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Economic Valuation of Environment: Overview. Session objectives: List basic valuation methods Use valuation to analyze environmental issues. Agenda. What is economic valuation? Why economic valuation Uses of economic valuation Total Economic Values Valuation Methods Examples
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Economic Valuation of Environment: Overview Session objectives: • List basic valuation methods • Use valuation to analyze environmental issues
Agenda • What is economic valuation? • Why economic valuation • Uses of economic valuation • Total Economic Values • Valuation Methods • Examples • Discussion
What is Economic Valuation? • Assign value to changes in environment • Subjective value, not objective value • Value expressed by Willingness To Pay • For ordinary goods, WTP=actual payments • Environmental goods have no prices/markets, need special calculation • Value expressed in money for comparison
Why value the environment? • Estimate externalities for full-cost pricing • MB - MC - environmental costs > 0 • Compare net total benefits (NTB) of development and conservation projects, using the same resources • NTBd vs. NTBc (in present values) • Compare the total costs of different options for the same project, choose the least-cost option (project costs + environmental costs)
Typical Questions • How to determine the total gains and losses of the mining industry? • How to determine the total gains and losses of the mass tourism development? • How to decide the use of forested land? • Of 3 options of a water conservation project, which one to choose?
Uses of Economic Valuation • Influence the selection of projects or choice of options • Estimated values to be realized through application of economic instruments • Cannot cover all values for all resources • Social, cultural, political, and ecological factors also important for decision-making
Total Economic Value (TEV) Use Values Non-use Values direct use value indirectuse value optionvalue bequest value existence value Outputs directlyconsumable Food Biomass Recreation Health Future direct & indirect values Biodiversity Conserved habitats Use & non-use value of env’tal legacy Habitats Prevention of irreversible change Value from knowledge of continued existence Habitats Species Henetic Ecosystems Functional benefits: Flood control Storm protection Nutrient cycles S. Georgiou, et al, Economic Values and the Environment in the Developing World, UNEP 1997”,
Use of TEV Assume a forested land that can be used for agriculture or protected area: • Without considering TEV, an agricultural project is feasible if TB - TC > 0 (in NPV) • Considering TEV, the project is not feasible unless (TB-TC) - (TEV-TCcon) > 0 (in NPV)
Doze-response Human capital Replacement cost Prevention cost Travel cost Hedonic pricing Benefit transfer Contingent valuation Valuation Methods
Example: Korup National Park • WWF conservation project & valuation analysis • Value tropical rainforests to raise funds • Assess potential changes in different functions of forests, use market prices or shadow prices to value • Focus on use value of forests • Non-use value = required external funds
Project costs of protected area: project expense -4475 commercial timber -353 forest products -223 Total costs -5,051 Project benefits of protected areas: forest products 354 tourism 680 fishery 1,770 flood control 265 land productivity 130 Total benefits 3,199 Korup National Parks:Costs & Benefits Net costs -1,852 (to be covered by external funds) Note: 1989 price, in millions CFA, discount rate 8%.
