Option values for reserve water in the Fitzroy Basin

Abstract

Option values are an important component of non-use values when development options for environmental assets are considered. This is because development effects are often irreversible. Non-use values are normally assessed as a package because it is difficult to separate and estimate values independently. However, the development of the Choice Modelling (CM) technique, with its ability to decompose values into component attributes, provides the potential for option values to be assessed as a separate component. In this paper, one approach to assessing option values is reported in relation to water allocations in the Fitzroy river basin in Central Queensland. A series of CM experiments have been run which assessed people’s preferences for further development of water resources in the Fitzroy basin when environmental and social impacts were considered. The alternatives presented to survey respondents also included an attribute designed to capture option values. The option values were described as the opportunity to keep water in reserve for future environmental protection or development options, in case the current estimates about future impacts turned out to be incorrect. Results for nine CM experiments conducted over a three year period have been reported. The results from eight of those experiments generated positive values for the reserve attribute, suggesting that option values have been successfully estimated. No significant difference could be identified between any of the values that were estimated, suggesting that the values were stable and not particular sensitive to population or site differences. The option values have been extrapolated to the case studies within the basin to assess whether unallocated water should be held in reserve. In one catchment with relatively small amounts of unallocated water, values for reserving the water outweigh the potential economic gains of use, but in other catchments the option values and use values are more evenly balanced. However, a number of caveats need to be recognized which may have contributed to option values being overestimated. Show more