Participatory Cost-Benefit Analysis for Water Quality Improvement – Berze River Catchment, Latvia

The Berze River catchment is in central Latvia, it part of Baltic Sea drainage basin representing 0.04% of rivers' water inflow. Agricultural land use predominates. Water quality issues include nutrient pollution and flow regulation challenges. Local stakeholders identified water regulation as a problematic pressure, alongside nutrient pollution from agricultural run-off and wastewater discharges.

To apply bottom-up Cost-Benefit Analysis for water quality improvement, enabling local stakeholders to identify environmental pressures, suggest management strategies, and assess costs and benefits from their perspectives under Water Framework Directive requirements.

• Baseline: Total costs €28.33 million, benefits €11.22 million. 
• Strategy 1 "WWTP": Costs €0.36 million, benefits €0.69 million. 
• Strategy 2a "Agriculture": Costs €35.32 million (borne by agricultural sector), benefits €32.25 million. 
• Strategy 3 "Hydropower": Costs €0.41 million (hydropower sector), benefits €6.92 million. 
• Compensation mechanisms needed where private costs exceed private benefits despite positive social NPV.

• Hydropower strategy BCR of 17.1 indicating exceptional social returns. 
• Nutrient reduction of up to 86,474 kg nitrogen/year and 2,654 kg phosphorus/year under agricultural strategies. 
• Biodiversity and habitat preservation benefits. 
• Flood risk reduction and erosion control. 
• Recreation and tourism value enhancement. Improved surface and groundwater quality.

• Stakeholder workshops to identify pressures (nutrient pollution, flow regulation, water colouration) and propose strategies.
• Expert elicitation by University of Latvia researchers to assess ecosystem service impacts. 
• Benefit transfer using income-adjusted values from Baltic Sea region studies. 
• Dynamic spreadsheet-based CBA template for real-time discussion during stakeholder meetings. 
• Qualitative expert ratings of impacts on five ecosystem service categories.

J.F. Carolus (MIRACLE project)

Water quality improvements on the Berze River 

The Berze River catchment in central Latvia implemented a bottom-up Cost-Benefit Analysis (CBA) approach to address water quality issues, engaging local stakeholders to identify environmental pressures and propose management strategies. Unlike conventional top-down CBA where central authorities define policy options, this process began with directly affected stakeholders identifying problems and suggesting solutions adapted to local conditions.

The Berze River catchment represents 0.04% of rivers' water inflow to the Baltic Sea. Selected stakeholders included public sector institutions, agricultural producers, and hydropower operators. Four primary strategies were developed: baseline measures under existing CAP and Water Framework Directive programmes; Strategy 1 "WWTP" (wastewater treatment plant upgrades); Strategy 2 "Agriculture" (ecological buffer strips, sedimentation ponds, and fertilizer optimisation); and Strategy 3 "Hydropower" (installation of fishways).

Analysis covered 2017–2030 with a 5% social discount rate following Latvian Ministry of Finance guidelines. Results showed significant variation in benefit-to-cost ratios across strategies. Strategy 3 "Hydropower" achieved the highest BCR of 17.1 with net present value of €6.51 million, while Strategy 1 "WWTP" had BCR of 1.91 with NPV €0.33 million. Agricultural strategies 2a and 2b showed negative NPVs (-€3.07 million and -€5.03 million respectively) despite positive nutrient mitigation outcomes.

Nutrient mitigation under Strategy 2 "Agriculture" achieved 86,474 kg/year nitrogen reduction and 2,455–2,654 kg/year phosphorus reduction. Strategy 1 "WWTP" contributed 687 kg N/year and 184 kg P/year. Key benefits included biodiversity preservation, flood risk reduction, erosion control, recreation and tourism value, and improved surface and groundwater quality.

The bottom-up approach revealed critical distributional effects. While Strategy 3 showed excellent social returns, costs were borne by the hydropower sector while benefits accrued to broader society through improved biodiversity and recreation. Agricultural strategies faced high implementation costs borne by farmers despite delivering substantial nutrient reductions, explaining limited uptake without compensation mechanisms.

The study demonstrates that participatory CBA exposes conflicts between private costs and social benefits, highlighting need for redistribution mechanisms when stakeholder acceptance depends on covering individual expenses.