The Economic Valuation of Water Quality Degradation from River Algae Blooms: Evidence from the Han River

Abstract

Amid a range of growing environmental concerns, water quality degradation coupled with excess concentrations of nutrients in regulated rivers and streams have become problematic at not only the local but a national level. Aiming to revitalize a healthy and self-sustaining river system, the Korean government implemented a massive river restoration project, approximately USD 71.3 billion, and ironically exacerbated algae blooms. The Han River is a restoration project river and the only drinking water source for almost the half the Korean population, including the capital, Seoul, thus impacts of algae blooms were severe. To elicit aggregate economic cost of algae blooms in the Han River, ex-ante and ex-post economic assessment was applied to survey data from 2012 and 2015, using a Spike model and difference-in-differences (DID) analysis. The aggregated cost of algae blooms was estimated to be KRW 84.44 billion (USD 76.76 million). Based on the DID results, the pure aggregate economic cost of removing algae in the Han river were calculated to be KRW 2.56 billion (USD 2.33 million), annually. Although the initial river restoration plan to revitalize rivers was optimistic and promising, consequences might burden the nation.