Los beneficios económicos de la restauración de la cuenca de Atoyac en Puebla, México

Despite the value of natural water bodies, such as rivers and lakes, they have undergone increasing exploitation and degradation, which has reduced their capacity to provide key environmental services. Although certain practices of resource exploitation and pollution may have been for society’s best interests, in many cases, the resource is lost through activities with limited benefits for society, and sometimes it entails high costs (Turner et al., 2004). River services are considered a quasi-public good because, on one side, everyone benefits from its existence —such as, recreational and aesthetic uses—, while in some cases water is used for private purposes, such as water for irrigation or domestic consumption (Turner et al., 2004; Palaniappan et al., 2010). Moreover, the lack of market values for certain river services limit the incentives to maintain or invest in restoration actions.

Most rivers around urban areas in developing countries are used as open sewers (Seregeldin, 1994). The United Nations (WWAP, 2012) reports that over 90% of sewage in developing countries is untreated and discharged into water bodies, polluting rivers, lakes, and coastal areas. Poor water quality not only affects the quantity and availability of the resource, but pollution also potentially poses a risk to public health and recreational uses, and subsequently, affects economic and social development, in addition to damaging the ecosystem. The World Bank estimates that in the Middle East and North Africa, the cost of poor quality water ranges from 0.5% to 2.5% of GDP annually (WB, 2007 in Palaniappan et al., 2010). In Mexico, estimated damage due to water degradation is approximately 0.5% of GDP (INEGI, 2013). Overall, there is a general consensus that the poorest communities are the most severely affected.

In response to the growing problem of water pollution in Mexico, the government set an ambitious goal of treating 60% of wastewater by 2012 (Conagua, 2010), which unfortunately was not achieved. Nevertheless, within this context, federal and local authorities assessed a large-scale project for the restoration of one of the most polluted surface water courses: the Alto Atoyac Basin, composed of the Atoyac River, its streams and the Valsequillo Dam; which crosses the city of Puebla, the fourth largest metropolitan area in the country. The challenge was to justify the high cost of the cleanup of surface water bodies, given that market prices for several benefits did not exist, such as improving aesthetics in urban and rural areas, restoring a number of ecological services that have a positive impact on human health. Although the National Water Commission (Comisión Nacional del Agua, Spanish acronym Conagua) has experience using Cost Benefit Analysis (CBA), this was the first time that the contingent valuation method had been regarded as the most feasible option for estimating project benefits.

This paper is organized as follows, in section 2 we present a literature review of non- market valuation studies of the restoration of surface water bodies. Section 3 describes the case study, reviewing the water pollution problem and the project for restoring the rivers and dam in the region. Section 4 presents the research design, detailing the scenario and ques- tionnaire characteristics, the WTP elicitation, and the sample design. In section 5 we present and discuss the survey results, particularly the estimated household WTP and aggregate benefit as an input for the CBA. Lastly, we discuss our main results and provide some policy considerations.

Non-market values of water and other environmental resources have been broadly estimated using stated preference methods, particularly with the contingent valuation method (CVM). This method involves the use of a contingent market, or hypothetical scenario, that introduces respondents to a series of proposed changes in the characteristics of the environmental good or service, and then asks whether they are willing to pay for it (Mitchell and Carson, 1989;Arrow et al., 1993,Bateman et al., 2002).

In particular, CV studies have been prolific not only in terms of theoretical and methodological issues, but also of empirical studies, which have multiplied across developed and developing countries during the past decades (Carson, 1995, 2011). The practical application of the method has been dominated by studies in developed countries, whereas its application in developing countries has been limited and, sometimes, received criticism (Whittington et al., 1992;Brookshire and Whittington, 1993, Whittington y Pagiola, 2011).

Developed countries have evaluated and funded ecosystem restoration activities for a long time (see Holmes et al., 2004;Brouwer and Pearce, 2005). Studies to assess the restoration of instreams flows have been conducted as part of investment strategies and policy evaluation by various international organizations such as the European Commission (Bateman et al., 2009;Biliem et al., 2009;Barton et al., 2009; Hasler et al., 2009;Raggi et al., 2009a;Raggi et al., 2009b;Šceponaviciute et al., 2009) and the Inter-American Development Bank (Ardila et al., 1998). For instance, 11 case studies were conducted in various European countries, which assessed the improvement of water quality from moderate, to good or very good in the context of the European Water Framework Directive. Results indicate that WTP varies from $20 per household per year in Lithuania to more than $300 a year in Norway and Spain (Barton et al., 2009;Šceponaviciute et al., 2009).

In Latin America, the Inter-American Development Bank supported 15 projects, where benefits were estimated using CVM (Ardila et al., 1998). The Average WTP for these studies was $69.3 a year for various improvements, including reducing bad odor and improving water quality for swimming. The lowest WTP was found in Uruguay with $8.8 per year and the highest in Peru with $160.5 per year. Vaughan et al. (1999) estimated the benefits of water quality improvement in Liet River in Sao Paulo, Brazil, which included sanitary sewer extension and the installation of treatment plants. In this case, WTP near the river reached $116.6 per year and furthest from the river totaled $ 50 per year. As noted, there is a substantial difference in WTP between sites, which can be explained by the specific improvements offered by the sce- nario and the local socio-economic conditions, but it is remarkable that WTP is not necessarily determined by the level of development of a given country. The literature emphasizes that WTP is context-specific, i.e., the population may show different levels of interest in the environmental improvements offered depending on local issues (Whittington et al., 2008).

A number of studies highlight the accuracy of the estimates regarding the water quality change valued and how WTP varies between households living in close proximity to water bodies, compared to those across the region (Pate and Loomis, 1997;Loomis et al., 2000; Bateman et al., 2006;Tait et al., 2012). As Bateman et al. (2006) argue, this would reflect the lower interest of present nonusers while those nearer to the site in question may switch from being non-users to users as quality increases. In a broader perspective, Pate and Loomis (1997) also state that “by not including a distance factor, and if the sample was too limited geographically, there could have been positive values outside the sample frame” (p. 200). Therefore, the design of studies should consider the distance decay effect because WTP would decline as the distance between the household and the river increases.

In Mexico, stated preference methods have been applied to assess water resource services. Pérez Verdin et al. (2012) analyzed 13 cases where non-market valuation techniques were undertaken for various types of watershed services in Mexico (including Sanjurjo, 2004 and Lara-Dominguez et al., 1998). The WTP obtained through non-market approach ranged from US$ 0.45 to 15.8 monthly per household, being Mexico City the case with the highest WTP. The main types of services provided by the watersheds were wildlife habitat, human consumption, and soil retention. Soto and Bateman (2006) used contingent valuation surveys to investigate WTP for two scenarios, one for maintenance and the other for the improvement of water supply provision levels in Mexico City. Results showed that for the maintenance scenario households’ WTP ranged from 57 pesos bimonthly for low income households to 629 pesos for high income ones, while for the improvement scenario WTP ranged from 212 for low income to 424 pesos bimonthly for high income homes. Aviles-Polanco et al. (2010) used the CV method to estimate their WTP to maintain the water supply service in La Paz, Baja California. Here, results showed that households are willing to pay in average 132.7 pesos monthly to maintain or improve their service conditions.

Ojeda et al. (2008) studied overexploitation in a water-scarce region of the Yaqui River Delta in Sonora and found that households’ WTP in Ciudad Obregon was 73 pesos monthly ($5.6 USD) to preserve riparian vegetation, wetlands, and estuaries; the habitat of birds and other fauna; to keep local fisheries; diluting pollutants; recreation; and other services associated with non-use values. Donoso (2009) analyzed the Apatlaco River area in Morelos, Mexico. He estimated 101 pesos monthly per household (7.78 USD) for a program offering wastewater treatment, improved solid waste management, the expansion and strengthening of municipal services, and strategic basin management. Ayala-Ortiz and Abarca-Guzman (2014) used the CV method to analyze the WTP to improve water quality in a section of the Lerma River, located in the metropolitan area of La Piedad in Michoacan and Santa Ana Pacueco in Guanajuato. They estimated that households’ WTP in La Piedad is 50.4 pesos monthly, while in Santa Ana Pacueco is 43.7 pesos.

In the Alto Atoyac Basin, almost the same study area of this research, an analysis was undertaken to estimate the cost of water pollution based on market methods. Considering the effects on population (health, income, recreation, migration, and industry externalities) and economic activities (agriculture, tourism, and fishing), the total estimated cost reaches 483.3 million pesos for 2005; 65% of this cost is due to direct effects on population welfare, while the remaining 35% is due to loses in economic activities (Rodríguez-Tapia et al., 2012). These studies show positive results for the use of the contingent valuation method in the Mexican context and there is also evidence of economic costs for the Atoyac basin region.

The majority of surface water bodies in Mexico receive untreated wastewater discharges from domestic, industrial, agricultural, and livestock sources. These have caused varying degrees of pollution and have limited the direct use of water resources. The National Water Commission (Conagua, Spanish acronym) monitors the quality of water resources through the National Network for Monitoring Water Quality (RNMCA, Spanish acronym). Conagua published the Water Quality Index (WQI) up to year 2000, with values on a scale from 0% to 100% (with greater WQI value indicating better water conditions), which was obtained from a weighted average of 18 individual quality parameters, including pH, BOD and suspended solids. According to Conagua, for the period from 1974 to 2000, the highest levels of pollution of surface water were in the Basins of Lerma, Alto Balsas, Bajo Bravo, and Alto Panuco. These are heavily polluted, making it difficult to use this resource directly for almost any activity. Recent publications confirm heavy pollution levels in these basins (Conagua, 2001).

Our case study focuses on the Alto Atoyac Basin, which belongs to the Balsas region, one of the four most polluted in the country. The Atoyac River and its streams cross the Metropolitan Area of Puebla-Tlaxcala, the fourth most important urban area in Mexico, with a population of 2.5 million inhabitants in 2005, most of whom (88%) live in the state of Puebla, the remaining population residing in the state of Tlaxcala (INEGI, 2005b) (Figure 1). The Alto Atoyac Basin comprises four subbasins: Zahuapan, Atoyac, Alseseca, and the Valsequillo Dam. It covers an area of 4 011km² and the Atoyac River has a length of 113.7 km, of which 20 km belong to the neighboring State of Tlaxcala (Conagua et al., 2007).

In most of this basin, infrastructure for treating wastewater is non-existent, and in some areas the water quality treatment level is below the acceptable standard set by the NOM- 001-Semarnat-1996 (Semarnat, 1996). It is estimated that 70% of the total wastewater produced in the region is discharged by municipal sources and 30% by industry, the latter being regarded as being highly polluted (GEP, 2011). The consequences of failing to treat sewage include biodiversity loss, bad odor, reduction in agricultural yields, pollution through solid waste, and health problems among the population that live near the banks. Some local media highlight the health hazards linked to river pollution which includes cancer, leukemia, congenital hand and feet problems, cleft lip and the presence of high levels of lead in human blood (Rivas, 2009). Aquino-Moreno (2012) estimated the costs of gastrointestinal diseases caused by bacteria coliform contamination of rivers Atoyac and Zahuapan in the six municipalities of the region. Results show that when ill people are treated by the Seguro Popular (the national security system), the average cost of treatment per person is 463.3 pesos, but estimated through market prices the average cost of treatment per person is 958.8 pesos.

Although wastewater has been used for irrigation in the Valsequillo District, this water is not suitable for agricultural use due to the high concentration of dissolved heavy metals and other ions (Domínguez et al., 2004; Rodríguez et al., 2011). In various periods throughout the year, the amount of waterlilies in the Valsequillo Dam is a serious problem, contributing to the proliferation of mosquitoes and almost halving the dam’s storage capacity (Conagua et al., 2007). A broad study of the impact of river pollution was undertaken in 2005 by a group of researchers (Rodríguez and Morales, 2014). Rodrígez et al. (2014) estimated that river pollution generated an annual reduction in agriculture production of 2 464 tons; in fishing of 10.6 tons, in livestock of 8535 tons, while visits declined in 43 290 tourists. Regarding the direct effects on the population, 174 811 events of gastrointestinal diseases were estimated and a reduction of 2 612 066 leisure activities for inhabitants, also income reduction in 435 990 families in the region, as well as migration of 226 people.

There were 1 220 complete responses from a total of 2 832 households visited. Data were processed with the expansion factors for the number of households projected for 2010 for the study area.

Survey responses confirmed that respondents are aware of and concerned about the river and dam pollution problem. First, the water supply and sewage services were mentioned in the survey as the third most important problem at the state level, just after public security and unemployment. These services are indirectly related to the research topic since they refer to water availability and quality. Pollution in the Atoyac River, its effluent, and the Valsequillo dam were consistently mentioned as the second most important environmental concern, preceded only by inappropriate solid waste management.

Regarding perceptions, most respondents readily indentified the water courses but said that they lived far away from them or did not go through the area where they are located. A total of 62% mentioned that their place of residence was far from the rivers and dam, while the remaining 38% reported that they lived near the Atoyac, another river or the Valsequillo dam. The perception corresponded with the estimated distance from the households to the Atoyac River, since more people responded that they lived near the river when the estimated distance in kilometers was in fact shorter (significant correlation at the 99% confidence).

Consistent with the rise of pollution during the last decade, respondents’ perceptions of being users of the river for specific activities has changed since 1990. Thus, activities such as using water for domestic use fell from 11.6% before 1990 to 5.7% at the present. For recreational use, it fell from 7.9% before 1990 to 1.3%, while for discharging wastewater it increased from 8.7% to 11%. Overall, the number of respondents who reported being users fell from 26.8% before 1990 to 18.9% in the present, while an increase was registered for wastewater discharge (see figure 4).

Regarding the perception of the pollution level of these water bodies, most of the respondents (over 90%) considered that water quality was either poor or very poor. When asked about the main causes of water pollution, the most frequently mentioned sources were wastewater discharge and rubbish disposal by industries and households. Respondents were worried about the impact of water pollution, particularly regarding health problems (27%), unpleasant smells (22%), and the creation of invasive fauna (17%) (see figure 5).

As noted earlier, respondents mentioned the discharge of industrial wastewater as the main source of water body pollution. Thus, an important issue was the interviewees’ belief in to the government’s ability to oblige industries to treat their wastewater as the preliminary phase for achieving the ecological restoration project. This is a real concern because the government has turned a blind eye towards the pollution of rivers and other resources as a means of promoting local investment across the country. In this case, 82% of the respondents declared that it was fully possible, possible or partly possible for the government to be able to force industry to treat its wastewater. This relatively high credibility is a good sign because it shows that people in Puebla trust the government to solve the problem. It would be interesting to contrast this level of credibility with other regions in the country. Socio-economic and demographic information on the population sample is also given in table 4.

Mexico, like other developing countries, has extensive water pollution in many of its water resources. In this study, we analyzed the case of the Alto Atoyac Basin, one of the most heavily polluted basins in the country, which the government has expressed an interest in restoring. To estimate the benefits, a Contingent Valuation Survey was undertaken to determine house-holds’ WTP for a project to install and update a number of treatment plants to improve water quality. Survey results confirmed that people are both concerned and familiarized with the water pollution problem in the area, including its consequences. Households’ estimated mean WTP is 186 pesos bimonthly, totaling to 1 120.8 pesos annually (equivalent to $87 US dollars) and accounts for 3.3% of household income. This figure is within the range of WTP estimated in other countries with similar conditions.

WTP was found to be determined by the following variables: bid amount, income, distance, age, contact with rivers, and the contrasts between San Pedro Cholula and Amozoc towns. In particular, distance plays an important role in the determination of WTP and it was confirmed that households living near the rivers and the dam are willing to pay up to 32% more than others living further away. Overall, significant variables such as bid amount, in- come, closeness with the river and distance provide a validity criterion consistent with theoretical debates.

As mentioned above, the project was the first to use contingent valuation methodology to justify public investment and some concern was expressed by federal authorities regarding the feasibility of obtaining a consistent, positive result for a CBA. The benefits far exceeded the cost of the project. Thus, from an economic efficiency perspective, the project to restore this basin is justified because the public benefits would offset the cost of installing the required treatment infrastructure.

This research was carried out as part of the Project to Evaluate the Ecological Restoration of the Atoyac, Alseseca Rivers, and the Valsequillo Dam, sponsored by the Government of Puebla, which was submitted for a CBA to the National Water Commission (Conagua) and the Secretariat of Finance and Public Credit (SHyCP). We would like to thank to the Grupo Interdisciplinario de Agua (GIA). The research project involved the participation of Lucy N. Maya (CIDE), Araceli Soto (Universidad Iberoamericana), and Francisco Sánchez-Villarreal (Investigación y Desarrollo en Matemáticas Aplicadas S.A de C.V.). The survey was conducted by “Arias Asiaín Asociados en Investigación, S.C.”. We are grateful for the collaboration of personnel from Conagua, particularly Hector Madrid. The authors would like to acknowledge the support and advice provided by and Prof. Ian J. Bateman and Dr. Brett Day (CSERGE). •