Transcript Introduction to the Costs and Benefits of Environmental

Assessing Costs and
Benefits of Environmental
Policies & Regulations
How do we quantify costs?
How do we quantify benefits?
Whose costs and benefits?
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Recall cookbook: want to account for all
significant costs and benefits.
Also recall Tuolumne study – many
environmental costs excluded, costs of dam still
outweigh benefits (lesson: if you don’t have to
rely on non-use values, then don’t)
Important to include costs & benefits over time –
use NPV formulation (or E[NPV] if uncertainty).
Costs
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Direct costs
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Eg, equipment purchases
Indirect costs
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Eg, consumers forced to buy lower quality low
emission vehicles (LEV’s)
Price
Loss from mandate
Subsidy
. ...
Q, LEV’s
Costs (cont)
Lower productivity associated with
requiring water based instead of oil
based paints
 Administrative and compliance costs
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Benefits: Types of values
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Market values:
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Commodities traded in
markets or values directly
reflected in markets
Usually from direct-use
Often “derived demand”
Recall, markets ignore
externalities; may
misrepresent public good
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Non-market values
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Commodities that
have value to
humans, but
whose value
cannot be
measured within a
market.
Includes Use and
Non-Use Values
Use vs. non-use values
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Use values
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Value from
consumption of a good
Current use, expected
future use, possible
use
Direct health impacts
Non-health impacts
(e.g. smell)
Damage to
ecosystems: pollution
degrades performance
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Non-use values
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Measurement is
controversial
Existence value,
altruistic value, bequest
value
Examples
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Market values
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1 mbf Douglas Fir
1 ton SOx in
RECLAIM
1 ton halibut in Alaska
Red cockaded
woodpecker in south
Pharmaceutical
potential of natural
compounds
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Non-market values
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Sea otters on south
coast
Air/water quality
Strong swell off Coal
Oil Point
Oil spill off Spain
Yosemite Nat’l park
Golden trout in Sierras
Measuring demand
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Revealed preference
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Observe a real choice
in market; infer value
E.g. Value of living
near urban open
space: Compare
housing prices w/ and
w/o urban open space.
Hedonics, Travel Cost,
Household production
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Stated preference
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Ask people (survey)
how much they value
environmental goods
E.g. Would you
accept a $0.05
increase in gas price
to require double-hull
oil tankers?
Contingent valuation
Some examples of measuring
demand
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Demand for park recreation
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Channel Islands MPA
Demand for health risk reductions
Seeps off Coal-Oil Point
 Morbitity
 Mortality
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Using Benefits Transfer Methods
Example: Nat’l park fees
Yosemite National Park charges $20 entrance
fee, 3 million visits.
 Want to use bus to eliminate cars in the Valley
to improve recreational experience.
 Want to increased fee to pay for bus ($10
million per year).
 Will increase to $30 pay for bus?
 Wrong calculation: $10*3 million = $30 mil
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Change in nat’l park
entrance fee
$
Revenue before fee increase: ODEF
Entrance
Fee
20 D
E
Demand for Park Visits
O
F
Q20
Q
Change in nat’l park
entrance fee
$
Revenue after fee increase: OABC
Entrance
Fee
30 A
B
20 D
E
Demand for Park Visits
O
C
Q30
F
Q20
Q
Change in nat’l park
entrance fee
$
Will a fee increase
from $20 to $30 pay
for the bus system?
ABCO-DEFO > $10 mil?
Entrance
Fee
30 A
B
20 D
E
Demand for Park Visits
O
C
Q30
F
Q20
Q
Human health values
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How estimate monetary value of changes in
health from environmental change?
2 steps:
(1) environmental change to health impact,
(2) change in health to $$ [where possible].
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Distinguish between mortality (death),
morbidity (illness)
Often disaggregate according to: age, sex,
physical condition, etc…
Mortality
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Crude mortality rate = # deaths per
time/relevant population…interpreted as
probability of dying.
How will change affect probability of dying?
In expectation, how many more people will
die (or how many fewer will die)
Total value = $/life * lives.
Lead in water: $2.5 million per death
avoided, 2.5*622 = $1.6 billion.
Morbidity (sickness)
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Chronic or acute, degree of impairment,
type of symptom
“restricted activity days”, “bed disability
days”, “work loss days”, “symptom days”
Clean Air Act: protect individuals from
adverse health effects.
Lead: $1 million/non-fatal heart attack,
$628/case reduced chance of hypertension
Benefits transfer approach
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See Rosenberger & Loomis, 2000.
The application of existing information &
knowledge to new contexts
Useful when collecting primary data and
analysis is impractical (cost or time)
3 important features
1.
2.
3.
Policy context must be well-defined
Data must meet certain criteria
Study site and new site should correspond
Example: Orange County Oil
Spill
Oil tanker spills at Huntington Beach, 2001
 Beaches in southern Orange County closed for
month+
 Big loss: lost beach recreation days
 Benefits transfer: value of lost beach
recreation days at other beaches
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Sample of other studies:
Policy context
Identify extent and type of impacts
from proposed action
 Identify affected population
 Identify data needs of assessment
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Type of measure, kind of value,
degree of uncertainty, etc.
Study site data requirements
Make sure study site data & analysis
technique are sound
 Study site analysis contains details
(for comparison) of physical &
socioeconomic characteristics, &
reports statistics
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Correspondence between
sites
Similar expected change in resource
quality and quantity.
 Markets in two sites are similar;
demographics are similar.
 Condition and quality of environmental
good is similar.
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Limitations of benefit
transfer
Quality of original study
 The more primary studies, the better.
 Primary data vs. summary statistics
(may limit ability to conduct new
analysis).
 Characteristics of sites may differ,
 Assumptions made in original study
that do not apply.
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Approaches to benefit
transfer
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Value transfer
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Point estimate(s) from
study site
Identify change,
translate into physical
impact (e.g. use),
identify applicable
study sites, select
(range of) benefit
measures, calculate $
value.
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Function transfer
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Demand or benefits
function from study site.
Identify change,
translate into physical
impact, identify
applicable study sties,
determine if demand
function available,
adapt demand (benefit)
function to fit new site.
Next 2 lectures
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Revealed Preference
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Hedonics
Travel Cost
Household Production
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Stated Preference/
Constructed
Markets
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Contingent
Valuation