25 April 2008

Cost and Benefit of Dams

Yubanet reports on a study that found property near dams rose in value after the dam was removed.

Although the study may give landowners more reason to try to get dams removed, I doubt that the increase in value is larger than the loss in services from the dam and/or the cost of removal. Think about it: If the benefit were greater, wouldn't land owners have paid for the dams to be removed? It's more likely that the cost of removal (direct, plus loss in services) is many times the benefits. All that means is that someone else's money is necessary to remove the dams, and there are two ways to get that money: Politicians using tax money, or environmental groups using their donations.

That reminds me of the "Restore Hetch Hetchy" movement. They want to break down a dam that stores clean water for the San Francisco Bay area and generates hydropower. For what benefit? An unflooded valley that looks pretty nice as a lake/reservoir now. The trouble is that they want $5 billion in tax payer money to pay for the replacing those services elsewhere. (Those of us familiar with opportunity cost know that even if $5 billion were lying around for recreational funding, it would not be spent "restoring" something that's not in bad shape. It should be spent on urban parks.) Given that money is not even there, maybe the RHH crowd should pay to restore HH? According to their 2006 990 filing with the IRS, they have one employee and gross revenues of $180,000.* Let's be generous and assume that their supporters would donate 1,000 years of revenue towards restoring HH. That's $180,000,000 -- or 4 percent of the total cost. Can you see where this is going? RHH spends most of its time lobbying for government money for their project. Luckily, they have not succeeded.

Bottom Line: Restoring nature, busting dams, etc. is all fine and good, but someone has to pay. I am all for making companies pay when they have committed fraud, their dam is dangerous etc., but working dams are economic assets that have benefits to their owners. If others want to take them down, they will have to give just compensation. Without property rights we get chaos. Protect property rights and then negotiate.

*I just got a call back from Ron, CEO of RHH. He says they have 2,500 dues-paying members and 5,000 people have signed in favor of restoring HH. If these 5,000 paid for the restoration, they would have to come up with $1 million each.

3 comments:

  1. The gain to one or a few landowners' property values is almost certainly far less than the cost of tearing down the dam, but that's not the point. The reason dams are torn down is because the externalities of the dams have become apparent- the environmental damage to water tables, fish runs, etc. outweighs the limited value gained from diverting water to an already overproducing agricultural sector. Come on, you guys know your stuff- why don't you address the real issues? Is it because the World Commission on Dams already did and you don't have time to refute it, so you just take potshots at it?

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  2. @James -- I agree with your analysis. I *was* merely pointing out that local property owners are getting a nice bump from the use of OPM to remove the dam.

    Of course, the dam was put in with OPM, so perhaps there's a balance there!

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  3. ps/That doesn't mean that I support removal of Hetch Hetchy!

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