Lecture 4 - Environmental Values and Environmental Valuation Flashcards
(46 cards)
Definitions of Value
There are different definitions:
1. Intrinsic (more egocentric; value of nature itself not provided to humans; all nature treated equally)
2. Instrumental (what can nature give us?; value thorugh economic methods)
3. Inherent (more of an anthropocentric approach and about spiritual)
4. Ecological (nature is important for keeping up ecological system)
Value of Nature in Environmnetal Law
No international law instruments are founded purely on ecological undertanding of value of nature
- International law usually reflects anthropocentric values of nature
- Although gradual shift acknowledging biodiversity
The Value of Nature in Environmental Policy
- Markets and societies usually undervalue nature
- Learn about trade-offs: if one part of nature is overusd, what other parts should be less used in order to maintain critical functions?
—> Environmental values and valuation are important from many perspectives of pivotal interest for correcting market failures, improving markets, and better policies
Externality
The impact of one person’s action on the well-being of a by-stander outside the price mechanism
- E.g. power station generations emissions of SO2 causing damage to building materials and human health.
Negative v. Positive Externalities
-Negative externality has the PC (production cost) lower than the SC (social cost) so paying less than you should be socially while positive is the opposite.
The Coase Theorem
- Practical view on making choices
- If a victim has property rights (and can enforce them) then will go after efficient solution whether that be paying the victim if abatement costs > damage costs, or abating polluting if damage costs > abatement costs.
Negotiations among affected parties will result in effiicnet outcome under standard assumption of competitive markets IF property rights are well-defined
Applying the Coase Theorem
- Provides polluters a right to pollute if they compensate the victims for damages (and if the victims have property rights).
- The ‘optimal’ level of pollution is when the marginal benefits to the company balance the marginal costs to the community from pollution.
The Result of Coase Theorem and Complications that Mean NOT free market environmentalism
- Requires robust legal order to assign and enforce property rights
- Costs to negotiate (transaction costs) and procedural aspects like free riding, holdout effect, asymmetry of wealth and power, etc.
Stern Review (2006 and 2013)
Came up with ‘worst case scenario’ in ground-breaking 2006 study but then new study in 2013 said it’s actually even worse
- 2006: CC could cost b/w 5-20% of global GDP until 2100/2200 but could abate to 1-2%
- 2013: underestimated speed; emissions are rising faster than expected and some effects coming more quickly too
Critical Factors for Calculating the Costs of CC, its Abatement and Adaptation to it
-Magnitude & regional patterns of impacts
- Market impacts on humans & ecosystems including catastrophe probaility
- Abatement costs of alternative pathways
- Valuing future options (social discount rate)
- Valuation methods
- Ethical considerations: How much is a life worth?
- Non-market impacts
Landmark Paper Callahn and Mankin (2022)
- Looked at the damages to each country form US emissions from 1990 - 2014
Cost-Benefit Analysis (CBA)
- Balances positive and negative consequences of proposed actions TO help make a decision BUT need to be aware of dynamic changes (e.g. path dependency) and estimate value of changes to environment
- Ekins doesn’t think should use CBA, instead use Risk-Opportunity Analysis (ROA)
Risk-Opportunity Analysis (ROA)
- New alternative to CBA
- Identify risks & opportunities of different courses of action
- For estimating climate damage costs (w high risk and high uncertainty), ROA has already replaced the CBA –> ‘well below’ 2C target is a risk-based assessment from IPCC analysis and the move from 60% to 80% to ‘net zero’ in Climate Change Act
Natural Capital and Ecosystem Services –> UNEP Millenium Ecosystem Assessment, 2005 (what does the ecosystem do for us)
- Supporting (Soil formation, primary production, etc.) leads to
- Provisioning (food, freshwater, etc.)
- Regulating (climate, flood, etc.)
- Cultural (aesthetic, spiritual, etc.)
Need to keep these balanced!
Direct Environmental Values
Values that appear directly in the utility function
Indirect Environmental Values
Influence variables that appear in the utility function (e.g. clean air is in utility function, air pollution affects it, need to know dose-response function to calculate cost of different levels of air pollution)
Direct methods of environmental valuation
- Stated preference (SP) (e.g. CVM/contingent valuation)
- Revealed preference (RP) (e.g. TCM, hedonic pricing)
Indirect methods of environmnetal valuation
-Production function approaches (environment as input to production of a market good)
- Damage costs, adaptation costs, repair costs, mitigation costs, etc. (e.g. WTP for medicine to cure environmental disease)
Types of environmnetal use values to measure:
- Direct use value (e.g. value of cropland and prices for crop)
- Indirect use value (e..g vlaue of forested land filtering water for surrounding communities)
- Non-use value (i.e. biological diversity)
3a. Existence value (e.g. endangered species)
3b. Option value (having the option of using at some point(
3c. Bequest value (value of leaving undamaged environment for future generations)
Total Economic Value Equation
=Use + Non Use Values
= (Direct + Indirect) + (Existence+Option+Bequest)
WTP/WTA (Contingent Valuation Methods)
-WTP depends on preferences and income (has to be within budget constraint)
-WTA only depends on preferences
-Should be the same but are not because of loss aversion, property rights, intrinsic values, etc.
-In CV surveys, can’t say infinte’ WTAs (i.e. I won’t accept anyything); treated as irrational
Theory of Welfare Economics (Kaldor-Hicks)
Social welfare decreases if environment deteriorates
Natural Capital Approach
The environment serves important functions for economies
Stated Preference Valuations
-How policy makers find a rationale for environmental policy based on surveys and voters’ preferences
a) Contingent Valuation (CV) - basically a survey estimating WTP/WTA
b) Choice Experiments (CE)
c) Benefits Transfer
