Dams, dams and more dams: issues in evaluating business cases for dam expansion in Australia

Conventional interventions for mitigating flood risk and increasing water security often focus on large-scale engineering solutions despite evidence of significant cost overruns and negative environmental impacts. This study is an example of participatory research in water economics, motivated (and requested) by concerns from downstream communities and Indigenous stakeholders that impacts of a proposed dam upgrade and storage increase were not adequately considered. We reviewed the preliminary benefit-cost analysis (BCA) of the proposed AUD$2.1 billion infrastructure investment to expand the Wyangala Dam in Australia and conducted a new BCA incorporating downstream community perspectives. The original economic analysis favoured the proposed investment, but it underestimated costs and overestimated benefits. Our economic analysis was complemented with a qualitative analysis of downstream community perspectives, plus a quantitative analysis indicating that total project costs were underestimated by a minimum of 116%. In comparison, total benefits were overestimated by 56%. Neglecting the potential impact of climate change also severely overestimated the original benefit-cost ratio. Based on our calculations, expanding the dam was unlikely to yield a net social benefit. In 2023, a new government decided the dam expansion was too expensive. We recommend policymakers prioritise independent evaluations and community engagement for BCAs on large-scale water infrastructure projects to ensure equitable investment decisions that maximise social welfare and adequate environmental assessment.