Research papersThe economic value of the flow regulation environmental service in a Brazilian urban watershed

- Urban land use decisions affect the environmental service of flow regulation.
- The environmental service value of flow regulation drives land use decisions.
- By valuing the environmental service it is possible to reduce local flooding.
- Environmental value with structural measures provides better flood solutions.

Urban flood management have often focused either on the capacity expansion of drainage systems or on artificial detention storage. While flood control should take part early on urban planning, not enough is known to guide such plans and provide incentive to land use decisions that minimize the vulnerability to localized floods. In this paper, we offer a broader perspective on flood protection, by treating the original hydrologic flow regulation as an environmental service, and exploring how the value of this environmental service drives economic land use decisions that convert original (permeable) land into urbanized (impermeable). We investigate the relationship between land use decisions and their hydrologic consequences explicitly, and use this relationship to simulate resulting land use scenarios depending on the value attached to the environmental service of flow regulation. Rainfall-runoff simulation model results are combined to an optimization model based on two-stage stochastic programming approach to model economic land use decisions. The objective function maximizes the total expected land use benefit in an urban area, considering the opportunity cost of permeable areas in the first stage and the resulting loss of the environmental service of flow regulation on the second stage, under several probable hydrological events. A watershed in the city of Belo Horizonte, Brazil, is used to demonstrate the approach. Different values attached to the environmental service were tested, from zero to higher than the opportunity cost of land, and artificial detention infrastructure was included to calculate the resulting land use change and the loss in the environmental service value. Results indicate that by valuing the environmental service loss and discounting it from the economic benefits of land use, alternative solutions to land use are found, with decreased peak flows and lower flood frequency. Combined solutions including structural and non-structural techniques provide more cost effective results, avoiding both the depletion of the environmental service and the high opportunity cost associated to valuable commercial urban areas. Urban development under such premises will be more resilient and adapted to local flooding, instead of relying on increasingly expensive infrastructure.