The Potential of Wastewater Reuse and the Role of Economic Valuation in the Pursuit of Sustainability: The Case of the Canal de Isabel II

Abstract

Wastewater reuse is an activity that reduces pollution from discharges while increasing the available water resources. However, the high financial costs of this activity affect the viability of projects, either because of low water productivity or because of the presence of a cheaper alternative, such as natural water sources. The existence of environmental or social benefits makes reuse a positive option for society for its environmental and social benefits. This leaves the public sector to decide whether the benefit obtained justifies its participation in the development of reuse programs, for which it is necessary to use a tool such as cost-benefit analysis, which combines diverse costs and benefits. This article studies the potential for water reuse in Spain and the importance of informed decision-making, based on information regarding water stress, wastewater reuse, and the case study of the Canal de Isabel II (Madrid). The results confirm the potential of wastewater reuse; agriculture has a water productivity below EUR 1 per cubic meter and industry and services need their own sources of water, but financial constraints prevent the greater use of reclaimed water in all economic sectors and public intervention is necessary to obtain the optimum scenario for society. The case study from Madrid that we have analyzed in this paper shows the importance of considering all factors, since the results of prioritizing the financial criterion would have been detrimental to society, in the form of EUR 200 million in environmental damage, while EUR 740 million of non-financial benefits would make wastewater reuse an advantageous alternative for society, thus justifying the public investment.

1. Introduction

In a situation of structural resource scarcity, water reuse is a strategic tool to meet the water needs of the population while protecting the natural water environment [1,2]. Poor protection of the water environment today will have adverse environmental and economic consequences in the future [3]. Moreover, the failure to correct a situation involving a structural water deficit can be a barrier to demographic development and economic growth [4]. Water reuse, as well as other unconventional water resources, may become increasingly important in view of the prospect of increasing average temperatures, decreasing annual rainfall, and a higher incidence of extreme weather events, such as droughts and floods [5,6,7]. In addition, the global population and, thus, global water consumption, is expected to increase [8]. Given the current situation of scarcity and the need for the protection of the water environment to meet future demands, developing water services in a socially, economically, and environmentally sustainable way is essential [9,10]. In this context, wastewater treatment plays a key role and is part of the set of tools required for good governance [11,12].

The two main advantages that justify the development of water treatment and reuse are the reduction of the environmental impact of discharge and the increase in available resources to meet water needs [13,14,15,16,17]. Many other advantages can be derived from these two main benefits, depending on the characteristics of the treatment process and the subsequent use of the water [16]. Reclaimed water can be used, among other uses, to maintain water bodies in good condition or to meet the water needs of agriculture, uses that have a significant positive environmental, social, and economic effect [17,18,19]. This reclamation also has a number of disadvantages, which lie in the uncertainty linked to the quality of reclaimed water, food safety, price, and applicable regulations [20,21,22]. The economic and financial aspect is one of the most important factors, as it directly compromises the viability of the activity and limits the potential of water reuse for productive uses [23]. One of the main aspects that explain the relatively high financial cost of wastewater reuse is the high energy cost, which makes the activity vulnerable to fluctuations in energy prices [24,25,26]. However, despite the drawbacks, given the increasing pressure on water bodies and climate change, it is essential to develop this activity in an efficient way that allows us to protect the water environment while meeting the needs of the population [27]. This requires an appropriate design and planning process to mitigate the externalities that may arise from the development of the activity [21,28].

For this reason, it is essential to analyze the current barriers to the development of water reuse. The aspect of water quality generates some uncertainty, which makes it necessary to have a risk plan [29], but to deal with this problem, there are regulations that regulate the quality of water according to its subsequent use and a series of technologies that make it possible to adapt reclaimed water according to existing needs [30,31]. This, among many other determinants, can make a difference in financial terms in the different scenarios of water reuse, as it dictates the necessary infrastructure, operational, and maintenance costs [29,32,33]. Therefore, in order to raise public awareness, to gain public support, and to be able to develop the activity properly, there must be transparency about the costs and revenues of the activity in such a way that citizens perceive them and are aware of the problem. [34,35]. In this case, it is important to differentiate between water treatment and water reuse, as their sources of financing and costs may vary. In Spain, wastewater treatment is compulsory and responds to the need to reduce pollution from discharges, while reuse is a more advanced process that seeks to satisfy a specific water demand, with the users of reclaimed water generally being responsible for paying the costs [14,36]. There is also the possibility of public support for reuse, in which case, it would be useful to minimize the costs of treatment and to use tariffs that allow cost recovery, whereby the polluter pays so that the principal costs are met [37,38,39,40]. If adequate financing is obtained, it is easier to develop this activity, as the financial cost of reuse is one of the main drawbacks [23,41,42]. Unfortunately, in Spain, there is a lack of funding in the water treatment and reuse sector, and there are large differences between regions in terms of the payments made for water treatment and reuse [43,44]. This implies a need for additional external funds for water treatment and reuse, which also implies non-compliance with the “polluter pays” and cost-recovery principles and the loss of funds for other activities [45]. This situation also leads to a lack of public investment in water services and, consequently, an increase in operational and maintenance costs, so that bringing the financing of water services in line with meeting the full costs is essential for long-term financial sustainability [46].

In Spain, in particular, another of the main barriers facing water reuse is the existing legal framework, which is sufficient for this activity to be developed but does not adequately define how the financing of this activity should work [31]. This is a major problem, as the applicable regulations are one of the main determinants of the development of the activity and can both favor and hinder it [47]. To this factor should be added the high energy cost of this activity, which is associated with an environmental cost derived from the use of fossil fuels and a financial cost derived from contracting the supply out to private companies [24,25]. This means that the financial viability of water reuse is affected in the context of rising energy prices [26]. This energy problem is also perceived by irrigators, the main users of reclaimed water in Spain, as it not only means an increase in the price of water but also requires available energy to carry out this activity [48]. For this reason, the use of renewable energy sources has become a topical issue in water services, as they can provide both financial and environmental benefits [48,49,50]. Finally, the presence of an obsolete infrastructure is also perceived as a major problem by irrigators [48,51,52]. In summary, wastewater reuse is currently facing difficulties that are mainly related to public opinion, food safety, the financial aspects of the activity, regulations, energy costs, and infrastructure.

The diversity of the existing problems implies the need to consider a wide variety of aspects, not only in the present but also in the future. Given the current and future scarcity of water resources, it is expected that this activity will continue to grow [5,53,54,55,56]. It is not just a question of the growth of activity, it must also improve and become more efficient, which is also to be expected due to improvements in treatments and technologies [57]. The qualitative and quantitative progress of this activity can be of great help in the future by mitigating the environmental impact of human activity and thus reducing future problems [3]. However, for this to happen, modifications must be made to overcome the aforementioned barriers.

This article aims to fill a gap in the existing literature, as there are several works that study reuse from the perspective of hydrology and economics but do this without going into the financial side of reuse and the decision-making process. Thus, there are studies that do not evaluate the economic aspects [58,59] or that only integrate them into the hydrological models in a complementary manner [60,61]. Moreover, when the economic part is more developed, the study focuses on specific aspects, such as the choice of treatment, or is focused on a specific use, so a general decision criterion is not provided [62,63]. For this reason, the main objective of this study is to show how a thorough economic assessment can lead to the right decision and move toward a circular and sustainable economy, thus filling a gap in the literature. This article presents information on water reuse in Spain in general and a case study in particular, in order to determine the potential of this activity in a country with significant water-stress problems and to analyze a case study that could be useful as an educational resource for other projects.

2. Materials and Methods

2.1. Materials

In order to meet the proposed objective, data were obtained from the Spanish National Institute of Statistics (INE). Specifically, we used their statistics on water supply and sanitation, which contain data on treated and reused water [64]. In particular, for the national analysis, we used the volume of treated water and the volume of reused water, as well as the destination of the latter. These data are available not only for the whole of Spain but also for each of its regions so that comparisons can be made. The dataset covers the period 2000–2020, but data for 2015, 2017, and 2019 are not available, so the latest year available is used to link the information to water stress and determine the potential for reuse. This is a basic national statistic that does not allow for much detail, but as it is available for the country as a whole and for each of its regions, comprehensive analysis is possible. As a measure of water stress, the Water Exploitation Index Plus (WEI+), developed by the European Environment Agency [65] (Table S1), is used, which shows the volume of water resources abstracted as a percentage of the total available renewable resources. To this data, we added the value obtained for water by irrigators, the main users of reclaimed water, among other users such as industry, which value comes from the work of Maestu Unturbe et al. [66], along with the estimate of the cost of reuse, which comes from the Directorate General for Water [67] and the work of del Villar [23]. In this way, general data on wastewater treatment and reuse are combined with data on water yield and the cost of wastewater reclamation.

For the case study, the measures adopted by the Canal de Isabel II in the region of Madrid to meet the challenge of water supply and wastewater treatment have been selected. The estimated investment figures and costs incurred by the 2005 Madrid Dpura Plan [68] and the effects of the changes introduced in services and ecosystems are included. In this way, it is possible to carry out a CBA to compare the initially proposed solution with the finally decided-upon strategy of implementing water management and reuse measures.

2.2. Methods

In order to illustrate the problem, a two-stage analysis has been carried out. The first step is to determine the possibilities for the private sector to independently develop water reuse in the coming years. This is possible through a preliminary analysis based on water stress, the amount of treated water, and the amount of reused water, determining the existing potential in Spain in terms of reuse. We also incorporate the financial cost of water reuse to analyze whether developing this potential is feasible in financial terms or whether public participation is necessary. The second stage consists of a case study and its valuation by means of economic analysis. Thus, the results show both the general situation around water reuse and a successful case study in which a large amount of water is reused.

Cost-benefit analysis (CBA) is a powerful tool for evaluating the economic efficiency of actions related to water resources. The final objective of the CBA is to determine the monetary value of the net benefit (if any) of an action (investment project, measure, legislation, etc.)—in our case, in the water sector. Economic efficiency could be measured by taking into account the benefits and costs given by the various actions. The CBA approach leads us to determine the current flows, in terms of costs and benefits, there being a maximum level of net benefits that determines the optimum environmental quality (or status). In terms of the economic value of environmental assets, we can assume that the economic value of reclaimed water is the result of adding its non-use value to the potential use value [69]. The addition of what we call “intrinsic value”, plus the value as an economic asset, is one calculation that we can employ to determine the use value and non-use value. Or, expressed in another way, the productivity of water (an economic use asset) and the externalities caused by its use.

The use and non-use values can be determined by aggregating all those values wherein water may have economic significance, which are shown in Figure 1. However, the determination of intrinsic value is more complex, due to the existence of external costs or externalities [70], which require establishing a mechanism or valuation system using certain methodologies, based on hedonic pricing or contingency valuation.

Two criteria can be used to measure the economic value of water. On the one hand, we can determine the value of reclaimed water as an economic asset through productivity in the use of water. We can also establish its economic value through the cost of the resource it replaces, as an opportunity cost.

Additionally, there are other elements that are likely to take on an economic value when we replace natural resources with reclaimed water. Such is the case with certain corrections of negative externalities, such as the disposal of organic waste into the environment, since it involves an improved treatment with respect to that required by the regulations for its discharge into the natural environment, a certain amount of pollution that would otherwise end up in the elimination of natural watercourses.

Applying the cost-benefit analysis (CBA) methodology to these environmental policies, we identify the economic flows in two stages. At first, we identified the financial flows derived from the investment and current operating costs. Based on this data, we can identify the environmental values induced by the measure and put a value on the different categories of environmental benefits and costs in monetary terms.

Up to four categories of environmental benefits that are derived from the use of reclaimed water can be identified:

• Increasing welfare and resource allocation (e.g., improving the quality of water for human consumption). Poor water quality may be allowing the proliferation of diseases and pests; increasing water quality contributes to avoiding the spread of infectious diseases. Improving water quality also reduces water purification costs for human consumption and economic activities.
• Improving the resilience of ecosystems, preventing drought, and increasing the security of the system. Reclaimed water management contributes to reducing CO₂ and pollutant emissions, increasing water availability for economic activities, and reducing the pressure on water resources.
• Increasing the flow of goods and services in leisure and culture, based on environmental activities. The improvement of the ecosystem’s environmental quality increases tourism activities and contributes to generating better values for wildlife.
• Improving environmental and ecological assets. These essential assets have the potential to produce foods, clean and fresh air, and oxygen, and act as sinks for greenhouse gases.

The value of many of these goods, services, and assets could be fixed using direct valuation methods, such as market prices or economic indicators. However, the value of some of these goods has to be fixed using environmental valuation methods, such as the contingent valuation method, the travel-cost method, or the hedonic price method.

The challenge is to find the best way to evaluate the increase in welfare due to this measure and the willingness to pay for these environmental goods and services.

Nevertheless, there are other economic values that we must take into account, such as intangible values. These values are very difficult to measure and are related to non-use values, such as the option value, the existence value, or the inheritance value.

A key problem in the decision process is the determination of benefits: which benefits to consider in each case, how to value them, how long to account for them, and so on. Benefits have many dimensions; some of them have a market price, as improved environmental conditions can provide services and goods traded in markets, but there are many others that are not reflected in a market and thus cannot be quantified by market techniques.

From the above data, it is possible to compare the costs incurred in reuse with the potential benefits generated by its use. In order to illustrate the problem and the way in which the solution is approached from the perspective of demand and management, a specific case study of the region of Madrid is presented via the application of a CBA.

3. Results

3.1. The General Situation of Reuse in Spain

In order to analyze the potential for water reuse in Spain, it is essential to look closely at the current situation regarding the availability of water resources and water consumption. In this sense, the water stress chart shown in Figure 2 is a good indicator of the situation, as it is a measure that shows the resources used as a proportion of the available renewable resources. This indicator, calculated by the European Environment Agency for the period 1990–2015, clearly shows great pressure on the water bodies of the Segura River basin. The Júcar and Guadiana basins also show significant water stress in many periods, although it does not reach the level of that in the Segura basin. This is a clear indication of the need for adequate water resource management to guarantee the supply and to minimize the environmental impact of economic activities, which includes, among other things, the reuse of wastewater. Although these are the three regions of Spain with the greatest water stress, there are others that suffer from a certain pressure on their water bodies, especially if we take into account the fact that water stress is considered very high when it exceeds 40%. Thus, territories such as the Internal Basins of Catalonia, the Ebro and Tagus basins, and the Balearic Islands could benefit from water reuse and thereby reduce the pressure on their water bodies. In total, there are seven river-basin districts in which water stress makes it possible to assess the possibility of reusing wastewater via regeneration treatments, although in one of them, this already occurs at a very high level.

However, environmental issues are not the only determinant of water reuse. The financial aspect is a fundamental determinant, as the cost associated with the production and distribution of water is significant and, consequently, the value obtained from water is one of the key factors for the viability of reuse projects. Before studying the financial aspects in more detail, it is worth looking at the amount of water treated and reused in Spain. In the case of the quantity of treated water, there is a direct dependence on water consumption, so we will focus on reused water. From this data, we can observe large differences between regions, differences that are closely related to the water stress mentioned above. The two regions with the largest land area in the Segura basin are the two where we can see the greatest volume of reuse, namely, the Region of Murcia and the Community of Valencia, and also the Balearic Islands. In 2020, these regions reused 91.38%, 42.55%, and 45.43% of the treated wastewater, respectively, as shown in

Table 1. The volume of wastewater treated and reused, according to region, in Spain in 2020. Source: Authors’ own elaboration, with data from the INE [64].

	Volume of Wastewater Treated (Thousands of Cubic Meters)	Volume of Wastewater Reused (Thousands of Cubic Meters)	Percentage of Water Reused as a Proportion of Treated Water (%)
Spain	4,876,999.33	532,031.30	10.91
Andalusia	699,166.63	36,488.32	5.22
Aragon	194,791.38	3665.70	1.88
Principality of Asturias	162,992.58	9594.03	5.89
Balearic Islands	113,035.03	51,348.93	45.43
Canary Island	116,210.89	27,497.64	23.66
Cantabria	107,050.85	1792.52	1.67
Castile and Leon	412,363.13	4171.59	1.01
Castile-La Mancha	203,567.80	5657.87	2.78
Catalonia	706,364.06	38,350.55	5.43
Region of Valencia	468,246.09	199,228.68	42.55
Extremadura	129,350.89	0.00	0.00
Galicia	382,511.61	32,740.50	8.56
Community of Madrid	511,471.58	13,256.80	2.59
Region of Murcia	114,537.00	104,665.21	91.38
Community of Navarre	104,612.65	80.30	0.08
Basque Country	369,753.03	3492.69	0.94
La Rioja	65,360.92	0.00	0.00
Ceuta and Melilla	15,613.24	0.00	0.00

[64]. The water stress in the Segura basin is much higher than in the rest of the basins. In addition, another basin with high water stress is the Júcar basin, which shows a large presence in the Region of Valencia. In other words, the largest reuse volumes in Spain are located in the southeast and on islands, due to the great pressure on the regions’ water resources. However, regions such as Andalusia, Castile-La Mancha, Catalonia, Extremadura, and Aragon have a reduced volume of reused water, despite the fact that they form part of river basins with significant water stress, such as the Guadiana, the Tagus, the internal basins of Catalonia, and the Ebro. Specifically, Andalusia reuses 5.22% of treated water, Castile-La Mancha, 2.78%, Catalonia, 5.43%, Extremadura, 0%, and Aragon, 1.88%. These figures occur at the same time as water stress is happening, which, although the values are lower than those presented by the Segura and Júcar basins, is still significant, meaning that these regions have the potential to develop their water reuse. However, the case of Andalusia is very particular, as its territories form part of four different river basin districts, two of which have less water stress than the other basins mentioned, so that not all the territory has the same need for additional water resources.

With regard to the destination of reclaimed water, it can be seen from

Table 2. Destination of reclaimed water in Spain and its regions in 2020. Source: Authors’ own elaboration, with data from the INE [64].

Destination of Reclaimed Water (%)	Agriculture	Industry	Irrigation of Gardens and Leisure Sports Areas	Sewer Cleaning and Street Sweeping	Other Uses
Spain	72.4	2.5	17.2	2.4	5.5
Andalusia	66.9	11.5	10.9	0.0	10.7
Aragon	0.0	0.0	100.0	0.0	0.0
Principality of Asturias	0.0	0.0	0.0	0.0	100.0
Balearic Islands	56.8	0.0	42.9	0.3	0.0
Canary Island	65.8	1.1	33.1	0.0	0.0
Cantabria	100.0	0.0	0.0	0.0	0.0
Castile and Leon	0.0	15.9	31.1	23.1	29.9
Castile-La Mancha	94.8	4.8	0.4	0.0	0.0
Catalonia	74.2	1.8	24.0	0.0	0.0
Region of Valencia	94.0	1.2	3.2	1.6	0.0
Extremadura	0.0	0.0	0.0	0.0	0.0
Galicia	0.0	0.0	81.5	18.5	0.0
Community of Madrid	0.0	15.3	65.9	18.8	0.0
Region of Murcia	86.3	0.0	0.5	0.0	13.2
Community of Navarre	0.0	0.0	0.0	0.0	100.0
Basque Country	0.0	81.5	0.0	0.0	18.5
La Rioja	0.0	0.0	0.0	0.0	0.0
Ceuta and Melilla	0.0	0.0	0.0	0.0	0.0

that the main uses are agricultural, industrial, in the irrigation of gardens, and for sports and leisure areas. In the regions with the highest percentage of water reuse (Murcia, Valencia, and the Balearic Islands) the main end-use is agricultural, so that water is given a productive value. For the areas with a low volume of reuse and significant stress, we have the case of Andalusia, where, although agricultural use is in the lead by far, industrial use is also relevant. In Aragon, the reuse is dedicated only to garden irrigation and leisure. Catalonia has a high agricultural use but also high use for the irrigation of gardens and leisure areas. Castile-La Mancha uses almost all its reclaimed water for agricultural purposes. Lastly, Extremadura also showed high water stress, but no reuse. Among the other regions, there are also large differences and, depending on the case, reuse is focused on agriculture, industry, or leisure. The final destination of the water is a key aspect insofar as it dictates both the treatments to be carried out and, therefore, the production costs, as well as the value obtained from the water. Furthermore, when the destination of the water is its use as a productive factor in a private economic activity, whether in the agricultural, industrial, or service sectors, it is essential that a financial benefit can be obtained from the water, but the situation is less strict when the end user is the public sector.

Given the private water user’s objective of financial gain, water productivity and the cost of water production and distribution are the main determinants of wastewater reuse.

Table 3. The average productivity of water use in the river basin districts of peninsular Spain. Source: [66]. Figures in EUR/m³.

Hydrographic Demarcation	Average Water Use Productivity
	Industry	Irrigation	Other	Total
Eastern Cantabrian	393.18	135.92	157.74	188.22
Western Cantabrian	52.74	7.8	94.24	68.73
Galicia Coast	138.14	51.97	155.39	143.27
Minho Sil	183.62	2.22	113.65	34.72
Douro	42.12	0.71	112.51	9.89
Tagus	137.93	0.88	250.95	71.32
Guadiana	79.4	0.7	98.87	10.15
Tinto, Odiel and Piedras	41.33	2.74	120.04	31.72
Guadalquivir	159.02	0.88	135.57	17.34
Guadalete-Barbate	161.44	1.66	138.12	43.53
Andalusian Mediterranean Basins	112.96	1.89	98.02	30.04
Segura	634.82	0.97	103.5	18
Júcar	116.65	0.84	134.35	27.36
Ebro	643.81	0.46	456.08	14.42
TOTAL	131.01	0.94	156.14	27.59

shows the average productivity of water use, according to the Spanish peninsular river basin district. In the case of industry, the economic yield obtained from water is higher than in agriculture [66], although in both cases there are large differences between regions. These data show how different the potential of reclaimed water is, depending on the region. Thus, if we leave aside the demarcations that do not have water stress problems, some basins, such as the Guadiana or the Ebro, with agricultural yields of 0.7 €/m³ and 0.46 €/m³, respectively, have a lower potential for water reuse in agriculture than, for example, the Segura basin, where the yield of water in agriculture is 0.97 €/m³, which is why there is already significant water reuse. In the case of industry, yields are much higher; therefore, it is easier for a wastewater reuse project to be profitable, although, once again, the low water productivity of the Guadiana basin stands out, while the Segura and Ebro basins have the highest yields. Thus, although the Guadiana basin has significant water stress, it is more complicated to exploit the potential of reclaimed water here compared to other regions. In the case of the Ebro basin, however, the high water demand in industry, together with the water stress suffered on occasion, could represent an opportunity to stimulate water reuse. It would also be possible to reuse water in the service sector, but, within this sector, there is a high dispersion and it would be necessary to allocate the water to one with a high added value.

The yield obtained from the water is one of the key aspects of water reuse, but so is the cost to the user to obtain the water, which is shown in

Table 4. Financial costs of the different reuse treatments in Spain. Source: [23].

Regeneration Treatment	Costs
	Implementation EUR/m3		Exploitation EUR/m3
Physical–Chemical + Filtration + Membrane Filtration + Residual chlorine	0.82		0.20
Physical–Chemical + Filtration + Ultraviolet + Residual chlorine	0.12		0.09
Filtration + Ultraviolet + Residual chlorine	0.05		0.06
Filtration	0.03		0.06
Physical–Chemical + Filtration + Membrane Filtration + Reverse Osmosis + Residual chlorine	1.14	1.09	0.46
Physical–Chemical + Filtration + Reversible Electrodialysis + Ultraviolet + Residual chlorine	1.04		0.46

and

Table 5. Ranges of implementation and operating costs for the production and distribution of reclaimed water in Spain. Source: [23].

	Investment Implementation EUR/m3	Annual Cost of Operation EUR/m3	Equivalent Annual Cost EUR/m3
Reclaimed water production	0.20–4.50	0.06–0.48	0.08–0.84
Distribution of reclaimed water	4.00–8.00	0.15–0.40	0.47–1.04
Total			0.55–1.88

. Depending on the final destination of the water, its treatment will vary, directly affecting the costs. This is a project-specific issue, but it can be seen that there are large differences between treatments, depending on the quality of the water required for the intended use. The simplest treatment costs less than 10 cents per cubic meter, while the highest treatment costs around 1.60 €/m³. This is a key aspect since, in the first case, it would be feasible to carry out reuse projects, but not in the second, the cost of which would eliminate the possibility of agricultural use, leaving only industrial use and those services with high added value. Moreover, to these costs must be added the costs of the distribution of reclaimed water, which is an important cost and directly dictates the viability of a water reuse project. The production of reclaimed water requires a significant volume of investment, but not as high as that of the distribution of reclaimed water due to the need for an adequate supply channel. Taking these costs together, we find that the minimum cost of treated water would be at least 0.55 €/m³, making the viability of reuse projects in agriculture very complicated if users must cover the full costs. This has sometimes led to public administrations bearing a large part of the necessary investment [23]. This represents a significant change, as the costs move from between 0.55 €/m³ and 1.88 €/m³ to between 0.21 €/m³ and 0.88 €/m³. Public assistance makes a substantial difference to the agricultural user, especially if we take into account the fact that the production cost of reclaimed water for agricultural use varies between 0.07 €/m³ and 0.10 €/m³, to which value distribution costs should be added [23]. This situation, however, does not occur in the industrial field, as the high yields of water in this case allow the user to be able to cover all the costs while making a profit. Within the operating costs to be met by users, special mention should be made of the energy cost, as it is the main cost item of the activity and its reduction would allow an improvement in the competitiveness of reclaimed water and, consequently, a greater probability of success of the reuse projects. However, it should be borne in mind that water users seek to maximize their financial profit, so, unless they are in a situation of necessity, they will resort to the cheapest water they can find that will allow them to meet their needs. Therefore, public sector involvement is necessary to stimulate water reuse and alleviate pressure on water bodies.

3.2. Case Study: Canal de Isabel II

With the above information, we can obtain a first approximation of the financial cost and the total productivity of reclaimed water. Reusing around 560 Mm³ of water implies incurring financial costs of around EUR 680 million per year. These resources support economic activities valued at more than EUR 5813 million per year.

In the early years of the twenty-first century, the Region of Madrid in Spain faced a drinking water availability problem in the coming years. The increase in the population and increased demand for water consumption forced the need to seek out short-term solutions.

The first approach to solving this challenge was a project to build two new dams in the northeast (in the province of Guadalajara, which borders the Madrid region; see Figure 3). The primary objective of this project was to increase the reservoir capacity by 200–300 Mm³ in order to avoid water shortages for the next 25 years.

The estimated costs of building these two dams, not including all the pipelines and equipment required, were valued at around EUR 100 million. This project would permit increasing the reservoir capacity of the Region of Madrid water supply system by 30% and would help to meet water demand increases in the future. However, after strong political and social opposition, a modification of the original project was required.

In 2005, a new project was proposed: “Plan Madrid Dpura”, which consisted of several measures aimed at improving wastewater treatment and water reuse. This new plan focused on an increase in water availability resources by using reclaimed water. At the same time, there are new management measures that have the effect of reducing water consumption.

The yearly production of the reclaimed water goal was fixed up to 40–80 Mm³, which means about 8–15% of Madrid Region’s yearly water consumption. This water consumption was around the groundwater yearly abstractions of the system. Setting groundwater resources as a strategic reservoir was one of the goals of this new plan. In order to reduce natural water resource consumption, an alternative strategy was needed to change certain natural water uses toward reclaimed water, such as garden irrigation, street cleaning, golf course irrigation, and certain industrial uses. The location of the treatment plants and the amount of reclaimed water are shown in Figure 4.

The main investment of the Madrid Dpura Plan was the building of 35 new advanced wastewater treatment plants and the setting up of a new reclaimed water distribution network of around 1200 km of water pipes, supplying new water resources to 51 cities and 25 golf courses and industries. However, these resources were not created to satisfy the need for drinking water.

The key objective of the Madrid Dpura Plan [71] was based on the efficiency of the use of water resources, considering groundwater resources as strategic reserves when facing drought periods. In addition, it marked a significant step forward in preserving the environment and the landscape of the Madrid Region.

At present [72], a total of 32 plants have been built that produce around 320,000 m³ per day for industrial uses, the irrigation of sports areas, the watering of parks and green areas, street washing, aquifer recharge, and other environmental uses. Production in 2020 showed a total of 126 Mm³ of reclaimed water, 90% of which was dedicated to environmental uses.

The initial investment for the implementation of the Plan was fixed at EUR 200–300 million, which gives us a level of 5–8 €/m³ in investment costs. There is no data on operating expenditures. These costs could be calculated using the variable consumption price applied by Canal de Isabel II for this resource; this is in the range of 0.16–0.35 €/m³, which gives us an estimated operating expenditure of EUR 15–20 million per year.

In a nutshell, in the case of these alternative programs, the new dams program estimated an investment of up to EUR 100 million, while the new reuse and management program increased the investment by up to EUR 300 million. Given these investment levels, dam planning could seem to be the correct alternative from a financial point of view. However, when we take all economic factors into account, the balance changes toward a reclaimed water alternative.

The original new dam planning cost amounted to EUR 100 million, while investments in water reuse measures were estimated to be EUR 300 million. However, this is only the financial analysis. In order to estimate the economic impact of these alternative options, we needed to take into account all the economic flows related to water management.

Using a CBA, we can face these projects and calculate the economic impact of each one. We can consider all the costs, not only the financial items, and evaluate both the costs and benefits, including the externalities valuation (even costs or benefits) and the goods or services added by each measure, such as leisure and recreational services (fishing, landscapes, etc.), environmental sustainability, improved ecosystems, increased biodiversity, flood prevention, water availability, water quality, and water security.

In order to evaluate all the costs and benefits of these alternative programs, it is necessary to identify and recognize all the impacts. In terms of environmental impact, the dams project has more negative issues than the reclaimed water project. The dam’s impact extends far beyond the reservoir area. The direct impact of the dam is focused on the flooded area and the water-flow changes of the rivers, which cause damage to soils, vegetation, wildlife, land, fisheries, and the climate affecting the local populations. The dams also impact a far wider area than the immediate locality. The negative impacts of the dams could be seen in the form of changes to rivers and their ecosystems, local population displacement, restrictions or changes to economic activities, etc. The reclaimed water project does not have these disadvantages.

All the dam’s negative impacts could be evaluated as being double the financial investment costs. However, there are no negative impacts to take into account when we analyze the reclaimed water project.

When considering the related potential benefits of both projects, we can say that the balance is quite positive in favor of the reclaimed water project. Evaluating the dams project, the benefits could be estimated in the form of preventing flooding function. Due to historic flood events in the area, and considering all the assets that could be protected, the highest value for this benefit could be estimated at around EUR 104 million as the net present value.

However, the reclaimed water project has many external benefits that we can measure. First of all, the water quality is improved. When we reuse this resource, we reduce wastewater-treated discharge. By reducing discharge, we can reach higher environmental quality levels in the rivers and water ecosystems. This action provides improvements in terms of recreational opportunities and natural areas and contributes to protecting biodiversity. This measure helps to reach the environmental objectives of water bodies, a mandatory expectation according to European environmental law (Water Framework Directive).

The reclaimed water project has another external benefit: water security. The use of reclaimed water reduces natural resource abstractions from the overexploitation of water bodies. This optional project also contributes to generating a reservoir of strategic groundwater resources that could be used during drought events, improving the resilience of the system.

There are more benefits for downstream users of the reclaimed water solution. Taking into account the improved quality of effluent discharged into watercourses and conserving natural resources, the costs of downstream services have been reduced. Due to the better water quality in rivers, downstream users of the water services have to meet fewer requirements for providing these services, reducing their costs, but it is a pity that we do not yet have enough information to evaluate this.

In order to evaluate the carbon footprint of both projects, we can consider energy consumption and the carbon sink effect. The projected dams occupy a huge, forested area that will inevitably disappear. This means the loss of an important carbon sink area. The reclaimed water project is not carbon footprint-neutral either. For processing wastewater in order to obtain reclaimed water, we need to use energy. However, we can produce energy from this process (biogas), in order to compensate for the use of energy.

There is a lack of information by which to accurately estimate the costs and benefits described above. Pragmatic approaches are needed in order to evaluate these in monetary terms, due to the lack of information.

Welfare changes could be taken as the level of changes in environmental benefits [73]. In order to estimate the environmental benefits as a result of reaching environmental objectives in water bodies, due to the reclaimed water project, we can use the contingent valuation method and estimate the willingness to pay for improving water quality. There is no estimation analysis of this goal in the Tagus River basin. However, in the Guadalquivir River basin, there is an estimate of the willingness to pay around EUR 31.78 per household per year [74]. This level of environmental benefits could be taken as a “floor” for the Tagus River basin, and we have taken this value to assess the benefits in Madrid.

There are 2.6 million households in the Region of Madrid. Therefore, at EUR 31.78 per household per year, we estimate the environmental benefit over 20 years to be EUR 1.04 billion of the net present value. This value is ten times the value reached by the dam project.

There are 2.6 million households in the Region of Madrid. Therefore, at the EUR/year rate of 31.78 per household, we estimate the environmental benefit over 20 years in EUR to be 1.04 billion of the net present value. This value is ten times the value reached by the dam project. Adding the CBA results to the financial data of the projects, we have these results: the benefit of the reclaimed water project is around EUR 740 million, in terms of net present value. Meanwhile, the dam project shows a loss of around EUR 196 million, in terms of the net present value (

Table 6. Costs and benefits estimation of the water reuse and dam projects. Source: Authors’ own elaboration. Net present value (NPV) discount rate of 5%.

Cost/Benefit	Dam (EUR)	Water Reuse (EUR)
(C) Financial costs	100 M	300 M
(C) Environmental costs	200 M	0 M
Total Costs	300 M	300 M
(B) Benefits	104 M	1040 M
Net Present Value	−196 M	+740 M

).

4. Discussion

As can be seen from the available information, a large part of the wastewater reuse is concentrated in the Region of Murcia, the Region of Valencia, the Balearic Islands, the Canary Islands, and Galicia, while the rest of the regions of Spain show very little reuse, although there are relevant projects, such as the one mentioned for Canal de Isabel II, that are not included in the INE data as yet. However, in addition to the potential in these regions, there are others in which the pressure on water bodies makes it possible to evaluate the development of water reuse projects. Specifically, these regions are the Region of Valencia, the Balearic Islands, Castilla La-Mancha, Aragon, Extremadura, Andalusia, Catalonia, Navarre, Madrid, and Castile and Leon, which form part of the Segura, Júcar, Guadiana, Ebro and Tagus basins, in addition to the particular cases of the Internal Basins of Catalonia and the Balearic Islands, which, unlike the other 5 demarcations, are located in a single region.

Despite the situation in terms of water resources, water reuse is not very widespread (in relative terms) in most of the regions mentioned, so we must consider the financial situation in this type of project, as this is a key factor for its viability and development. The industrial use of reclaimed water is not very high in any of the regions mentioned, with the exception of Andalusia, Castile and Leon, and Madrid, where this use reaches 11.5%, 15.9%, and 15.3% of the volume of water reused, respectively. The Basque Country stands out in terms of industrial reuse, with 81.5% of reclaimed water destined for industry, but it is a region of low scarcity and total reuse. However, water efficiency in industry is relatively high compared to agriculture, so that the users of water for industrial use have the capacity to cover the costs of water production. The case study of the Autonomous Community of Madrid has confirmed that this general situation occurs in specific cases and that not only the user can cover the full costs but also that a guarantee of supply and a reduction in discharges are achieved in a region with a large number of inhabitants. These non-financial benefits justify public involvement, which must also ensure business competitiveness, in this case, by trying to minimize the cost of reclaimed water. Moreover, the case of Canal de Isabel II has clearly shown the possible consequences of acting solely on the basis of financial criteria. Social criteria, such as the guarantee of supply, and environmental criteria, such as a reduction in pollution or the protection of the natural environment, must be taken into account for a well-founded decision-making process that does not focus on obtaining financial benefits while incurring social or environmental damage. This is a situation that has occurred in the past, thus limiting the development of water industrial reuse [75]. Consequently, without a thorough assessment and the involvement of the public sector, the result obtained is inefficient on a societal scale. The European Union, in response to this situation, requires a CBA that is either simplified or standard in order to access its funding lines, so that European investments are directed to those projects with environmental and/or social benefits [76].

On the other hand, water that is reused for the irrigation of gardens and in leisure sports areas is a more widespread use that would show high yields when used in private economic activities. The second main problem arises when we assess water reuse in agriculture, which is the main user of reclaimed water in Spain, and which has greater problems in covering the total costs derived from water treatment and distribution. As the available data indicate, the yield of water for agricultural use is much lower than in other economic activities, so that irrigation is, at the same time, a sector in which much more water could be reused but one where the low yields do not allow irrigators to assume the full costs of reuse. In other words, from a financial point of view, it is not feasible to develop water reuse in agriculture, as this is not profitable for the water user. However, it is possible for these users to cover the full operating costs, which leaves it up to the public sector to decide whether to stimulate water reuse by making the necessary investment for the implementation costs. This would depend on the social or environmental benefits of reuse in each individual case. Considering that this situation is also common [77] and that agriculture is a large consumer of water, the potential for agricultural reuse is high but it cannot be developed without public support.

Figure 5 clearly shows this situation of low water productivity in agriculture, compared to other economic activities. These other activities, with yields of up to EUR 100 per cubic meter in most cases, are more easily able to cover the full costs of reuse; this is not a situation of impossibility but rather that reclaimed water has a higher cost. When the situation is one of great scarcity, reclaimed water has an importance that should be developed, as in the case of Murcia. When resources are available, as in the Galician Coast or Minho-Sil, this alternative system only progresses with the promotion of environmental objectives, as this water supply is not competitive as a productive factor. As reclaimed water is not financially competitive, its use is limited to mitigating extreme shortages and for environmental purposes, leaving the involvement of the public sector as an essential factor in the development of this activity.

The problem of reclaimed water and its price is only one of the problems faced by irrigators, as recent increases in the price of energy and the scarce investment of the public sector in the infrastructure of water services have led to increases in the costs derived from energy consumption and a need to improve or even build infrastructures. Obsolete infrastructures are associated with higher operating costs, which, in addition to the energy problem, lead not only to an increase in the operating costs of reclaimed water production but also to an increase in the financial costs of irrigators and, consequently, a reduced capacity to cover the costs of water reclamation. This is the situation of irrigators in the Region of Valencia, a region where water reuse is highly developed and where the main problems related to this activity are considered to be the need to improve infrastructures, the high energy cost, which is added to the energy consumption of irrigation itself, and the insufficient presence of wastewater reuse infrastructures [52]. Thus, activities aimed at improving the region’s infrastructure as a whole, water reclamation treatments, irrigation water quality, and the installation of photovoltaic panels are currently being demanded by irrigators in the region. Given these problems, the regional government is looking to stimulate energy savings, the use of clean energy, and water reuse, for which they have a total budget of EUR 1.2 billion until 2040. This, as well as the case study of Canal de Isabel II, is an example of public-sector involvement and how it is possible to induce energy and water efficiency in the economy, which could also be applied in other regions where there is high pressure on water bodies, but public sector involvement is necessary given the lower water efficiency in the agricultural sector and the constant search for financial gain on the part of users, leaving the social or environmental objective in public hands.

In the case of Madrid, the efforts during the last few years have resulted in water savings, as shown in Figure 6. Since 2005, Madrid has reduced its natural water consumption by 82 Mm³, despite the increase in population of more than 800,000 inhabitants. The new water management and the widespread use of reclaimed water have made it possible to table the idea of building new dams for the next few decades. This has allowed the reduction of pressures on the ecosystem, with the aim of improving environmental quality. This is another positive effect of the use of reclaimed water that we should take into account. This case is, therefore, a great example of how a thorough assessment of costs and benefits can lead to an optimal outcome for society.

5. Conclusions

The aim of this article is to analyze the situation of water reuse in Spain, focusing on regional differences, the financial aspects, and the environmental costs and benefits. This has been made possible thanks to the available data on the website of the Spanish National Institute of Statistics, the data presented in previous works on water productivity and reuse costs, and the public information available about the Canal de Isabel II.

The availability of water resources varies significantly between regions, which is, of course, related to the current development of water reuse. The regions that have made the greatest commitment to water reuse are those where more additional resources are needed. This partially explains the development of water reuse, but it is not sufficient to know the potential of this activity. At this point, we must consider both the financial cost of reclaimed water and the productivity obtained from it. Thus, agriculture, with a low added value per cubic meter consumed, is not able to cover more than a part of the costs of reuse. Industry and services, however, can easily cover all financial costs. However, if the use of reclaimed water has not become more widespread in these sectors, it is because it is not a competitive resource, compared to natural water. The total cost of economic activity increases if reclaimed water is used instead of natural water, which leads to the private sector not demanding this additional resource if it is not strictly necessary due to severe shortages. Therefore, a certain level of water productivity and high water scarcity need to be present simultaneously for water reuse to take place without public intervention. However, this is a rare situation, leaving the responsibility to fall on the public sector to incentivize the activity through its policies. This requires proper analysis that takes into account the financial, environmental, and social costs and benefits of stimulating reuse.

CBA could help this decision-making process by evaluating the economic efficiency of the alternative measures. This analysis can substantially modify the ranking of the alternatives through a full assessment. In other words, a comprehensive economic appraisal must be undertaken in order to make a complete decision that is oriented toward achieving sustainability. The case of Madrid gives us a chance to introduce economic valuation and check the ranking of project alternatives. Initially, the investment project to increase reservoir capacity by building new dams seems to be the most financially efficient option. However, considering the environmental problems, the reuse project becomes the best option, which is a good example of the results that could be obtained by applying a full economic appraisal and highlighting what the role of the public sector should be in this type of project.

Based on all this information, it is possible to stimulate new reuse projects in a significant number of regions in Spain, although the financial independence of these projects could not be achieved; public intervention would be necessary for their development. Public action is essential to reach an optimal outcome for society, as in the case of Madrid, where environmental damage was caused if the financial criterion was followed. Since this financial constraint is present independent of economic activity, the environmental damage that would be caused without public-sector intervention would be high. In particular, not developing water reuse is associated with the increased discharge of pollution and increased pressure on water bodies. These aspects cause environmental damage and are part of water planning but are not included in business analyses due to the low competitiveness of reclaimed water. In the long term, the goals of transitioning to a circular economy and a sustainable society are not achievable without comprehensive analyses and public involvement in project development. In conclusion, having updated information on both the status of water resources and the productivity obtained from water by its consumers is key for public sector decision-making, to achieve an optimal outcome for society as a whole.