Estimating Environmental Benefits
(This module contributed by Brent Sohngen, State Specialist – Environmental Economics, AED Economics, Ohio State University, sohngen.1@osu.edu)
Introduction
This module explores how $ value for environmental benefits can be estimated and included in local decision processes. Within the module, you will read about a number of different methods that can be used to estimate the $ value of improvements in environmental quality that occur in your area. While a number of methods can be used, the module then focuses on estimating recreational benefits associated with water quality improvements. A set of spreadsheets and instructions is available for you to develop estimates that hopefully will be of use in your setting. At the end of this module, you should have a broader awareness of environmental values in general, and specific knowledge of using one method to determine values for a improving water quality in a particular location.
Why consider placing $ values on environmental benefits? Planning and permitting processes (e.g., Clean Water Act water quality standards, NPDES permit decisions, hazardous waste site clean-ups, Farm Bill program implementation) at the local, state, and federal level, have historically focused heavily on traditional measures of economic welfare: jobs, income, unemployment, etc. Over the past 30 to 40 years, environmental economists have shown that environmental improvements can be valued in economic terms, and that this information on the benefits should be included on the balance sheet when important environmental decisions are made. Although environmental laws and regulations can potentially affect the profitability and productivity of companies doing business in a watershed, these same laws also provide benefits to local citizens through improved environmental conditions. Local citizens may also benefit if environmental policies create conditions whereby industries invest in new technologies that improve the environment and maintain productivity, or the policies create conditions that attract new and unique industries to the watershed. Without considering the full range of environmental benefits associated with policies that improve environmental conditions, federal, state, or local policy makers may limit the environmental efficiency of the decision process.
The benefit cost question facing many local organizations can be illustrated by an issue that has gained momentum recently, namely removing dams. Dam removal is a contentious issue for many policy makers because it highlights the need to balance a multitude of potential benefits, and beneficiaries. Before the 1970's (top panel, Figure 1), policy makers mainly considered issues like flood control, power generation, water supply, and to some extent, recreation. Since the 1970's (bottom panel, Figure 1), policy makers have shifted their focus to include other environmental amenities, including habitat restoration, water quality benefits upstream or downstream, sediment control, a broader definition of recreation, and other non market values. Deciding whether to protect or remove dams has become considerably more complex, and in many instances, policy makers have responded by developing estimates of non market values (for examples, see the readings below). Estimates of non market values, as described in the article by Loomis cited below, have been used by policy makers throughout the United States to help justify several dam removal decisions.
Figure 1: Comparison of valuation frameworks with and without fully considering environmental values.
Learning Objectives
After completion of the module the learner should be able to:
- Understand the terminology of environmental values.
- Have a broad understanding of several different methods for calculating the $ value of environmental improvements.
- Apply environmental valuation concepts to an improvement in water quality in your watershed using one technique: benefit transfer.
Background Readings
Required:
- Sommer, A. and B. Sohngen. 2002. "Pricing the Environment: An Introduction." OSU Extension Fact Sheet. AE-9-02.
http://ohioline.osu.edu/ae-fact/0009.html - Jeong, H. and B. Sohngen. 2005. "Estimating Recreational Fishing Value in Ohio Streams and Rivers Using Benefit Transfer."
Click here: BT_Factsheet_v3.pdf (PDF)
Additional Resources (for your information only; not required):
- Allegra Cangelosi. "Economic Valuation of Environmental Benefits." North East – MidWest Institute. Washington, DC.
http://www.nemw.org/EReconval.htm - Loomis, J. 1997. "Use of Non-Market Valuation Studies In Water Resources Management Assessments." Water Resources Update, Universities Council on Water Resources. Issue No. 109: Autumn 1997
http://www.ucowr.siu.edu/updates/pdf/V109_A2.pdf (PDF) - Chapters 2 – 6 in Douglas W. Lipton, Katherine Wellman, Isobel C. Sheifer, and Rodney F. Weiher. 1995. "Economic Valuation of Natural Resources: A Guidebook for Coastal Resources Policymakers" NOAA Coastal Ocean Program Decision Analysis Series No. 5.
http://www.mdsg.umd.edu/Extension/valuation/
handbook.htm
(The case studies available in the book above by Lipton et al. could provide additional insight into application of valuation to environmental issues.) - "Revealing the Economic Value of the Great Lakes." Published by the Northeast Midwest Institute and NOAA in 2001. This is a fairly long book that is available online and contains numerous examples where economic valuation principles are applied to environmental problems in the Great Lakes region.
http://www.nemw.org/greatlakes.htm#econval - Shabman, L. and K. Stephenson. 2000. "Environmental Valuation and It's Economic Critics." Journal of Water Resources Planning and Management. Nov./Dec. 2000: 382-388. [Academy students receive a copy of this article.]