Methods to Estimate Values of Environment(examples from coastal zone)

Erkki Ikäheimo  

Categories of Environmental Values

Total Economic ValueTotal Economic Value

Use Values Non-Use Values

Direct Use Values

Indirect UseValues

Option Values Bequest ValuesExistence

Values

•Direct use value: the utility people get when they use a product or a service.•Indirect use value: the utility people get when they use services that a product or a resource provides.•Option value: the value people set for having and retaining an option to use a product or a service, if the need arises.•Bequest value: the value people want to preserve for future generations.•Existence value: the value people set for the existence of a product or a service, even if they never use it.

Environmental costs arise from the following sources in the coastal zones

Losses of health• water related,• urban air related,• indoor air related, • solid waste related.

Loss of Existence and option value

• aesthetic,• biodiversity,• cultural.

Loss of Value of Public goods• recreation,• ecosystem services.

Loss of direct values and revenues• tourism,• fisheries and marine prod.,• aquaculture,• agriculture,• forests.

How do environmental costs arise in the coastal zone?

The unit value of a goods decrease (e.g. a polluted coast is less valuable for housing or tourism than an unpolluted one);

The number of units of a goods declines (e.g. due to pollution fish production suffers or ground water pollution destroys wells);

The degradation excludes activities that would bring benefit (e.g. beach tourism is impossible without sand or among litter);

The degradation causes direct damage (e.g. health deteriorates due to pollution or property is lost due to erosion).

Calculation logic is simple and easy but results are only as good as the data used

Number of units/annum is multiplied by unit cost, which results annual cost and % of GDP.

Sector/Cost Item: Tourism

Quantity, high

Quantity, low

Unit Unit Cost Value, high

Unit Cost Value, low

Unit Method Total annual value, high

Total annual value, low

% of GDP, high

% of GDP, low

Economic losses for tourism due to beach degradation (hotel occupancy rates/pricing)

10 5 hotels 780 800 780 800 TND Losses in hotel income

7 808 000 3 904 000 0,19 0,10

Loss of management income from beaches lost due to erosion

4 3 ha 153 600 115 200 TND/ha Lost direct revenues

614 400 345 600 0,02 0,01

Beaches and sandy bottoms lost due to urbanisation, lost income from beach management

21 10 ha 153 600 153 600 TND Lost direct revenues

3 225 600 1 536 000 0,08 0,04

Beaches lost because of low beach or water quality in specific areas

5 2 ha 38 400 38 400 TND/ha Lost direct revenues

192 000 76 800 0,00 0,00

Total direct losses in tourism/beach management 11 840 000 5 862 400 0,29 0,15

A large number of methods for estimating environmental costs are available, they are

based on, for example

Market prices

Productivity change

Hedonic pricing

Travel costs

Substitute costs

Contingent valuation (CVM)

Contingent choice

Benefit transfer

Willingness to pay

Willingness to Pay surveys (WTP) are used in the contingent valuation method to establishes the

preferences of a given population with regards to supporting the costs of a given activity – e.g. for improving coastal zones. By aggregating what

the average person is willing to pay from a sample population to the whole of the population, the analyst is able to arrive at nationally assessed

value of improved coastal zones.

Examples of typically used environmental damage cost calculation methods

Health (complex calculations with DALY, COI, RAD, etc.)

Tourism (productivity change, market prices) Recreation (typically used CVM, travel costs,

hedonic pricing, benefit transfer) Fisheries, aquaculture, agriculture, forestry

(typically used productivity change, market prices, substitute costs)

Ecosystem services (commonly used substitution method and benefit transfer)

Biodiversity, aesthetic, cultural and existence values (usually complex studies and benefit transfer method used instead own costly studies).

Tourism 1,Data from tourism enterprises can

be used to estimate lost income

number of tourist visitor nights;

occupancy rate;

price + spending per hotel night;

hotel capacity;

an estimate of change in number of tourist nights or occupancy rate due to state of the environment.

Tourism 2,Example: loss of tourism income due to deteriorated

environment causing lowered occupancy rate

Assumption: occupancy rate would go up 20 to 30 % if pollution and litter problems would not exist.

Calculation: The tourism capacity in the study area is about 1600, of which the average occupancy rate is 60%. If the occupancy rate goes up by 20 percent, the total number of overnights in the pilot area would increase by 1600* 0.6 *0.20 * 365 = 70080.

Assuming price per night to be 1000-2000 DA a multiplication gives an estimate for the present environmental costs at 70 – 140 million DA.

Recreation 1,Pollution and loss of recreation areas reduces

value of them for public – value of Public Goods is reduced

Environmental cost related to recreation consists of:

reduced recreation values,

reduced accessibility to the recreation areas,

costs to keep or protect the recreation values.

Recreation 2, Pollution and loss of recreation areas reduce value of

them for public – by reducing value of experience, accessibility and increasing costs

Value of recreation areas are reduced due to e.g:

inconvenience caused by polluted water and litter;

smell caused by polluted water and decaying litter;

inappropriately managed landfills that cause smell;

costs of dredging of litter from lakes, rivers and watersheds;

costs of collection of litter lying around;

reduced entrance fee and other income in recreation areas,

increased travel costs to cleaner beaches or other recreation areas;

costs of shore protection activities to keep the recreation values.

Recreation 3,Loss of recreation values can be estimated

based on cost of traveling

Increased travel costs to an unspoiled recreational area can be estimated with the following information:

number of beach visitors,

number of visitors or percentage of visitors moved to an other more distant area,

average additional travelling distance,

cost of travelling per km.

Recreation 4,Example: Loss of recreation value is estimated

based on increased travel costs to beaches

Assumption: Due to closed beaches due to pollution more than 40% of the beach visits require extra travelling of 20-40 km per beach day to beaches of acceptable quality. Cost of travelling is 10-20 DA/km per person. There are about 2 million beach visits annually.

Calculation: The environmental cost is (2 million * 0.4 * 20 * 10 =) 160 million DA/year to (2 million * 0.4 * 40 * 20 =) 640 million DA/year.

Ecosystem Services 1, Pollution and unsustainable use of natural

resources causes loss of ecosystem services, which causes economic losses to society

The most important ecosystem services provided by natural coastal ecosystems are:

water supply,

erosion protection,

reduction of pollution load into the sea and habitats,

habitat for birds and other wildlife,

nursery areas for commercial fish stocks.

Ecosystem Services 2,Environmental cost of spoiled ground water can be estimated

based on extra cost of treating and supplying waterOverexploitation of ground water reduces ground water level and reduces

water quality. Also pollution may spoil ground water. Estimation of extra costs of transporting water or cleaning of the ground water can be estimated based on:

total volume of drinking water use,

volume or share of drinking water cleaned/treated or transported from elsewhere,

cost of producing water from clean ground waster,

cost of producing and transporting water from an alternative source,

extra cost of cleaning/treating or transporting water per unit of water.

Ecosystem Services 3,Example: Environmental cost is estimated

based on extra cost of acquiring water from an alternative source

Data: Use of drinking water in the study area is 63 000 m³ /day. About 60 % of this is delivered from reservoirs due to polluted ground water. The extra cost is 10-15 DA/m³.

Calculation: The increased drinking water costs are thus 0.6*63 000 m³/day * [10 to15 DA/m³] * 365 = 1.4 – 2.0 million DA.

Ecosystem Services 4,Economic loss caused by loss of sea grass

can be substantialTo estimate an economic losses caused by loss of sea

grass area requires thorough studies. Estimate for losses can be made based on studies made in other areas of the world. To make an estimate based on benefit transfer method it is needed:

value per unit of area of similar type of sea grass from literature,

GDPs of the country,

exchange rates between currencies of the countries,

estimate of the area of sea grass lost.

Ecosystem Services 5,Example: Posidonia beds are important fish

breeding areas

Assumptions: Over the past 40 years, about 18 hectares of Posidonia have been lost in the study area. Annual use value of seagrass in Puget Sound (Washington State, USA) is estimated to be around USD 31000 (2.3 million DA/annum per hectare). GDP ratio between the study area and USA is10000/36562

Calculation: 10000/36562 * 2.3 million = 629068 DA. The total economic loss is 18 ha * 0.629 DA/ha/annum = 11.32 million DA/annum.

Appropriate choice of method

Publicly available information is easily used and exploited and is sufficient for general decision making;

Costly and time consuming data collection is necessary for major specific decisions on the allocation of resources;

The possibility to make reliable calculations depends strongly on the quality of existing data and data bases;

Sophisticated methods require detailed and sophisticated data.

Information does not accumulate linearly: threshold depends on existing data and knowledge

Cost of data collection

Informationcontents

Use of publicly availableinformation andbenefit transfer

Own CVM, travel cost, health, detailed data collection

Crude data collection < 1 year

Major data collection effort>> 1 year

Methods of estimating environmental costs of coastal degradationThere is a variety of methods available to estimate values of environmental damage or benefits. The most commonly used methods are presented briefly below. A more detailed description has been presented by Bolt et al. 2005.1) Market Price MethodUsed to estimate economic values for products and services that are bought and sold in commercial markets. Practical examples, which are likely to be needed in the valuation in this study, can be mentioned:· Medical costs are used to value losses caused by health problems.· Total labour costs (i.e. both wage and nonwage labour costs) are used to value losses caused by absence from work as a result of illnesses.· Price of fish is used to value losses caused by diminishing fish stocks and catches offishermen.2) Productivity MethodUsed to estimate economic values for products or services that contribute to the production of commercially marketed goods.3) Hedonic Pricing MethodUsed to estimate economic values for products or services that directly affect market prices of some other good. Most commonly applied to variations in housing prices that reflect the value of local environmental attributes.4) Travel Cost MethodUsed to estimate economic values associated with ecosystems, areas or sites that are used for recreation. Assumes that the value of a site is reflected in how much people are willing to pay to travel to visit the site.5) Substitute Cost Methods· Preventive Cost MethodUsed to estimate economic values of products or services based on the expenditure needed to keep the commodity or service accessible or existing, i.e. costs needed to prevent a product or service from disappearing.· Replacement Cost MethodUsed to estimate economic values of products or services based on the expenditure needed to replace the product or service with another one which gives the same benefits.6) Contingent Valuation Method (CVM)Used to estimate economic values virtually for any product or environmental service. The most widely used method for estimating nonuse, or “passive use” values. In this method people are asked to directly state their willingness to pay for specific environmental services, based on a hypothetical scenario.7) Contingent Choice MethodUsed to estimate economic values virtually for any product or environmental service. In this method people are asked to make tradeoffs among sets of products or environmental outcomes or characteristics. In this method people are not asked directly about their willingness to pay— this is inferred from tradeoffs that include cost as an attribute.8) Benefit Transfer MethodUsed to estimate economic values by transferring existing benefit estimates from studies already completed for another location or issue.These methods are used in estimating the values of environmental impacts and outcomes. In order to be able to fully use the valuation methods good statistical data is needed. If such data is not available it should be collected by interviews on site.Examples of the data needed to undertake an economic valuation based on the above methods are:· statistics on costs of visits to a doctor,· statistics on labor costs (wage and nonwage)in the country or area concerned,· statistics on valuation of human life,· prices for water filters or water meters for household use,· statistics on prices of houses,· costs of traveling,· statistics on the occurrence of water borne disease,· others.The valuation methods to be used in the assignment will vary depending on the specifics of the places where the valuation will be carried out, and their uses and characteristics. It is not possible to determine in advance which methods or combination of methods that will be used.