Implicit Environmental Costs in Hydroelectric Development: An Analysis of the Norwegian Master Plan for Water Resources

The ranking of hydropower projects under the Norwegian Master Plan for Water Resources is used to derive implicit government preferences for a number of environmental attributes described by ordinal scores for each project. We apply ordinal logistic regression to the ranks using the scores of the attributes as explanatory variables. As expected, we find that higher negative scores are generally associated with greater implicit willingness to pay to avoid the environmental damage tied to the attribute, caused by hydropower development. We derive total (ordinary economic and implicit environmental) costs for each project and find that environmental costs per capacity unit generally are lower than economic costs for projects ranked for early exploitation and higher for projects ranked for later development. Our derived implicit long-run marginal cost curve for Norwegian hydropower development is generally upward sloping, but not uniformly so.