Costs and Benefits of Pollution Control

As the previous review indicates, societies should strive to find pollution control strategies that minimize costs and achieve ambient quality levels that balance the opportunity cost of resources in other areas with expected benefits. Before the pollution-control experience of two Andean countries is reviewed, it is worth having some basic figures about costs and benefits of water-pollution control efforts.

Given the importance of effluents from residential areas on ambient water quality in many areas in Latin America, as will be shown below, it is important to have an idea of how much it costs to treat municipal wastewater for typical treatment levels. Table 1 presents some indicative information in this regard from one of many different sources. Treatment costs for industrial wastewater, left to the private sector, are highly variable by industry and type of effluent.

TABLE 1
TOTAL ANNUAL COST (INVESTMENT PLUS OPERATION) OF BOD* REMOVAL
(US$/person-year)

Source: updated from Kneese and Bower, 1968.
* Biochemical oxygen demand.

The figures in the table indicate that for primary treatment (BOD removal of 35%) a typical Latin American household composed of five people would have to pay a monthly bill between US$2.20 and US$4.00 per month, depending on the size of the town. On the other hand, a secondary-treatment plant could imply monthly household bills in the range of US$3.40 to US$6.90, depending on the size of the town.

A study done at the Ministry of Development in Colombia indicates that investment costs for secondary-treatment plants could show diseconomies of scale, because some low-cost technologies may not be feasible for large cities owing to constraints on the availability of land or high land costs. Estimates by the Ministry suggest that secondary-treatment investment costs could be in the range of US$80/inhabitant for the four large Colombian cities (above 2 million people) while investment costs in cities between 100,000 and 1,000,000 people could be in the range of US$60/inhabitant, and investment for small cities would be about US$40/inhabitant. These figures are somewhat compatible with those above if we take into account that these plants could operate over long periods of time if properly maintained.³

Wastewater treatment plants require that household effluents be collected and conveyed to the plant site. Sewerage is then a prerequisite for the operation of treatment plants. This means that investments must be phased so that sewage collection and interception facilities are ready before treatment plants are built. Annex 1 presents some typical investment costs for sewerage projects studied in a few countries in Latin America. Investment per person ranges from US$80 up to US$300, depending on project characteristics.⁴ Operation costs for these networks vary significantly but a good rule of thumb may be that investment costs could be between 50% and 70% of total costs. Based on these numbers, total annual sewerage costs per person could vary between US$11.30 and US$42.50, which amount to monthly household bills between US$4.70 and US$17.70.

Sewerage and wastewater-treatment plants have been subjected to cost-benefit analysis at the IDB. A recent review of this experience provides some rough indications of the level of benefits generated by these projects.⁵ It is worth noting that the impact of wastewater treatment plants varies a great deal depending on the resulting ambient water quality and society’s view of the resources affected. Table 2 presents a summary of findings of the study.

TABLE 2
ESTIMATES OF WILLINGNESS TO PAY
(US$/household-month)

a. Most of the projects considered were intended to achieve swimmable water conditions

Three conclusions can be derived from a comparison of the information on willingness to pay with monthly-required bills. First, these rough data clearly show that sewerage projects are easier to justify economically than ambient water quality improvements. People are willing to pay more for improvements to their immediate neighborhoods than for distant areas, and even though sewerage projects may be more expensive, their benefit-cost ratio is larger than 1 in many cases. Second, ambient water quality improvements may be economically justified, but it is important to assess priorities, choose treatment levels and resulting ambient quality carefully, and select among sound technical options; and third, in many of the cases presented above polluters (households) are at the same time beneficiaries (recreationists), which greatly facilitates public acceptance of sewerage fees as a way to finance ambient water quality improvements.