1. Economic Valuation of Environment: Overview
Session objectives:
List basic valuation methods
Use valuation to analyze environmental issues

2. Agenda What is economic valuation? Why economic valuation
Uses of economic valuation
Total Economic Values
Valuation Methods
Examples
Discussion

3. What is Economic Valuation?
Assign value to changes in environment
Subjective value, not objective value
Value expressed by Willingness To Pay
For ordinary goods, WTP=actual payments
Environmental goods have no prices/markets, need special calculation
Value expressed in money for comparison

4. Why value the environment?
Estimate externalities for full-cost pricing
MB - MC - environmental costs > 0
Compare net total benefits (NTB) of development and conservation projects, using the same resources
NTBd vs. NTBc (in present values)
Compare the total costs of different options for the same project, choose the least-cost option (project costs + environmental costs)

5. Typical Questions
How to determine the total gains and losses of the mining industry?
How to determine the total gains and losses of the mass tourism development?
How to decide the use of forested land?
Of 3 options of a water conservation project, which one to choose?

6. Uses of Economic Valuation
Influence the selection of projects or choice of options
Estimated values to be realized through application of economic instruments
Cannot cover all values for all resources
Social, cultural, political, and ecological factors also important for decision-making

7. Total Economic Value (TEV)
Use Values
Non-use Values
direct use value
indirect use value
option value
bequest value
existence value
Outputs directly consumable
Food
Biomass
Recreation
Health
Future direct & indirect values
Biodiversity
Conserved habitats
Use & non-use value of env’tal legacy
Habitats
Prevention of irreversible change
Value from knowledge of continued existence
Habitats
Species
Henetic
Ecosystems
Functional benefits:
Flood control
Storm protection
Nutrient cycles
S. Georgiou, et al, Economic Values and the Environment in the Developing World, UNEP 1997”,

8. Use of TEV
Assume a forested land that can be used for agriculture or protected area:
Without considering TEV, an agricultural project is feasible if TB - TC > 0 (in NPV)
Considering TEV, the project is not feasible unless (TB-TC) - (TEV-TCcon) > 0 (in NPV)

9. Valuation Methods Doze-response Human capital Replacement cost
Prevention cost
Travel cost
Hedonic pricing
Benefit transfer
Contingent valuation

10. Example: Korup National Park
WWF conservation project & valuation analysis
Value tropical rainforests to raise funds
Assess potential changes in different functions of forests, use market prices or shadow prices to value
Focus on use value of forests
Non-use value = required external funds

11. Korup National Parks: Costs & Benefits
Project costs of protected area:
project expense
commercial timber
forest products
Total costs ,051
Project benefits of protected areas:
forest products
tourism
fishery ,770
flood control
land productivity
Total benefits ,199
Net costs ,852 (to be covered by external funds)
Note: 1989 price, in millions CFA, discount rate 8%.