Transcript L7-environmental valuation

Project update
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Each step builds on the previous step
Your problem statement uses your
literature review to tell a story. The story
will conclude with your goals. Objectives
are the steps you take to achieve your
goals. Methods explain how you will
achieve your objectives.
Environmental Valuation
The Question
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Can monetary valuation of the
environment help us balance marginal
costs and marginal benefits of economic
decisions?
Can it help us solve the macroallocation
problem?
Functions of prices
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Measure value
Maximize monetary value
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Allocation function
Rationing function
Does it work? Non-rival goods
Is it what we want?
Measure scarcity
Accounting
Conventional Valuation
Methods
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Direct market value
Indirect market value
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Avoided cost
Replacement cost
Factor income
Travel cost
Hedonic pricing
Contingent valuation
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WTP
WTA
Loss aversion
Current Applications
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Cost Benefit Analysis
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Internalizing externalities (e.g. green taxes,
assurance bonds, etc.)
Policy decisions (e.g. climate change, biodiversity
loss)
Regulatory choices (e.g. leaded gasoline)
Expenditure decisions
Damage assessments
National accounts
Calling attention to the problem
What is CBA?
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Can the winners potentially compensate
the losers?
Potential Pareto Optimality
Discounting
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How do we deal with future values (costs
and benefits)?
Opportunity cost
Pure time preference
Richer future
Uncertainty
Incommensurability
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Can all things can be measured in same
units?
How much for your daughter?
Uncertainty, Ignorance,
Irreversibility and Complexity
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Emergent phenomena, surprises,
thresholds
Amazon, rainfall and the Cerrado
Mata Atlantica, habitat loss, extinction and
time lags
Monetary values can be no more accurate
than ecological knowledge
Future Generations
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Cannot possibly bid in today’s markets
Monetary valuation assumes they have no
rights.
When and How do we
Apply Valuation?
The Case of Critical Natural
Capital
Critical Natural Capital
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Components of natural capital that are
essential to human survival and for which
there are no adequate substitutes
Ecological thresholds
Interdependent elements of complex
system
The Demand Curve for Natural Capital
Region 1
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E.g. forests in Vermont
Price can determine conservation needs
Estimate monetary value, provide information to
decision makers, feed into market price (e.g.
green taxes)
Only appropriate when rate of change in value is
slow, i.e. region I
Far from threshold, errors not that important
Region II
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Estimated price very sensitive to errors
Let knowledge of thresholds and other
ecological criteria determine conservation needs
Conservation needs then determine price
Prices adjust to conservation constraints much
more rapidly than ecosystems adjust to prices.
E.g. laws (unenforced) limiting deforestation in
Amazon
International incentives essential
Region III
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Restoration is essential
E.g. Atlantic Forest
Time lags give us limited time to act
Economists should focus on supply curve,
not demand curve
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What is most cost effective way to restore
critical natural capital?
Region III
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Finance more important than valuation
Must combine polluter pays principle,
beneficiary pays principle
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Trace flows of damages and benefits
Wealthy countries must finance provision
of global public good benefits, pay for
costs of global climate change
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ICMS ecologico good model
Integrative, applied methods
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What is the value of salmon in the Puget
Sound
ARIES
http://www.youtube.com/watch?v=5yHnU
TPADMw
Conclusions
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Worst approach is to assign no value to
environment
Environmental valuation can help
determine when conservation is needed
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Calls attention to problem
Can help in allocation when ecosystems are
healthy, resilient
Economic values never better than ecological
knowledge—close collaboration essential
Conclusions
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For stressed systems, conservation needs must
determine environmental values
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Global effort required to protect globally
interconnected ecosystems
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Economics take back seat to ecology
Many, many systems are stressed
Beneficiary countries should pay provider countries
Ecologists/life scientists must educate
economists on thresholds, criticality of natural
capital