1. Environmental Economics (Economics of Natural Resources
DR. RODAGE K.D. DEPARTMENT OF ECONOMICS, Rayat Shikshan Sanstha’s S.M.JOSHI COLLEGE HADAPSAR, PUNE .

2. Environmental Economics (Economics of Natural Resources)
Economics – deciding components
eg. USA- Super power, China-Emerging power , BRIC country
Economic system – Markets , Goods , Services etc.
Important system of human society ,
Market - central or key system
Money- force with high convertibility and can be convert to any form i.e. commodity / goods /items /services .
Depending Factors
Resources (Natural and Human Resources)
Depending upon economic status society can be divided into
Developed society
Undeveloped or underdeveloped society

3. Per capita consumption of fuel , water, electricity ,
Availability of land , residential area
Health facility
Educational status
Mortality rate in young fetus .
Average survival rate.
Use of utensils
Common facilities such as transports ,communications ,public recreational centers etc .
Development Index
Economic system – playing key roll and providing the base to all .

4. The economic system depends on
Availability of resources
Exploitation , purification and utilization of resource
Availability of human resource
Definition of natural resource
What is development ?
Human Development
Degradation of Environment
Development of degradation are two sides of same coins
Development in various human sector
Transport , agriculture , health , industry etc.
Result –degradation of environment
Vicious cycle of degradation – because basic needs eg. Water and agricultur

5. Understanding our Environment
Definition
Concept of micro and macro environment
Structure of environment ( litho, hydro, and atmosphere)
Balanced environment (equilibrium ) eg. O2,CO2,thermal
Evolution process – balanced physical , chemical , and biological parameters
disturbing equilibrium rapidly (5to 6 decades)
New kinds of environmental problems with increasing gravity .
Main causes of degradation
Economic reasons – pricing of environment eg. Fishing activity –cost to humans activity only
Counting nature services – failure of market hence , least incorporated

6. Strong need of restoration of degraded environment
Nature restored by its own
Why to use the environmental economics ?
Solution to problem (eg. fish price should incorporate some additional amount for restoration of aquatic ecosystem )
Sustainable development
Conservation of natural resources
Sustenance of environment

7. Components of total economic value

8. Total value of a fisheries ecosystem
(Source: Taken from Human Dimension of EAF)

9. Steps in Valuation

11. Economic valuation methods

12. Applicability of different valuation methods
Cultural services
Contingent valuation
methods
Provisioning
services
Market price analysis
Regulating
services
Cost Assessments

13. Contents The sustainability debate
Market failures and environmental degradation
The role of the government
Economic valuation of environmental benefits
Managing water pollution in coastal areas: a case study

14. Economic growth and the cost of environmental degradation
The sustainability debate

15. What Are the Solutions to The air pollution Problem?
Technical Solutions:
Install pollution control devices on cars
Replace diesel buses with CNG buses
Use cleaner fuels (e.g., lower sulfur fuels)
Will People Voluntarily Adopt the Technical Solutions?
Pollution controls are costly
If expensive but cleaners cars are available, (as well as dirty cars) will people buy them?

16. The valuation process
Step 1 – Identification of the physical links between cause and effect
Environmental degradation matters because of its impacts on (i) production; (ii) human health; (iii) amenity
Knowledge required: engineering, biology, chemistry, social sciences, …
Step 2 – Valuation (putting a monetary value on the impact)
Expressing impacts into a commonly understood unit allows (but does not imply!) decision making
Knowledge required: economics, statistics, science

17. Valuation: Direct techniques
Once the impact has been measured (step 1 in previous slide) we can multiply by the “price” per unit of impact and obtain a minimum estimate of the ‘true’ value
Impact
Possible price
Change in rice production
Price of rice (if market exists)
Price of commodity being exchanged for rice (i.e. salt)
Change in human health
Cost of doctor’s visits
Cost of wage lost

18. Valuation: Indirect techniques
Study the behaviour and choices of individuals to understand how environmental goods are ‘traded off’ with other goods (i.e. money)
These techniques allow obtaining a “true” measure of willingness to pay for the environment
Revealed preferences techniques are based in the analysis of actually observed behaviour
Travel cost method
Hedonic price method
Stated preferences techniques are based on hypothetical behaviour
Contingent Valuation
Contingent Ranking

19. Valuation: Transferring benefits (1)
Benefits transfer consists in using the values from Study Site A to value environmental changes in Study Site B
When transferring benefits, it is important to adjust for
Cause effect relationship  functions transfer
Income level
Population affected

20. Valuation: Transferring benefits (2)
This approach is especially useful:
To overcome data constraints
To value underdeveloped resources
Where strict comparability conditions are met (dose-response matched studies)
Where a market exists or could be created
Areas of concern:
Use of point estimates to “value the world” (the value of an environmental good is not always equal to the sum of the values of its parts)
Cases in which good or service being valued is intangible or culturally-dependent

21. Types of benefits Total Economic Value (TEV) Use values Non-use values
Direct
Indirect
Option
Non-use values
Bequest / Vicarious
Existence

22. The process of measuring benefits
Economic valuation (economist)
Environmental
Improvement
Dose-Response
effect
Change in Health
Change in
production
Estimation of impacts (envir. scientist)
Habitat
Changes
Willingness to Pay
Revealed
Averting and preventive behaviour
Travel cost method
Hedonic price method
Hypothetical
Contingent valuation method
Contingent ranking
Value of changes in productivity
Opportunity cost approach
Replacement cost approach
Medical costs approach
Human capital approach
Replacement cost approach
Opportunity cost approach

23. A Case Study – water pollution in coastal areas
The problem – water quality in coastal areas heavily depends on the uses of water upstream. Impacts often occur far away from the source!
Decisions on water uses – i.e. as a receptor for sewage – are therefore made based on narrow views of the benefits and costs involved

24. The cost of water pollution
Assume that the various annual costs associated with water pollution from the industrial sector (in US$/ha/yr):
Agricultural losses: $1M
Health damages: $2M
Tourism losses: $0.5M
Loss of biodiversity in coastal areas: not estimated but thought to be substantial

25. Determining the price for clean water ($)
Assume that the appropriate discount rate is 5%
Note: the present value of an infinite future stream of a fixed amount is that amount (x) divided by the interest rate (i), that is -- x/i
Assume that an alternative exist to treat waste-water and completely eliminate the negative effects of pollution.

26. Conclusion: Why a course on valuation?
THE PROBLEM
Externalities
Discount Rate
Opportunity Cost
Policy Instruments
Open Access
Public Goods
Property Rights
Command & Control
Emission Regulations
Regulation of equipment
process, inputs, and outputs
Economic Valuation
Direct methods
Revealed Preferences
Stated Preferences
Benefit Transfer
Information
Public Participation
Market-based incentives
Effluent charges
tradable permits
input/output taxes and subsidies
abatement inputs

27. Summary
A high cost of environmental degradation may be a signal of ‘unsustainable’ growth: future income levels may be negatively affected
Tackling the problem requires identifying missing markets for environmental goods and services
Information on costs and benefits is crucial for effective policy making
Economic valuation is an important tool for measuring people’s preferences and guiding decisions

28. Summary
A high cost of environmental degradation may be a signal of ‘unsustainable’ growth: future income levels may be negatively affected
Tackling the problem requires identifying missing markets for environmental goods and services
Information on costs and benefits is crucial for effective policy making
Economic valuation is an important tool for measuring people’s preferences and guiding decisions