Economics for Water Sensitive Cities: the IRP2 project and its impact.

Water sensitive cities face complex challenges that demand better economic evidence to balance urban growth, environmental health, and community wellbeing. The IRP2 project, led by CEEP members through the Cooperative Research Centre for Water Sensitive Cities, responded to this need by developing practical economic frameworks and tools to strengthen the business case for water sensitive urban design (WSUD) investments. By explicitly recognising the full range of benefits, including those intangible benefits often overlooked in traditional analyses, the project helps decision-makers prioritise investments that deliver more liveable, resilient, and sustainable cities.

Project aims and motivation

Cities are under increasing pressure to manage water in ways that support climate resilience, urban amenity, and long-term sustainability. However, conventional cost:benefit approaches often undervalue or exclude broader social and environmental outcomes making it difficult to justify investment in WSUD.

IRP2 was designed to address this gap by:

• Developing robust economic frameworks to support investment decisions in water sensitive cities

• Improving how benefits such as amenity, urban cooling, biodiversity, and liveability are recognised in business cases

• Providing practical tools and guidance for practitioners to apply in real-world planning and investment contexts, including case studies examples.

At its core, the project responds to a critical barrier: without credible economic evidence, many high-value water sensitive projects struggle to compete for funding.

The project team and collaboration

IRP2 brought together economists, planners, engineers, and policy experts from across research institutions, industry, and government through the establishment of a Steering Committee. This interdisciplinary collaboration ensured the work was both methodologically rigorous and grounded in real-world decision-making needs.

Strong partnerships with local governments, water utilities, peak bodies and practitioners were central to the project, enabling testing and refinement of tools in applied settings and ensuring outputs were directly relevant to policy and investment processes.

Research approach and innovations

One of the aims for the IRP2 team was to advance approaches that capture the broader value of water sensitive cities. Key contributions included:

• Economic frameworks that integrate market and non-market values into investment appraisal

• Training and knowledge transfer activities to improve stakeholders' understanding of economic evaluation and how to apply BCA on projects that have environmental and social benefits.

• Alternative approaches to investment financing and policy in the context of supporting water sensitive cities, including beneficiary identification methods; risk sharing; cost-sharing principles; payment mechanisms (such as value capture).

• Tools designed to support consistent, transparent, and evidence-based evaluation of WSUD, including a values database, a customied BCA tool and practical guidance for incorporating these values into business cases and decision processes.

This work helps shift economic evaluation from a narrow cost focus to a more holistic understanding of value.

Research Team

CEEP members involved included Prof David Pannell, A/Prof. Sayed Iftekhar, Dr Maksym Polyakov, A/Prof Abbie Rogers, A/Prof. James Fogarty, Dr Asha Gunawardena, and Tammie Harold.

Project Outputs

A key strength of this project lies in the suite of practical tools, guidance materials, and applied research outputs developed to support better investment decisions for water sensitive cities. The work collectively builds an integrated decision-support framework designed to help practitioners, investors, program managers, policymakers, and researchers understand, value, and use evidence-based approaches to assess investments in water sensitive systems.

INFFEWS Benefit Cost Analysis (BCA) Tool & Resources

The BCA tool provides a structured way to assess the costs and benefits of water sensitive urban design and infrastructure projects, including those benefits that are often difficult to quantify.

To ground these tools in robust economic thinking, the project also produced foundational guidance on decision-making and evaluation aimed at supporting practitioners to conduct an economic evaluation for business case development. This includes Pannell’s (2020) Benefit: Cost Analysis and Strategic Decision Making, which sets out principles for applying BCA in complex policy environments, as well as supporting material such as booklet of worked examples, a review of existing Benefit: Cost Analysis (BCA) tools relevant to water-sensitive cities, and many more available on the INFFEWS BCA Tool webpage:

INFFEWS - BCA Tool & Guidance

More broadly, the research also contributed to methodological and conceptual advances in integrated decision-making frameworks. A/Prof Sayed Iftekhar and Prof David Pannell developed an integrated investment decision-support framework for water-sensitive urban design, bringing together biophysical, economic, and planning considerations into a single approach suitable for complex urban systems. It resulted in the following academic publication:

Iftekhar, M. S., & Pannell, D. J. (2022). Developing an integrated investment decision-support framework for water-sensitive urban design projects. Journal of Hydrology, 607, Article 127532.

INFFEWS Value Tool & Non-Market Valuation Studies

The Value Tool is supported by detailed guidance materials that help users apply non-market valuation techniques in a consistent and transparent way. it is available for purchased on a subscription basis for people wanting to obtain dollar values for inclusion in a BCA to financially represent the intangible benefits of a project:

INFFEWS - Values Database

A significant body of research underpins the valuation of non-market benefits (amenity, wellbeing, and ecosystem services etc), which are central to water sensitive cities. This includes Gunawardena et al.’s (2017) review of non-market values, and later our academic publication:

Gunawardena, A., Iftekhar, S., & Fogarty, J. (2020). Quantifying intangible benefits of water sensitive urban systems and practices: an overview of non-market valuation studies. Australian Journal of Water Resources, 24(1), 46-59.

Case Studies Applications

The project also delivered applied case studies demonstrating how these concepts work in practice. For example, Polyakov et al. (2020) report examined the capitalised non-market benefits of council involvement in residential development planning, while Iftekhar et al. (2022) assessed the transformation of a decommissioned heritage site into a multifunctional water sensitive greenspace, which produced an academic publication:

Iftekhar, M. S., Polyakov, M., & Rogers, A. (2022). Valuing the improvement of a decommissioned heritage site to a multifunctional water sensitive greenspace. Journal of Environmental Management, 313, Article 114908.

Together, these studies illustrate how improved valuation methods can change the perceived worth of urban water investments.

Financial Mechanisms

Led by Dr James Fogarty, and in close collaboration with industry representatives, the team reviewed existing finance model, policies and mechanisms (such as financial incentives) and critically examined their suitability to foster public and private investment in water sensitive cities. A series of engagements were held with economic regulators, water utility representatives, regulation managers, treasuries, and relevant committees (including UDIA).

The results of the review and discussions was put forward in a Discussion Paper after testing with an initial group of economic regulators and policy makers in early 2020.  This collaborative project aimed to strengthen the proposed framework through workshops and engagement activities to ensure it would be effective in the context of water sensitive cities.

The following paper was produced at the end of the project:

Fogarty, J., van Bueren, M., & Iftekhar, M. S. (2021). Making waves: Creating water sensitive cities in Australia. Water Research, 202, Article 117456.

Final thoughts & ongoing training

The IRP2 project demonstrated that improving economic evaluation is not just a technical exercise, it is central to enabling more liveable, resilient, and water sensitive cities. By equipping decision-makers with better tools to understand value, the project is helping reshape how urban water investments are prioritised and delivered.

CEEP has since created a micro-credential at UWA for the public to have continued access to training in economic evaluation, using the INFFEWS BCA tool as the template for teaching purposes. For more information, visit: https://www.appliedbca.org/