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Archive for June, 2011

Valuing the environment is a strange notion from a strange discipline isn’t it? Economists are already rather unlovable creatures and now they think they can tell you what the view of the park from your bedroom window is worth. The instinctive reaction to economic valuation of the environment is common and understandable and we’ve heard the phrase, “the price of whatever it is and the value of a something” so many times that the words seem to have lost all meaning. So it should be unsurprising that George Monbiot would call environmental economists involved in the National Ecosystem Assessment (NEA), “well meaning dolts” (we’ve heard worse).

But please, give us a couple of minutes to begin to argue in support of valuation. Although we weren’t directly involved in the NEA ourselves, we have been involved in economic valuation, which has been debated for at least 30 year and has an enormous literature. We aren’t confused by a world without numbers, we just think, well actually we can prove that the numbers help… A LOT!

Despite what Monbiot has implied, economists’ work is not about valuing nature in its entirety in absolute terms. We appreciate that this does not make sense – without nature we cannot exist! Valuation is about the relatively small changes in the environmental resources and the services they provide as a result of the decisions (investment, policy, consumption) made.

It is not economists who put values on the environment. We collect data about implicit and explicit valuations undertaken by individuals, businesses and governments every time they make a decision that will have impacts on the environment.  The warning that economic valuation will result in the swapping of nature for money ignores the fact that this is already inherent in many decisions. For example, destruction of the rainforest occurs largely to rear cattle and grow soybeans not because someone attempted to value the rainforest, but rather the opposite. It occurs because those who make such decisions take the monetary profits into account but ignore the just as real economic costs of deforestation. Economic valuation intends to correct this imbalance in decision-making.

In coming out in support of nuclear power Monbiot has implicitly carried out his own cost-benefit analysis – valuing the risks associated with nuclear power less than the risks associated with continued dependence on fossil fuels and the impact they have on our climate (these, however, are Monbiot’s own values; as environmental economists, we’d suggest he undertake an explicit cost benefit analysis which takes everybody’s values into account).

Environmental campaigning and ethical and moral arguments in favour of the protection of nature continue with or without economic valuation. But do governments and businesses listen? Policy decisions that have environmental impacts are more arbitrary when environmental valuations are excluded. Monbiot also states that, “The environment department rightly points out that businesses and politicians ignore the uncosted damage their decisions might inflict on the natural world and human welfare.” Experience shows that in this context there does not seem to be a better alternative, and Monbiot does not provide one either. Just one example of how economic valuation can be effective comes from our own work on the valuation of the ecosystem services provided by forests. This cost benefit analysis provided a case against the sell-off of the public forest estate.

Which is why it is sad and more than a little hypocritical of Monbiot to make assertions that “the business case… almost always comes out right” without presenting any evidence, aside from a hypothetical exercise in coal mining with no basis in reality. The Exxon Valdez oil spill in the late 1980s provides a famous example in which the business most certainly did not feel as if the valuation was on their side. The conservative estimate of the compensation with which Exxon should be charged was calculated at US$4.85 billion in the early 1990s. Net income in 1990 at Exxon Corporation, (then world’s biggest oil company), was $1.12 billion[1]. They have been fighting this judgement ever since.

In 2001 Sunstein (current Administrator of the White House Office of Information and Regulatory Affairs) stated that: “Assessments of costs and benefits have, for example, helped produce more stringent and rapid regulation of lead in gasoline, promoted more stringent regulation of lead in drinking water, led to stronger controls on air pollution at the Grand Canyon and the Navaho Generating Station, and produced a reformulated gasoline rule that promotes stronger controls on air pollutants.”[2]

There are lots of other issues far more complicated than those brought up by Monbiot. However, rather than being pure reductionist gobbledegook, environmental economics is an established field. We assure you that all of the problems you might be able to think of with what we do have been thought about long and hard and work continues to improve our practice. You may still have many objections to this issue but let us at least reassure you that we aren’t aliens. All (well most) of us would rather be outside than reading a spreadsheet, and we don’t think that numbers can describe the love we all have for the natural world. If you want to continue the conversation we would love to hear from you. Comments below, as always!

Angus, Nursie, Daisy and Betsy.

You can find another rebuttal of Monbiot’s piece by Professor Henry Overman of the LSE Spatial Economics Research Centre here.

References

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Old Nursie’s paddock mate loves The BBC’s Springwatch which means Nursie watches too. Nursie’s paddock mate knows a bit about UK wildlife and especially likes to scream at the tele when she thinks they got it all wrong. “A Dormouse is not a mouse…”-gate was a particularly exciting controversy.

Truth be told Old Nursie quite likes springwatch herself and was very happy to see lovely beavers splashing around on TV. They’re grand old things and as reintroduced species go they’re particularly interesting for economists.

Beavers can manage landscapes in ways that normally cost huge amounts of man hours, coppicing woodland and maintaining river banks. When beaver dams are removed the land that is no longer wet is incredibly rich and supports an array of wildlife. Whilst dams are in place they can help regulate flood waters and protect down-stream areas from flooding events. Their actions can help clean the water and so even save money for water companies. They’re also charismatic little critters that attract lots of tourists AND, if you have the stomach for it, well regulated hunting of beaver can bring in even more cash.

Set against this are some costs, but in truth they ain’t so very big and can be managed. In the USA and Canada they have a much bigger species of beaver what can create rather more trouble by flooding roads and the like. That don’t happen so much with European beavers but even where damming is a problem you can shove a pipe through it and if designed carefully it will allow water to flow through with-out the beaver plugging it up. They aren’t so hard to catch so if you want to keep the population within a small area culls are perfectly legal and achievable. Beaver will fell some trees and eat some crops but total damage is relatively small as they don’t move far from the water’s edge. People also worry that beaver dams will prevent fish migration. There don’t seem to be that much evidence of that on the continent and 400 years (since they were last in the UK) seems a short time for fish to have de-evolved the traits that allowed them to survive with with beavers in the past.

As with many environmental problems the issue isn’t that the gains don’t outweigh the costs. No in depth cost benefit analyses have been carried out but slightly more coarse estimates suggest that the benefits could be 100 times the costs (click here for report). The evidence suggests that the benefits well outweigh likely costs. The problem is that the costs are borne by different people to them as get the benefits. Theoretically landowners can be sent cash to make up for this but to an extent, farmers in particular, sometimes take umbrage against these payments.

This can be understandable. In Oxford there is a group of well-heeled students called the Bullingdon club who get up to all sorts of mischief. These rich young lads once turned up to a rather smart local pub, smashed the place up, fought and then tried to pay the landlord off. The landlord said no and had them arrested. I think the feelings of landowners are, not the same but, similar to these and in that respect understandable.

As such, once the economics is over, it is important to recognise that the framing of an offer is as important as its size. That is to say (for example) that if these farmers and landowners are collaborators rather than unwilling victims perhaps things can run more smoothly. It is these human aspects that are the reason why it took over 15 years of lobbying to get the Knapdale Trial beaver reintroduction running and why it is still just a trial.

Old Nursie wants to reintroduce Lynx too. Beautiful things. Not sure how long that will take but Nursie reckons she’d best start off by being very nice to sheep farmers.

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