Integrating SEA into Decision Making: An Economic Approach Dan Biller The World Bank East Asia and Pacific Region

Presentation Outline Introduction Environment multi-dimensions An Economic Conceptual Framework Conclusion

“1: the circumstances, objects, or conditions by which one is surrounded; 2: the aggregate of social and cultural conditions that influence the life of an individual or community". (Webster Dictionary). The potential impacts related to the economy and the environment extend well beyond the project level. The issue is accounting for 2nd and 3rd tiers, which requires integration and can be significant. Environment as a Multidimensional Issue

Environmental economics: Transformation of environmental processes (physical and biological) into economic and social processes - Welfare issue. Environment as a Multidimensional Issue (Cont’d)

Macroeconomic Factors An Economic Conceptual Framework for SEAs Public Goods Growth Factor Civil Society Government Microeconomic Factors Information Market Externalities SEA

Where to Use the Framework? The Planning process has several levels: Policies Plans Programs Projects

Macroeconomic Factors Public Goods Growth Factor Microeconomic Factors Information Externalities An Economic Conceptual Framework for SEAs

Growth Factors Key Question: Economic growth versus environmental quality? Use: Policies, Plans, and Programs Tools Situation assessment: Broader understanding of capital Time: Using appropriate discounting methods Technological assessment: Are there alternatives? Examples The Irish National Development Plan ( )

Macroeconomic Factors Public Goods Growth Factor Microeconomic Factors Information Externalities An Economic Conceptual Framework for SEAs

Macroeconomic Factors Key Question: What are the impacts of Macroeconomic Policies on environmental quality? Use: Policies, Plans, and to lesser extend Programs and Projects (macroeconomic factors are given).

Macroeconomic Factors (Cont’d) Tools Situation assessment: Finding the baseline Understanding both positive and negative impacts. Assessing costs and benefits Suggesting mitigation measures, implementation, and monitoring. Examples Trade reform, decentralization, structural adjustments*.

Macroeconomic Factors Public Goods Growth Factor Microeconomic Factors Information Externalities An Economic Conceptual Framework for SEAs

Microeconomic Factors Key Question: What are the impacts of Pricing / Sectoral Policies on environmental quality through what are the impact of a project on individual preferences related to environment? Use: Policies, Plans, Programs, and Projects

Microeconomic Factors (Cont’d) Tools Situation assessment: Finding the baseline Understanding the impacts both positive and negative. Analyze impacts of price changes: Supply responses, demand responses, location responses (e.g. elasticities) Assessing costs and benefits, participatory mechanisms Suggesting mitigation measures, implementation, and monitoring. Examples* Policy Plan Drinking Water Supply, the Netherlands South Africa Park

Macroeconomic Factors Public Goods Growth Factor Microeconomic Factors Information Externalities An Economic Conceptual Framework for SEAs

The Economic Value of the Environment: Total Economic Value (TEV) = USE VALUE + NON-USE VALUE The Economic “Values” of Biodiversity Use Values Non-Use Values Outputs Existence and Bequest Values Option and Quasi-option Values Direct Use Values Indirect Use Values Benefits/Ecological Services

Biodiversity and Its Values Direct Extractive Use: products of commercial value (food, plants...). Direct Non-Extractive Use: ecotourism, education, recreation and the development of new pharmaceuticals. Indirect Uses: services provided by ecosystems such as water supply, flood control, soil conservation. Option Values: the option of using a resource in the future. Existence or Bequest Values: Mere existence and biodiversity for future generations.

The Market Failures Key Question: Markets at list in part reflect “use” values (i.e. resulting from direct enjoyment of good), but many environmental issues are linked to non-use value as well (without markets), how do we capture these? Use: Policies, Plans, Programs, and Projects

The Market Failures (Cont’d) Tools Situation assessment: Understanding the role of information, externalities and public goods Assessing non-market net benefits Suggesting mitigation measures, implementation, and monitoring. Examples Several using at least some of the tools above

Conclusion: Environment & Natural Resources Environmental & Natural Resource Policies Instruments: CAC, Mkts, Econ. Valuation Information Instrument Design Priority Setting Legal Framework