Valuing The True Cost Of Water
By Nina Cambadelis, Johann Clere 14 April, 2016
Cambadelis & Clere walk us through Veolia's valuation tool & how it can mitigate water risks & identify opportunities
Tomorrow’s water challenge is huge. Global demand for water is growing, which threatens the balance between demand and supply. Veolia is committed to developing new decision-making tools that provide a better understanding of the environmental and economic implications of water use.
Among these decision-making tools is the “True Cost of Water” tool. Through this tool Veolia is helping public authorities and industrial companies better understand and evaluate their water-related risks.
Assessing the financial impacts of water-related risks
Water-related risks can be numerous for any given site. They can be physical & operational, such as plant shutdown due to water shortages, financial, such as decrease in investors’ confidence, regulatory, such as penalties for water pollution and reputational, such as decrease in brand image due to a bad water management.
The tool enables industry & stakeholders can evaluate & compare different water strategies
There are few tools available to assess the financial impacts of these water-related risks. Trying to fill this gap and to address our customers’ needs, Veolia developed the “True Cost of Water” Tool. The Tool aims to improve internal business decisions and strengthen external stakeholder engagement. Thanks to this, industry and stakeholders can evaluate and compare different water strategies. But to truly assess impacts a better understanding of the true cost of water is needed.
Evaluating the true cost of water
A better understanding and assessment of the true cost of water is crucial to integrate water-related risks into financial and strategic decisions. For instance, water decisions such as the implementation of water reuse installations in water stressed areas are sometimes not considered since they are perceived as high investments in comparison to the low price of water. However, a deeper analysis might support such installations and help better understand the economic impacts of local water issues. To better analyse such situations one can use the total cost analysis method.
Comparing water strategies through total cost analysis
The total cost analysis compares the economic implications of different water strategies in the short and long term. The first step includes a comparison of capital expenditures (CAPEX) and overall operational expenditures (OPEX) of the given water strategies by factoring cost of water treatment and technologies, cost of pumping, price of water, etc.
Mapping economic impact and likelihood of water-related risks
The second step of the analysis is assessing the true cost of water by estimating the magnitude of the economic implications of the water risks. Indeed, additional expenses can appear over the lifetime of an operation: economic consequences of plant shutdown due to water shortages, temporary loss of operating license, vulnerability to changing regulations, whether it is in terms of water allocations or taxes for water pollution, etc.
Veolia combines total water cost analysis with environmental assessments to support decision-making processes
One of the first steps is to select the relevant risks for the operation and the local context. Indeed, water-related risks will be different for a consumer goods factory in the south of Europe compared to a mine site in the United States.
After this selection is made, an economic and sensitivity analysis of each selected risk is conducted based on financial and operational data. The results provide a baseline of economic impact and likelihood of a wide range of water-related risks (see the image below).
Once the baseline has been identified, one can use the tool to better understand the derived economic impact and likelihood of different water strategies, as well as their respective value enhancements. In the example case illustrated below, a water-reuse solution is shown to help reduce both the impact and the likelihood of potential reduced water allocation.
Mitigating environmental and economic risks at the same time
Veolia combines total water cost analysis with environmental assessments to support sound decision-making processes that mitigate environmental as well as economic risks. Veolia uses cutting-edge quantitative metrics, such as the Water Impact IndexTM, the first indicator enabling a comprehensive assessment of the impact of human activity on water resources to ensure long-term water supplies and healthy water ecosystems.
Creating shared value for shareholders and stakeholders
The True Cost of Water tool is part of Veolia’s aim to create shared value creation opportunities that benefit both shareholders and stakeholders, as well as the environment.
Better pricing of water externalities and integrating them into business planning and models is critical to ensure integrated sustainable water practices and long-term economic growth.
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