213
midpoint of USD 150 million per year. Then, observing Fig. 14.3 , the project passes
the cost-benefi t criterion at 2 % capital cost (interest rate) and electricity tariff
regime B. As mentioned above, the study of Becker and Katz ( 2009 ) estimates the
local population’s willingness to pay. The unique historical, cultural and environmental characteristics of the Dead Sea imply that the benefi t of its preservation
extends beyond the local region and the overall willingness to pay to reclaim the
Dead Sea is credibly wider ranging than the above.
The above discussion illuminates the crucial role of the discount rate: with an
annual benefi t of USD 150 million, the project passes the cost-benefi t criterion at
2 % (and tariff regime B) but not at 4 % or above. This raises the question regarding
the more appropriate discount rate to use. One approach is to use the discount rate
used to evaluate public projects. This discount rate varies across countries as well as
across types and durations of the public projects and ranges between 1 and 10 %
(see Gollier 2013 , p. 8–9, for an overview). A different approach, which accounts
for the unique characteristic of the project under consideration, is to use an ecological discount rate, estimated by Gollier ( 2010 ) at about 1.5 %.
To sum up, preliminary estimates of the benefi t to the local population associated
with stabilising (or restoring) the Dead Sea range between USD 73 million a year to
USD 227 million a year. Taking the midpoint of USD 150 million a year as a point
estimate, a Red Sea–Dead Sea (phased) Pipeline Project passes the cost-benefi t criterion (i.e. is justifi ed on economic ground) at an interest rate (capital costs) of about
2 % and electricity tariffs regime B (where the electricity consumed is purchased
from the Jordanian grid and the electricity generated is sold to the Israeli grid). The
unique characteristics of the Dead Sea imply that the benefi t of its reclamation
extends beyond the local population and is therefore likely to be larger than Becker
and Katz’s ( 2009 ) estimates. Because the project’s benefi t extends into the distant
future and is environmental (ecological) in nature, a low discount rate, around
1.5 %, is justifi ed.
14.3.2 Mediterranean Sea–Dead Sea Water Conveyance
The main advantage of using the Mediterranean rather than the Red Sea as a source of
water conveyance is the shorter distance (see Fig. 14.5 ). For this reason, most past
proposals of water conveyance to the Dead Sea considered the Mediterranean as the
preferred source (see Vardi 1990 ). Following the study of alternatives to the Red Sea–
Dead Sea Project (Allan et al. 2014 ), we consider two Mediterranean Sea–Dead Sea
routes: a southern route from Ashkelon to Qumran and a northern route from Atlit
(south of Haifa) to Naharayim–Bakura (where the Yarmuk joins the Jordan River) and
to the Dead Sea along the lower Jordan River route. We discuss each in turn.
14 Reclaiming the Dead Sea: Alternatives for Action
midpoint of USD 150 million per year. Then, observing Fig. 14.3 , the project passes
the cost-benefi t criterion at 2 % capital cost (interest rate) and electricity tariff
regime B. As mentioned above, the study of Becker and Katz ( 2009 ) estimates the
local population’s willingness to pay. The unique historical, cultural and environmental characteristics of the Dead Sea imply that the benefi t of its preservation
extends beyond the local region and the overall willingness to pay to reclaim the
Dead Sea is credibly wider ranging than the above.
The above discussion illuminates the crucial role of the discount rate: with an
annual benefi t of USD 150 million, the project passes the cost-benefi t criterion at
2 % (and tariff regime B) but not at 4 % or above. This raises the question regarding
the more appropriate discount rate to use. One approach is to use the discount rate
used to evaluate public projects. This discount rate varies across countries as well as
across types and durations of the public projects and ranges between 1 and 10 %
(see Gollier 2013 , p. 8–9, for an overview). A different approach, which accounts
for the unique characteristic of the project under consideration, is to use an ecological discount rate, estimated by Gollier ( 2010 ) at about 1.5 %.
To sum up, preliminary estimates of the benefi t to the local population associated
with stabilising (or restoring) the Dead Sea range between USD 73 million a year to
USD 227 million a year. Taking the midpoint of USD 150 million a year as a point
estimate, a Red Sea–Dead Sea (phased) Pipeline Project passes the cost-benefi t criterion (i.e. is justifi ed on economic ground) at an interest rate (capital costs) of about
2 % and electricity tariffs regime B (where the electricity consumed is purchased
from the Jordanian grid and the electricity generated is sold to the Israeli grid). The
unique characteristics of the Dead Sea imply that the benefi t of its reclamation
extends beyond the local population and is therefore likely to be larger than Becker
and Katz’s ( 2009 ) estimates. Because the project’s benefi t extends into the distant
future and is environmental (ecological) in nature, a low discount rate, around
1.5 %, is justifi ed.
14.3.2 Mediterranean Sea–Dead Sea Water Conveyance
The main advantage of using the Mediterranean rather than the Red Sea as a source of
water conveyance is the shorter distance (see Fig. 14.5 ). For this reason, most past
proposals of water conveyance to the Dead Sea considered the Mediterranean as the
preferred source (see Vardi 1990 ). Following the study of alternatives to the Red Sea–
Dead Sea Project (Allan et al. 2014 ), we consider two Mediterranean Sea–Dead Sea
routes: a southern route from Ashkelon to Qumran and a northern route from Atlit
(south of Haifa) to Naharayim–Bakura (where the Yarmuk joins the Jordan River) and
to the Dead Sea along the lower Jordan River route. We discuss each in turn.
14 Reclaiming the Dead Sea: Alternatives for Action