by Halimah Hassan Director, Assessment Division

byHalimah Hassan

Director, Assessment DivisionMinistry of Natural Resources and Environment Malaysia

24-26 November 2008Bali, Indonesia

Economic Valuation In

Environmental Impact Assessment

2008 AECEN Regional Forum:Decentralization in Environmental Compliance

and Enforcement in Asia

Assessing Natural Resources Damages in Asia

Outline Of PresentationOutline Of Presentation

•IntroductionIntroduction - - Environmental Management in MalaysiaEnvironmental Management in Malaysia

•EIA Process in MalaysiaEIA Process in Malaysia•Economic Valuation in the EIA process •Way Forward in Environmental Way Forward in Environmental ManagementManagement

NATIONAL POLICY ON THE ENVIRONMENT POLICY STATEMENT

FOR CONTINOUS ECONOMIC, SOCIAL AND CULTURAL PROGRESS AND ENHANCEMENT OF

THE QUALITY OF LIFE OF MALAYSIANS, THROUGH ENVIRONMENTALLY SOUND AND

SUSTAINABLE DEVELOPMENT

21 October 2002

Ministry of Natural Resources and

Environment

Department of Irrigationand Drainage

Department of Survey and Mapping

Department of Environment

Land and MinesDepartment

Forest Research Institute

Department of Wildlife and National Park

Forestry Department Minerals and GeosciencesDepartment

National Hydraulic ResearchInstitute

National Institute ofLand and Survey

MISSION

To promote, ensure & sustain sound environmental

management in the process of nation

building

FUNCTION

To administer and enforce the Environmental Quality Act, 1974

(Amendments 1985, 1996) and Section IV of the Exclusive

Economic Zone Act, 1984

– Prevention, abatement, control of pollution and enhancement of the environment in Malaysia.

– Restricts the discharge of wastes into the environment in contravention of the acceptable conditions.

ENVIRONMENTAL QUALITY ACT, 1974ENVIRONMENTAL QUALITY ACT, 1974

ENVIRONMENTAL MANAGEMENT STRATEGIES

• Pollution Control and Prevention • Sustainable Development through

Conservation of Resources • Integration of Environmental Factors in

Development Planning • Promotion of Environmental Education and

Awareness • Public Participation • Inter-Agency and Federal-State Cooperation • Bilateral, Regional and International

Cooperation

ENVIRONMENTAL MANAGEMENT STRATEGIES

REMEDIAL APPROACH- ENFORCEMENT OF THE EQA

PREVENTIVE APPROACH- LANDUSE PLANNING- ENVIRONMENTAL INPUT TO RESOURCE &

REGIONAL PLANNING

-EIA

Aim and objectives of the EIA process

In the Handbook of Environmental Impact Assessment Guidelines(first prepared in 1987, latest edition October 2007), one reads:

The aim of environmental impact assessment in Malaysia is to assess the overall impact on the environment of development projects proposed by the public and private sectors (Section 1.3.2)

In order to implement this overall aim, the Handbook lists clearlythe following 5 objectives:


5 objectives of EIA:

To examine and select the best from the project options available;

To identify and incorporate into the project plan appropriate abatement and mitigating measures;

To predict residual environmental impacts;

To determine the significance of the residual environmental impacts predicted; and

To identify the environmental costs and benefits of the project to the community.


In order to implement these objectives, the Department of Environment has developed and put in place a rigorous set ofsteps and procedures. Legislations and guidelines were formulated:

• Section 34A of the EQA, 1974• EIA Order 1987• A Handbook of EIA Guidelines• Specific Guidelines• Guidance Documents• Registration of EIA Consultants• Checklists

EIA IS A STUDY TO IDENTIFY, PREDICT, EVALUATE AND COMMUNICATE INFORMATION ABOUT THE

IMPACTS ON THE ENVIRONMENT OF A PROPOSED PROJECT AND TO DETAIL OUT THE MITIGATING MEASURES PRIOR TO PROJECT APPROVAL AND

IMPLEMENTATION

WHAT IS EIA?

EIA PRINCIPLES AND PROCESS-

Main Points • Does the Project needs an EIA?• What do we need to concentrate during the study?• What does the environment look like without the

project?• What will happen if the project is built?• If anything happens, is it important?• What can we do about it?• How do we make sure it gets done?• How do we know what we predicted was correct?

LEGAL REQUIREMENTS

• SECTION 34A, ENVIRONMENTAL QUALITY ACT 1974 (Amendments 1985)

• ENVIRONMENTAL QUALITY (PRESCRIBED ACTIVITIES)(EIA) ORDER 1987

1. PROVISION TO PRESCRIBE ACTIVITIES

2. SUBMIT EIA REPORT, IN ACCORDANCE TO GUIDELINES…CONTAIN AN ASSESSMENT OF THE IMPACT…PROPOSED MITIGATING MEASURES….

3. APPROVAL OF REPORT WITH/ WITHOUT CONDITIONS AND INFORM PROJECT PROPONENT AND RELEVANT AUTHORITY.

4. MAY NOT APPROVE WITH REASONS

SECTION 34A EQA AMENDMENTS 1985

SECTION 34A EQA AMENDMENTS 1985

5. DG MAY REQUIRE MORE THAN ONE REPORTS

6. NOT TO CARRY OUT ACTIVITY UNTIL THE REPORT HAS BEEN APPROVED.

7. POST-EIA MONITORING-

SHOULD PROVIDE PROOF THAT THE CONDITIONS ATTACHED ARE BEING COMPLIED

Environmental Quality (Prescribed Activities) (Environmental Impact

Assessment) Order 1987

19 Activities

EIA Order 198719 Activities

• Agriculture• Airport• Drainage & Irrigation• Land Reclamation• Fisheries• Forestry• Housing• Industry• Infrastructure• Ports

• Mining• Petroleum• Power Generation• Quarries• Railways• Transport• Resort & Recreational• Waste Treatment &

Disposal• Water Supply

19 Prescribed Activities

• Activities are define in terms of:

–Project size ( hectares, meters/km, height )

–Capacity (e.g. tons/day, MW )

–Not defined by any unit

The EIA Process

• Project Screening• Project Scoping• Project Description

& Alternatives• Description of

Baseline• Evaluation of

Impacts• Mitigating Measures

• Stake Holder/Public Participation

• The EIA Report• EIA Review• Decision Making• Environmental

Management Plan• Monitoring and Auditing

EIA PROCEDURE

Preliminary Assessment

Detailed Assessment

EIA PROCEDURE IN MALAYSIA

• TOR to be approved by DOE • DEIA Report to be advertised and publicly

displayed • Greater public participation • Reviewed also by independent expert panel

No difference in scope of study between PEIA and DEIA, focus on critical issues, must satisfy Section 34A(2)

FOR DETAILED EIA

Steps and procedures of the EIA process

Procedures

Section 34A (2)

“…The report shall be in accordance with the guidelines prescribed by the Director General and shall contain an assessment of the impact such activity will have or is likely to have on the environment and proposed measures that shall be undertaken to prevent, reduce or control the adverse impact on the environment”

List of Activities Requiring Detailed EIA

• Iron and Steel Industry• Pulp and Paper Mill• Cement Plant• Coal Fired power plant• Dams for water supply and hydroelectric

power• Land reclamation• Incineration plant (schedule and municipal

solid waste)• Municipal solid waste landfill facility (including

municipal solid waste transfer station)


• Project involving land clearing where 50% of land area or more with slope exceeding 25 degrees (except quarry)

• Logging 500 hectares or more

• Development of tourist or recreational facilities on islands in surrounding waters gazetted as marine parks


• Construction of recovery plant (off-site) for lead-acid battery wastes

• Schedule wastes recovery or treatment facility generating significant amount of wastewater which is located upstream of public water supply intake

• Non-ferrous primary smelting• Others, as required by the Director General of

Environment

ENVIRONMENTAL IMPACTS

• SOIL EROSION• SEDIMENTATION• SURFACE AND

MARINE WATER QUALITY

• ALTERATION OF NATURAL DRAINAGE

• FLOODING• DEGRADATION IN

BIODIVERSITY

• DESTRUCTION OF ECOSYSTEMS

• PUBLIC HEALTH & SOCIO-ECONOMIC

• RISK• AESTHETIC • AIR POLLUTION• NOISE• ODOUR

EIA REPORT FORMAT

• Executive summary• Title of Project• Project Initiator• Statement of Need• Project Description• Project Options• Description of

Existing Environment

• Potential Significant Impact

• Mitigating and Abatement Measures

• Residual Impacts• Summary of

Conclusion

Environmental Management Plan

EIA and EMP- illustrated

Environmental Impact Assessment Actions to be taken

Project planning Construction and implementation

What can be done

What might happen

To be followed by Environmental Audit

EIA Consultant Registration Scheme Objectives:

• Improve professionalism

• EIA Study to be conducted by competent person

• Assists in fast and informed decision making

Only Registered EIA Consultants

• As of 1 October 2007, DOE will only accept EIA reports prepared by registered EIA consultants. The list of EIA Consultants can be downloaded at www.doe.gov.my

Roles & Responsibilities of EIA Consultant

• Brief Project Proponent on final report

• Ensure project proponent

• understands and acknowledges the report content

• agrees with mitigating measures proposed

Accountability and Responsibility

• EIA Consultants will be accountable and responsible for EIA study, findings and its recommendations

• Project Proponent responsible to carry out mitigating measures (as proposed) and future monitoring and compliance auditing

Economic Valuation in the EIA process

5 objectives of EIA:

To examine and select the best from the project options available;

To identify and incorporate into the project plan appropriate abatement and mitigating measures;

To predict residual environmental impacts;

To determine the significance of the residual environmental impacts predicted; and



Questions:

If the answer is mostly yes:

Has this objective been achieved?

Then: Can it be further improved?

If the answer is mostly no:

Then: Why not? What can be done to achieve the objective?

• Thirty-five (35) Detailed EIA reports were reviewed, covering the period 1999 to 2004.

• Of the 35 reports, only 2 (a waste incinerator project and a landfill project) provided some form of monetization of the environmental impacts of the project on the environment.

• In almost all cases, the environmental impacts of the project are not quantified, and therefore not translated into environmental costs and benefits.



Questions:

Has this objective been achieved?

The answer is mostly no.

Then: Why not? What can be done to achieve the objective?

The objective refers to environmental costs and benefits of the project;

It does NOT refer to the economic cost and benefits of the project;

It does NOT refer to the development costs and benefits of the project;

It does NOT refer to the undertaking of a cost-benefit analysis of the project.

Note:



Section 3.4.5 of Handbook:

The evaluation of environmental and development benefits and costs arising from a development project is made by the Review Panel following Detailed Assessment. The evaluation is an essential aid to decision making by the project approving authority. The information that the assessor must provide in Detailed Assessment is an annotated list of economic costs and benefits to community …


However:


Chapter 12 of Handbook:

In this section, the assessor should seek to quantify the environmental and development trade offs anticipated from the project plan. The cost–benefit approach to this evaluation is discussed in Section 3.4.5.

However:


Hence:

While the objective clearly specifies that the focus must be on environmental costs and benefits, the Handbook then refers to other types of costs and benefits (development and economic).

Moreover, while the monetization of the environmental impacts of the project into environmental costs and benefits does not constitute a cost-benefit analysis, the Handbook refers to the undertaking of cost-benefit analysis.

To this extent, the Handbook has created confusion.

What have project assessors done?


“The environmental cost and benefit analysis has shown that most of the environmental components are non-quantifiable.”

In many Detailed EIA reports, there is a statement like this:

And as a result, the environmental impacts of the project are not quantified nor monetized.

Summary of the non-quantifiable environmentaleconomic gains and losses

Impact on Local Communities Gains Losses

1. Appreciation in land values / real estateX

2. Employment opportunitiesX

3. More hygienic waste disposalX

4. Opportunity to start small businessX

5. Harmonization of physical and environmental developmentX

6. Induce more infrastructureX

7. Increase in aesthetic values with landscapingX

8. Loss of greeneryX

9. Increased incidence of occupational / traffic accidentsX

Total 6 3

Sometimes, there is a table like this:


What have project assessors done?

Since six out of the nine non-quantifiable environmental components are ‘gains’ and three are ‘losses’, the environmental cost–benefit analysis has indicated that the proposed project will induce positive gains to the nearby communities.

Followed by this sort of conclusion:


This is not quite appropriate.

Section 3.4.5 of Handbook also says:

If the assessor is unable to quantify any of the environmental or economic changes that will result from the project, the assessor should list them as losses or gains.


Instead, Section 3.4.5 should say:

The project initiator has the duty to ensure that the assessor is capable of undertaking in an appropriate manner the assessment of the environmental costs and benefits of the project.

The above statement gives too much flexibility to the assessor.

Given DOE’s functions and overall responsibility as a custodian of environmental quality in Malaysia, it is not DOE’s task to request and assess a cost–benefit analysis of development projects.

While the creation of jobs by the project and the creation of business opportunities are certainly of interest to the Government and the people of Malaysia, DOE’s focus is on the environmental impacts of development projects.

Outcome 1:

One of the 5 objectives:



DOE will request and focus on the economic assessment of the environmental impacts of development projects.

Outcome 2:



In order to implement this objective, what is needed is an economic valuation of the environmental impacts of the project.


Identification of the environmental impacts

Quantification of the environmental impacts

Monetization of the environmental impacts

Three-step process:


Outcome 3:



Review the EIA guidelines to provide clearer, more comprehensive and more specific directions pertaining to the assessment of environmental costs and benefits of development projects.


Achievements:

Registered list of EIA consultants along with field of expertise;

A new Guidelines on the Economic Valuation of the Environmental Impacts for Prescribed Activities .


Objectives of the Guidelines:

The overall objective of these Guidelines is to provide clear guidance as to the framework and methodologies allowing the monetization of the environmental impacts of the project into costs and benefits.

It aims to provide practical advice to project initiators and project assessors undertaking the economic valuation of environmental impacts of projects.


2. Human actions which impact the environment and ecosystem will then impact the flow of goods and services produced by the environment and ecosystem.

1. The environment and the ecosystem produce goods and services that are useful to humans i.e. that contribute to the

well-being of humans or that are ‘valued’ by humans.

General Premises

Structure

Processes

ECOSYSTEM

Goods and Services

General Premises

Projects whichimpact ecosystem

Change the flow ofgoods and services

It is this change in the flow of goods and services which we attempt to identify, quantify, and monetize.

The concept of total economic value

Environmental goods and services

Non-useUse

Indirect Direct

Non-consumptiveConsumptive

ExistenceFor others

Different types of use…

and

Total economic value

Non-use value

Use value

Indirect use

value

Direct use

value

Non-consumptive direct use value

Consumptive direct use value

Existence value

Bequest value

… different types of economic values

+

+ +

+

Among use value, we also add: Option value

The concept of total economic value

Identification of the environmental impacts

Quantification of the environmental impacts

Monetization of the environmental impacts

Identify, quantify, monetize

Task of technical experts

Task of technical experts and economist

Task of economist

Three-step process:

1. Transforming environmental impacts into environmental costs and benefits is not the task of solely the economist. It must start with information about the nature and extent of these environmental impacts. This is best provided by technical experts.

Identify, quantify, monetize

Two important messages:

2. However, the economist must be part of the EIA team from the very beginning to ensure that the information necessary to monetize the environmental impacts is indeed collected and available. If the economist comes only at the very end, it is very likely that the necessary information will not be collected.

Group 1: ‘Change of productivity’ methodology;

Group 2: Revealed preferences:

Group 3: Stated preferences:

3 groups of methodologies:

These methodologies aim to provide an economic assessment of environmental impacts by observing actual behavior of individuals, and what this behavior reveals about their preferences for changes in environmental quality.

These methodologies aim to provide an economic assessment of environmental impacts using data on hypothetical choices made by individuals responding to a survey and stating their preferences.

Overview of methodologies

Non-use value

Use value

Indirect use value

Direct use value

Non-consumptive direct use value

Consumptive direct use value

Bequest value

Existence value

Group 1: Change of productivity methodology

Group 2 (Revealed preferences) and Group 3 (Stated preferences)

Group 3 (Stated preferences)


Overview of methodologies Environmental

effects Examples of

environmental impacts Economic valuation

methodologies Air pollution Health impact Cost of illness

Averting behavior Contingent valuation

Infrastructure damages

Cost of replacement Hedonic prices

Amenity impacts Contingent valuation Water pollution Health impact Cost of illness

Averting behavior Contingent valuation

Water resources depletion

Agricultural losses Change of productivity Cost of replacement

Soil erosion / degradation Agricultural losses Change of productivity Cost of replacement

Increase vulnerability to disasters

Averting behavior Hedonic prices

Noise pollution Health impacts and discomfort

Hedonic prices Averting behavior

Loss of forested areas Degraded forests Change of productivity Replacement costs Travel cost Contingent valuation

Loss of coastal ecosystems

Degraded ecosystems Change of productivity Travel cost Contingent valuation

Message:


• It is the nature of the environmental impact which determines which methodology to use.

• For each type of environmental impact there is one or two methodologies to use. The choice will often depend on data availability as well as time and resource constraints.

Contents of the Guidelines:

Part A Introduction to the Economic Valuation of Environmental Impacts-The Concept of total Economic Value-Approaching the Economic Valuation of Environmental Impacts

Part B

Methodologies for the Economic Valuation of Environmental Impacts-Change of productivity methodology-Revealed preferences methodologies-Stated preferences methodologies-Benefits transfer methodology


Applicability of the Guidelines:

For all prescribed activities, any of the project’s expected impacts on the productivity of land (such as agricultural productivity) and water (such as fisheries productivity) have to be clearly identified, quantified, and transformed into environmental costs or benefits following the procedures described in the Guidelines. As for the other environmental impacts of the project, the precise nature and extent of the economic valuation is to be established at the time of the EIA scoping.


DOE had organized workshops to facilitate the introduction and the usage of the Guidelines:

Training Workshop for DOE officers;

Training Workshop for EIA Consultants and Subject Consultants Introductory Workshop for Government Agencies


Thank you

2008 AECEN Regional Forum:Decentralization in Environmental Compliance

and Enforcement in Asia

Assessing Natural Resources Damages in Asia