6.3 Environmental valuation  (Page 3/23)

All valuation methodologies—WTP and WTA—are designed to estimate values of fairly small changes in the environment, and those values are often setting-specific. Careful analysts can do benefit transfer    studies in which they use the results of one valuation study to inform value estimates in a different place. However, such applications must be carried out carefully. The value of a unit change in a measure of environmental integrity is not an immutable constant, and the values of very large changes in either quantity or quality of an environmental amenity usually cannot be estimated. A cautionary example is an influential but widely criticized paper published in Nature by Robert Costanza and colleagues that carried out sweeping benefit transfer estimates of the total social values of a number of Earth’s biomes (open oceans, forests, wetlands, etc.). The resulting estimates were too large to be correct estimates of WTP because they exceeded the value of the whole world’s GDP, and too small to be correct estimates of WTA because life on earth would cease to exist if oceans disappeared, so WTA for that change should be infinity ( Costanza et al., 1997 ).

An economist’s environmental valuation toolkit: direct, revealed preference, and stated preference methods

Early work on environmental valuation estimated the benefits of improved environmental quality using direct methods    that exploit easily obtained information about the monetary damage costs of pollution. These methods are still sometimes used (most often by people who are not environmental economists) because of their simple intuitive appeal. An analyst can measure costs associated with pollution; the benefits of environmental cleanup are then the reductions in those costs. Following are some examples:

• Production damage measures : Pollution has a deleterious effect on many production processes. For example, air pollution lowers corn yields, thus increasing the cost of producing a bushel of corn. An analyst could try to measure the benefits of eliminating air pollution by calculating the increase in net social benefits that would flow from the corn market as a result of higher yields.

• Avoided cost measures : Environmental degradation often forces people to spend money on efforts to mitigate the harm caused by that degradation. One benefit of reversing the degradation is not having to spend that money on mitigation—the avoided cost    . For example, hydrological disruption from impervious surfaces in urban areas forces cities to spend money on expensive storm sewer infrastructure to try to reduce floods. A benefit of installing rain gardens and green roofs to manage stormwater might be avoided storm sewer infrastructure costs.

• Health cost measures : Pollution has adverse effects on human health. For example, toxic chemicals can cause cancer, and ground level ozone causes asthma. Some measures of the damages caused by pollution simply count the financial costs of such illnesses, including the costs of cancer treatment and lost wages from adults missing work during asthma attacks.