To Sewer or Not to Sewer: Incentivizing Decentralized Wastewater Treatment

Abstract

Household sewage causes several problems if not managed properly. Centralized wastewater treatment systems have long been considered the preferred form of sewage treatment, but they can be expensive. Several decentralized wastewater technologies can manage household sewage safely and effectively and may appear to be less expensive than centralized systems on a life cycle cost basis. Homeowners may be reluctant to bear the costs of these technologies, forcing municipalities to weigh the expense of monetary incentives to householders against the costs of centralized systems. Accurate life cycle cost comparisons rely on the use of discount rates representative of the appropriate investors. Centralized systems are typically financed by public municipalities, who use market interest rates or “social” discount rates in life cycle cost calculations, whereas homeowners have been observed to demonstrate much higher “implicit discount rates.” When system costs are compared using appropriate discount rates, decentralized systems might lose their cost advantage. We examine this phenomenon with two case studies. The methodology developed herein can be applied to any case in which centralized and decentralized technologies may be appropriate solutions; it also gives a basis for sound decisions about incentivizing homeowner adoption of decentralized technologies.