Unveiling green and nature-based solutions through innovative economic assessment- a case for circular water management system

Abstract

The impetus to move from aggressive environmentally damaging water management systems to sustainable alternatives is increasingly motivating both governments and investors. However, the economic justification for the often-heavy preliminary capital expenditure becomes a stumbling block. It is found that classical economic assessments fall short of monetising the environmental gains and being incorporated into economic assessments. To address this gap, the proposed method integrates the Pressure–State–Response (PSR) framework with cost–benefit analysis (CBA) and taking three steps of firstly identifying the necessity of implementing circular water system (CWS), second, conducting a holistic cost-benefit analysis considering internal and external impacts, and third providing decision-making support by reviewing and refining the outputs. For proof of concept, a case study for circular water and the relevant Nature based solutions (NBS) is presented that aimed to address Mykonos island's severe water shortages by developing new economic activities. Results show the feasibility of implementing the CWS in the investigated area, with a Payback period (PP) of 3.2 years, Net present value (NPV) of €30,906, Modified internal rate of return (MIRR) of 13%, and Benefit-cost ratio (BCR) of 6.2. The result calculated for the same system without considering environmental and social benefit illustrate a noteworthy difference in system viability. The sensitivity analysis of NPV revealed that the economic viability of the system improves as cash flow and reclaimed water tariffs, increase and the project's lifespan, Operational and maintenance cost (OPEX), and Capital cost (CAPEX) and discount rate decrease. In our view, green technologies should be economically assessed by measuring and monetising its environmental impacts, just as we do for conventional water management.