Mindfully.org  

Home | Air | Energy | Farm | Food | Genetic Engineering | Health | Industry | Nuclear | Pesticides | Plastic
Political | Sustainability | Technology | Water
PCE removal


The Clean Water and Drinking Water Infrastructure Gap Analysis 
(Executive Summary & Conclusion) 

EPA-816-R-02-020 Sep02

United States Environmental Protection Agency
Office of Water (4606M)
EPA-816-R-02-020
September 2002

[ Full Report: http://www.epa.gov/OWM/featinfo.htm ]

Executive Summary

To gain a better understanding of the future challenges facing the clean water and drinking water industries, the U.S. Environmental Protection Agency (EPA) has conducted a study to identify whether there is a quantifiable gap between projected clean water and drinking water investment needs over the twenty-year period from 2000 to 2019 and current levels of spending. The analysis found that a significant funding gap could develop if the nation’s clean water and drinking water systems maintain current spending and operations practices.

Figure 1–3: Declining Trend in R&D Water Pollution Abatement Expenditures. source: U.S. EPA, A Retrospective Assessment of the Costs of the Clean Water Act: 1972 to 1997, October 2000.

Figure 2–6: Histogram of Miles of Sanitary Sewer Pipe Installed per Decade

Figure 3–9: Cumulative Growth in Sewerage Expenditures and Gross Domestic Product 1980-1999

 

However, this gap largely disappears if municipalities increase clean water and drinking water spending at a real rate of growth of three percent per year. This real rate of growth represents a three percent per year increase over and above the rate of inflation and is consistent with the long-term growth estimates of the economy.

The scope of this report is limited to a discussion of methods for calculating the capital and operations and maintenance (O&M) gaps for clean water and drinking water. Although the findings will inform policy discussion, this report confines itself to estimating the gap, and it does not attempt to discuss the array of policy considerations stemming from the results.

In calculating capital investment needs over the twenty-year period, both the clean water analysis and the drinking water analysis used their respective Needs Surveys as a starting point. Adjustments were made to account for under-reporting of needs, especially with regard to needs associated with capital replacement. Estimates of capital needs for clean water from 2000 to 2019 range from $331 billion to $450 billion with a point estimate of $388 billion. Estimates of capital needs for drinking water over the twenty-year period range from $154 billion to $446 billion with a point estimate of $274 billion.

The methods used several alternative assumptions that generated hundreds of different permutations for estimating the capital and O&M gaps. The range represents the uppermost and lowermost extremes of these estimates. Providing a range explicitly acknowledges the uncertainty of the analysis, which stems from the limited quality of the available data and the potential for variance in key factors affecting costs. The point estimates were calculated by taking an average of each possible combination of assumptions.

The analysis also compared projected operations and maintenance (O&M) needs to current spending. O&M needs for both clean water and drinking water were assumed to be a function of capital stock. To estimate current O&M spending, both analyses used historical O&M spending data from the Congressional Budget Office and the Census Bureau and held this level constant over the 20-year period.

The resulting O&M gap for clean water over the next twenty years is between $72 billion and $229 billion with a point estimate of $148 billion for the no revenue growth scenario, and the gap is between $0 billion and $80 billion with a point estimate of $10 billion1 for the revenue growth scenario. The drinking water O&M gap is between $0 billion and $495 billion with a point estimate of $161 billion2 for the no revenue growth scenario, and this gap is between $0 billion and $276 billion with a point estimate of $0 billion3 for the revenue growth scenario.

Whereas municipalities pay O&M costs from current revenues, they often use debt instruments to finance some of their clean water and drinking water infrastructure investments. However, the portion of clean water infrastructure that is financed is significantly greater than the portion of drinking water infrastructure that is financed. The analysis assumes that clean water and drinking water systems will finance a significant portion of projected capital needs over the estimation period. Estimates of payments for clean water capital needs range from $321 billion to $454 billion, while estimates of payments for drinking water capital needs range from $178 billion to $475 billion.

Capital spending (payments) estimates for the twenty-year period were made using historical data from the Congressional Budget Office and the U.S. Census Bureau. Current capital spending for clean water is estimated at $13 billion per year. For drinking water, current capital spending is estimated at $10.4 billion per year.

The capital payments gap is equal to the capital payment needs less the current spending on capital. For clean water, estimates of the capital gap range from $73 billion to $177 billion with a point estimate of $122 billion for the no revenue growth scenario, and the estimates range from $0 billion to $94 billion with a point estimate of $21 billion4 for the revenue growth scenario. For drinking water, estimates of the capital gap range from $0 billion to $267 billion with a point estimate of $102 billion5 for the no revenue growth scenario, and the estimates range from $0 billion to $205 billion with a point estimate of $45 billion6 for the revenue growth scenario.

It is also important to note that the range of needs and gaps are provided to explicitly acknowledge variations within the estimates, but are not intended to support comparative analysis between the clean water and drinking water industries. The drinking water analysis was able to use data sets that were not available to clean water, e.g., data sets of pipe inventory and age of assets. These data allowed drinking water to use four different methods to estimate capital needs and vary assumptions within each method, whereas the clean water analysis used a single method and varied assumptions within that method. The broader array of methods available to the drinking water analysis generated a broader range of needs and gaps. As such, the resulting ranges provide insight into the impact of varying assumptions within each industry, but the data and methods cannot be used to conduct a valid comparison of the funding gaps facing the clean water and drinking water industries.

EPA submitted the methods and data used in this analysis to a panel of peer reviewers drawn from academia, think tanks, consulting firms, and industry. In general, the reviewers found that the analysis represented a commendable and credible effort to quantify the infrastructure gap. EPA refined the analysis to address comments made by the reviewers, although implementation of some of the recommendations would require data that are as yet unavailable. The results, therefore, should be viewed with the understanding that the present body of data constrains our ability to estimate the gap with a high degree of certainty. This caveat aside, the report offers estimates to ensure that policy discussions of a pressing infrastructure challenge will not be forestalled while we await improvements in data quality—rather, any refinements to the estimates should inform ongoing deliberations. The major issues and concerns raised by the peer review panel are summarized in Appendix B.

Notes:

1 The actual range is $-55 to $80 billion with a point estimate of $10 billion. Under the assumptions used for certain scenarios, the models predict a surplus of infrastructure funds, or rather, a negative gap. In these scenarios, total spending and/or revenues will exceed the total need over the next 20 years. The report excludes these negative values in the text, because systems generally would not collect revenues in excess of their current estimated infrastructure needs. However, it should be noted that doing so would free infrastructure funds for situations where gaps remain.

2 The actual range is $-67 to $495 billion with a point estimate of $161 billion. See Footnote 1 for further explanation.

3 The actual range is $-286 to $276 billion with a point estimate of $-58 billion. See Footnote 1 for further explanation.

4 The actual range is $-39 to $94 billion with a point estimate of $21 billion. See Footnote 1 for further explanation.

5 The actual range is $-17 to $267 billion with a point estimate of $102 billion. See Footnote 1 for further explanation.

6 The actual range is $-94 to $205 billion with a point estimate of $45 billion. See Footnote 1 for further explanation.


Conclusion

5.0 Findings

This report estimates the gap between the projected need and current spending for clean water and drinking water infrastructure over the next 20 years using data available from EPA, the Census Bureau, and the Congressional Budget Office. In broad terms, the gap analysis concludes that clean water and drinking water systems will need to use some combination of increased spending and innovative management practices to meet projected needs. This analysis estimates that the clean water capital payment gap is between $73 billion and $177 billion with a point estimate of $122 billion in the no revenue growth scenario, and it estimates that the capital payment gap is between $0 billion to $94 billion with a point estimate of $21 billion38 for the revenue growth scenario. The analysis estimates that the drinking water capital payment gap is between $0 billion and $267 billion with a point estimate of $102 billion39 in the no revenue growth scenario, and it estimates that the gap is between $0 billion and $205 billion with a point estimate of $45 billion40 in the revenue growth scenario.

It is important to recognize that the funding gaps occur only if capital and O&M spending remains unchanged from present levels. This assumption clearly understates future spending and ignores other measures, such as asset management processes or capacity development, that systems could adopt to reduce both capital and O&M costs. In reality, increasing needs will likely prompt increased spending. However, the analysis presents an approximate indication of the funding gap that will result if we ignore the challenge posed by an aging infrastructure network; a significant portion of this infrastructure network is beginning to reach the end of its useful design life.

A panel of industry experts evaluated a draft of this report, and to the extent possible, the panel’s critiques and comments are incorporated into this final report. The major points made by the reviewers are summarized in Appendix B. The reviewers agreed that the Gap Analysis provides an important starting point for the discussion about the magnitude of drinking water and clean water infrastructure funding issues. The general consensus was that the document represents a reasonable effort to quantify the infrastructure gap, given the limitations imposed by the available data. This praise, however, also contains the principal criticism of the analysis; the poor quality of the data severely constrains any effort to quantify the infrastructure funding gap with great accuracy. EPA acknowledges the uncertainty associated with the analysis. Nonetheless, in proposing these provisional estimates, the report encourages a policy discussion of the challenges confronting the nation’s clean water and drinking water systems. Most experts familiar with the industry agree that these challenges must be met if we are to continue to advance environmental and public health protection.

5.1 Suggestions for Future Research

In developing this analysis and reading the comments from the peer reviewers, EPA noted that further research would help future efforts to quantify the infrastructure gap. Although far from an exhaustive list, the research areas identified below offer opportunities to improve the estimates.

Notes:

38 The actual range is $-39 to $94 billion with a point estimate of $21 billion. Under the assumptions used for certain scenarios, the models predict a surplus of infrastructure funds, or rather, a negative gap. In these scenarios, total spending and/or revenues will exceed the total need over the next 20 years. The report excludes these negative values in the text, because systems generally would not collect revenues in excess of their current estimated infrastructure needs. However, it should be noted that doing so would free infrastructure funds for situations where gaps remain.

39 The actual range is $-17 to $267 billion with a point estimate of $102 billion. See Footnote 38 for further explanation.

40 The actual range is $-94 to $205 billion with a point estimate of $45 billion. See Footnote 38 for further explanation.

If you have come to this page from an outside location click here to get back to mindfully.org