Introduction:
As advocates O’Riordan “Economists are often seen as the villain of the piece by non-economists” (Chapter 4 Environmental Science for Environmental Management; 2000). At the same time, environmentalists appear occasionally as ‘utopists’ and/or ‘passionate activists’ far away from the world’s realities. These caricatures reflect some miss-understandings probably mainly brought by the wideness, the complexity and the diversity of the two fields.
Hence, economy is very useful for the evaluation of environmental ‘services’, their management and environmental policy making. It recognise that different aspects of the environment are scarce and may therefore have an economic value, and that all decision involves the allocation of these limited resources to satisfy human needs. Economic analysis provides a general framework to help to supervise resource uses to maximise social well-being and manage the environment. But it also indicates that the relative net-benefits of competing resource uses assess the impacts of different policies and programs on externalities and provide information on gains and losses to different group in society.
The ‘Environmental economics’ are concerned with choices across the interface between the economy and its environment, by evaluating the value to the economy of gains or losses at the expense of the environment (Green C., 1997). In particular, ‘monetary valuation’ gives a practical idea of the possible gains or losses in environmental-economic terms. For instance, the economic value for the entire biosphere (most of which is outside the market) is estimated to be in the range of US$ 16-54 trillion (1012) per year, with an average of US$ 33 trillion per year, so nearly the double of the world’s marketed GNP (global GNP = $ 18 trillion per year) (Costanza R., & al. 1997).
However, are all environmental services economically quantifiable? Is ‘monetary valuation’ the really best way to evaluate them and give concrete ideas of value or are there other ways of “Valuating Nature”? (Foster J. & al., 1997). This essay will argue these questions first by shortly explaining what environmental services are and give few examples. A second part will be regarding the necessity of valuating natural resources and services, before discussing in a third section the “monetary method of valuation” for environmental purposes. The necessity of future researches will be evocated in conclusion.
1. Environmental ‘services’?
All human activity relies on the natural environment. People put environmental resources, rivers, the oceans and beaches, the land, the air, the diverse species of living things, to different and sometimes competing uses. They form the ecological processes on which life depends, they provide inputs to the production of goods and services, and they act as catchments for waste and pollution. (Department of the Environment, Sport and Territories; Australia: “Techniques to Value Environmental Resources: an Introductory Handbook”).
Environmental services, or ecosystem services in more exact terms, consists of flows of materials, energy, and information from natural capital stocks including trees, minerals, ecosystems, the atmosphere, which combine with manufactured and human capital services to produce human welfare (Costanza R., & al. 1997). For instance, costal environments provide ‘economic goods’ by offering different forms uses as the consumption of fish, shell-fish or salt and non-consumptive uses as bird-watching, surfing and sailing. Costal ecosystems also provide ‘economic services’ by offering protection as buffer zones against erosion and flooding (structural value). They also represent services by having an ecological role in replenishment of systems as Spawning ground for fishes (functional value).
Therefore, it is meaningful to ask how changes in the quantity or quality of various types of natural capital and ecosystem services may have an impact on human welfare. Such changes include both small changes at large scales and large changes at small scales. For example, changing the gaseous composition of the global atmosphere by a small amount may have large-scale climate change effects that will affect the viability and welfare of global human populations. Large changes at small scales include, for example dramatically alter terrestrial and aquatic ecosystems, having an impact on the benefits and costs of local human activities. In general, changes in particular form of natural capital and ecosystem services will alter the costs or benefits of maintaining human welfare (Costanza R., & al. 1997).
However to understand the real impacts or consequences, and make choices and prioritisations, we need to value the different components of environmental ‘services’.
2. “Valuating Nature?”
John Foster introduces the book “Valuing nature? Ethics, economics and environment” (1997) by several questions: “How do we valuate nature? How do we, and how should we, express our sense of the worth and practical importance of our natural environment, and the significance of our relations with other living things? How do we include such value within the processes of social decision-making? How, in particular, do we integrate them with economic considerations which feature so prominently in those processes? Can the demands of that integration help us to understand environment and economics better?” (See part 3). All these questions seem to be sufficient to justify the necessity of valuating the different components of environmental services and offer wide reflection for a sustainable management of the resources.
Value of ecosystem:
As said in the article “The value of the world’s ecosystem services and natural capital” (Costanza R., et al., 1997) the some may argue that “valuation of ecosystems offering the environmental services is either impossible or unwise, that we cannot place a value on such ‘intangibles’ as human life, environmental aesthetics, or long-term ecological benefits. In fact, we do it every day. When we set construction standards for highways, bridges and the like, we value human life (acknowledged or not) because spending more money on construction would save lives.”
Another frequent argument is that we should protect ecosystems for purely moral or aesthetic reasons, and we do not need valuation.
However, environmental resources also have value beyond their direct use. For example, some resources are important for cultural, religious or scientific reasons. There is a widely held view that humans should act as the managers-keepers of the planet’s resources, serving the interests of future generations. One more argument proposes that the natural environment has inherent value, independent of human use. But there are equally compelling moral arguments that may be in direct conflict with the moral argument to protect ecosystems; for example, the moral arguments that no one should go hungry. Moral arguments translate the valuation and decision problem into a different set of dimensions and a different language of discourse; one that, in our view, makes the problem of valuation and choice more difficult and less explicit.
Valuation is clearly necessary:
Yet, the ‘value of ecosystem services’ is a fundamental aspect of ‘ecological economics’ toward the goal of sustainability, and the study, measurement, and raking of environmental values is at the heart of many social and biological sciences. Disciplines as diverse as law, sociology, philosophy and economics are all concerned in their various ways with how people understand and act upon their values. Each discipline has developed its own set of questions, theories, and methods to identify and measure purposes. The values associated with environmental amenities may be measured in either quantitative or qualitative terms and combinations of quantitative and qualitative assessments are possible. Quantitative assessment involves valuing environmental benefits and costs in a common unit, ‘monetary units’.
The efficiency requirement is to maximise the benefits of development values for its own over the costs of development, where these incorporate all benefits and costs, including marketed economic activity as well as non-marketed activity. For instance, equity rules, included in the principles of sustainability (as the economic and environmental aspects), can be operated for economic values. In other words, the fact of determining who the gainers are and who the losers are and which stakeholder groups are affected by environmental changes. The benefits and the costs associated with the various ecosystem functions and services can be weighted to reflect underlying aversion to inequality, with the weights used depending on the equity rule adopted.
In particular, when the decision maker and the manager are dealing with a decision on the use of an environmental resource, they need to place a value on the gains or losses associated with each option. In this way, the alternative uses can be assessed on a comparable basis. A number of major government initiatives have recognised the need for improved decision-making including Agenda 21 and other schemes of Sustainable Development. These initiatives explicitly acknowledge the importance of environmental benefits and costs, the need to value them and the need to integrate them into the policy making process (Department of the Environment, Sport and Territories; Australia: “Techniques to Value Environmental Resources: an Introductory Handbook”).
Nevertheless, in such a controversial debate as evocated above, the estimation of the benefits of ecosystem services has shown that the efficiency of resource use requires consideration of the ecosystem functions of ecological resources. The exercise of valuing the services of the environment ‘at the margin’ consists of determining the differences that relatively small changes in these services make to human welfare. Changes in quality or quantity of ecosystem services have value insofar as they either change the benefits associated with human activities or change the costs of those activities. These changes in benefits and costs either have an impact on human welfare through established markets or through non-market activities. For example, coral reefs provide habitats for fish. One aspect of their value is to increase and concentrate fish stocks. One effect of changes in coral reef quality or quantity would be discernible in commercial fisheries. But other aspects of the value of coral reefs, such as recreational diving and biodiversity conservation, do not show up completely in markets. Forests provide timber materials through well established markets, but the associated habitat values of forests are also felt through unmarketed recreational activities. The chains of effects from ecosystem services to human welfare can range from extremely simple to exceedingly complex. Forests provide timber, but also hold soils and moisture, and create microclimates, all of which contribute to human welfare in complex, and generally non-marketed ways (Costanza et al., 1997).
Deciding who should use environmental services, how and when is complex. Decisions must weight the values, variously perceived, of the resources and the compatibility of their potential uses. Therefore information as costs and benefits, some with monetary values and some without, are integrated for judgement. Ideally, decisions are made where the benefits outweigh the costs.
Thus, weighing up the costs and benefits of investment and other decisions, while keeping both the actual and potential cost and benefits into account, can lead to sustainable and equitable decisions. However, not all decisions are so easy and the implications for future generations, for present-day equity and for sustainability of the biosphere often conflict with each other.
It is hard to evaluate values objectively, so how can we valuate environmental ‘services’? Various methods of valuating environmental services exist for market and non-market components of the ecosystems, differing from an author to another and from a case to another.
3. Discussion about ‘Monetary Valuation’
Value and valuation can be used to demonstrate the environmental resources are not free and have values in the same sense as marketed goods and services have values but the absence of markets should not be allowed to disguise this. By giving a dollar value to the environment, we are forced into more rational decisions that will include a more complete consideration of gains and losses of different resource management options. But as highlight Pearce and Barbier (Blueprint for a Sustainable Economy 2000), placing money values on environmental resources and services is a controversial issue. The Neo-classical economics offers a model of self-interested rational choice to represent how we bring our values to bear on individual and collective decisions. The criterion of value on this model is what people are willing to pay for something, as a measure of what they are prepared to give up to acquire or defend it (Foster J. & al., 1997). The monetary valuation attends to respond to need of choosing on a rational base, by translating ‘values’ into monetary terms.
“Monetary Valuation”?
Monetary valuation is the measurement of as many environmental values as possible in terms of money forms on the basis of cost-benefit analysis. This type of analysis attempts to measure all benefits and costs to society in monetary terms, and to identify proposals where benefits exceed costs. The economic concept of value does not restrict environmental values to benefits from the direct use of a resource. For example, the benefits received from environmental resources (such as enjoyment of national parks and clean air) add to an individual's well-being, as do the benefits obtained from the consumption of goods (such as steel and sawn timber). The benefits that individuals obtain in satisfying altruistic desires that arise from their own moral beliefs also have economic value. From an economic perspective, values can be associated equally with the consumption of goods and services purchased in markets and with the services from environmental amenities for which no payments are made. In this sense, anything from which an individual gains satisfaction is considered to be of value, so long as the individual is willing to give up scarce resources for it.
As suggested in Costanza & al. (1997), the value of ecosystem services could be determined by the costs of replicate them in a technologically produced, artificial biosphere. Experiments as manned space missions or Biosphere II in Arizona have indicated how really complex and expensive it would be, compared to our efficient and least-cost global system, provider of human life-support services. A more practical example of economic costs of environmental harm could be characterised by the replacement cost of the loss of soil due to erosion from agricultural land. It may involve the market cost of fertilisers to replace the soil fertility so that productivity is maintained. But beside the replacement cost, the demand for soil fertility by the farmer has to be considered. The cost to the farmer is represented as the actual value of the production-loss of agricultural outputs from less fertile land. Several methods of monetary valuation exist following the same principle, such as the ‘travel cost method’ evaluating the recreational use value of resources, or ‘the hedonic pricing method’ relying upon the assumption that the local environmental quality will determine the price of capital assets such as property (O’Riordan T., 2000).
The rational for applying these techniques lies in the need to ensure that environmental impacts are taken into account in decision making on the same basis as the costs and benefits of economic activity. Values obtained from these techniques have been instrumental in the decision-making process (Department of the Environment, Sport and Territories; Australia: “Techniques to Value Environmental Resources: an Introductory Handbook”). This type of valuation or the ‘Monetizing’ of the Environment seem to be important because it place it in the same “political dialogue” as economic activity generally. In other words, environment could be considered as the core focus of a ministry of finance or industry as much as a ministry of environment may be considering the other aspects (Pearce & Barbier, 2000).
But these methods are not sufficient to clearly perceive and describe every environmental dilemma in terms of sustainability and are limited by several factors.
Limitation of monetary valuation:
Some environmental impacts do not have a price but that does not mean they do not have value. This is the difference between financial analysis, which is concerned only with goods and services traded in markets, and economic analysis, which is concerned with society’s well-being or welfare. If we are concerned with people’s welfare, we must fully consider environmental effects and the other principle of sustainability such as social equity.
It is clear that the value of environmental capital (source of environmental services) are essential to human welfare as it is impossible to substitute, in total, natural capital by purely ‘non-natural’ capital. Manufactured and human capital (economic capital) requires natural capital for their construction. Therefore, it is not very meaning-full to ask the value of massive, particular forms of natural capital as the value of the ocean-atmosphere system to humankind or the value of rocks and soil infrastructure as support systems… Their value is immeasurable in total. Many environmental resources are not traded in markets and so do not have an obvious price. Therefore, there is a danger that the effect of human activity on the natural environment will be ignored. If they are not fully taken into consideration there is a danger that the decisions made will not be in the best interest of society. As suggested above, this is especially important in government decision-making which is centrally concerned with the community interest. Moreover, the cots-benefits reference information for judgement, does not only integrate monetary values. Where environmental services are affected by the decision, monetary values need to be weighed against non-monetary values.
At last, ‘monetary-market value’ does not integrate non-monetary values such as social and ecological values. Economic values and cost-benefit analyses rarely constitute the sole inputs to decision-making. Information about equity, cultural and social significance is also important inputs. Political considerations also have a strong and sometimes over-riding influence on decisions. In particular, economic valuation for management of specific environmental resources can be limited by many factors:
-Subjectivity will still introduce some biases as the various valuation techniques and the application of them will depend on the professional judgement.
-Uncertainty about future values and risks will still remind.
-Economic values and cost-benefit analyses, as repeatedly said, rarely constitute the sole inputs to decision-making. Information about equity, cultural and social significance is also important inputs. Thus, Political considerations also have a strong and sometimes overriding influence on decision.
For all these reasons it may be best to consider “monetary valuations as bounding values, as improvements over the values of zero or infinity claimed by parties in dispute, or as orders of magnitude of the value of an environmental effect. Monetary valuations can help decision makers but they will never in themselves provide easy answers to difficult decisions” (Department of the Environment, Sport and Territories; Australia: “Techniques to Value Environmental Resources: an Introductory Handbook”).
Conclusion:
The discussion led here, has shown that economics provide useful tolls for environmental science and management, in terms of choices and decision making. They offer measurement techniques for the theoretical concept of ‘value’, particularly difficult to assess when it refers to individual perception and emotional aspects such as the Environment.
‘Monetary valuation’ is seemed to be a good method to give a practical idea of the value of environmental ecosystems and of the services they provide to human welfare. On the other hand, the controversial ‘monetization of nature’ is sometimes too simplistic and not enough for valuation in terms of sustainability since monetary valuation of many environmental impacts is so difficult. A complete cost-benefit analysis with monetary values for all environmental effects will rarely be possible. Even a full analysis would be an incomplete tool for policy makers.
Therefore, other methods, or composite (combined) techniques including ecosystemic and social values, as much as the economic values, have to be considered. In other words accounting techniques will probably never explain all values and continue to be tools toward the goal of sustainability.
References:
O’Riordan T., 2000, Environmental Science for Environmental Management, (Second Ed.), Pearson Education, Harlow
Pearce D., Barbier E., 2000, Blueprint for a Sustainable Economy, Earthscan, London
Foster J. & al., 1997, Valuing nature? Ethics, economics and environment, Routledge
Green C., 1997, Are Blue Whales really simply very large cups of coffee?, Paper given at the 7th Stockholm Water Symposium, August 1997
Article:
Costanza R. & al. 1997, The value of the world’s ecosystem services and natural capital, Nature Vol. 387, 15 May 1997, p. 253-260
Internet:
Department of the Environment, Sport and Territories; Australia:
“Techniques to Value Environmental Resources: an Introductory
Handbook”: http://www.dec.ctu.edu.vn/ebooks/envreval/valuatn.html
Further reading:
Bowers J.K., Cheshire P., 1983, Agriculture, the Countryside and Land Use: An Economic Critique, Methuen, London
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