Valuing the environment: Some practical use examples

An IndEco project report
Full-cost accounting frameworks are tools that can help decision makers make better choices (i.e., choices that encompass information about a broader range of issues), and assess the "fairness" of these choices. However, in order to develop a full-cost accounting frameworks, it is necessary to first identify what are the issues of concern, and then to place a value on them.

There are a number of methods used in economics to value the environment. These include estimating cost of mitigation, travel-costs, hedonic pricing, and contingent valuation. A review of the applicability of these methods indicates that no single method addresses the full range of environmental issues. It is often necessary to use at least two methods to capture the full value of the costs associated with a good or service. In using multiple valuation methods, it is essential to ensure that all assumptions are realistic, all relevant factors are accounted for, models are correctly specified, and double counting is avoided.

Even when taking great care, it is difficult to assign a value that fully and accurately captures the worth of many environmental services and resources. This difficulty results from uncertainty or lack of availability of physical estimates of environmental effects, differences in social values across individuals or groups, and other factors.

Nevertheless, the judge for the worth of a valuation should not be is it right, but rather is it useful. That is, is the valuation (and the information that goes into it) something the decision-maker should be aware of? It is from this perspective, rather than one of seeking perfection that the value of a range of environmental effects should be considered. The following is a synopsis of some of the approaches tried, issues confronted, and difficulties faced in several recent valuation studies completed by IndEco staff.

Full costs of landfill



In Southern Ontario, residential recycling is very expensive relative to landfilling; the costs of the "Blue Box" residential recycling program average about $180 per tonne of recyclables collected (including collection, processing, and revenues from materials sold). The cost of collection and disposal in a landfill are about $60 per tonne. One explanation sometimes offered for this difference is that the full costs of landfill are not included in the numbers. That is, if the costs of monitoring, perpetual care, and site reclamation of leaking landfills were included, then recycling would be more economical.

Many "externalized" costs of waste disposal are now internalized. New landfills incorporate better controls including monitoring and perpetual care, collect landfill gases and so on. As a result, what were externalities are now internalized costs. However even when these costs are internalized, the costs of new landfills remain relatively low, averaging about $67 per tonne.

Other externalities not reflected in the costs of new landfills can be estimated, but these costs all tend to be small, and do not offset the cost differences between landfills and recycling. Valuing the full costs of waste disposal at landfills has not validated this claim that waste disposal at landfills would be much more expensive than they are, and probably more expensive than residential recycling.

The Table (below) presents example of costs, ways of estimating them, and the associated typical values.

Estimating external costs of landfills

Environmental cost Method used to estimate Estimated or typical value
Internal cost (old landfills) Operating experience 12 $/t
Internal cost (new landfills) Cost estimating 40 $/t
Reductions in land values Hedonic method <4 $/t or 5%
Welfare losses Host municipality charges (legislated or negotiated) 0.50 - 2 $/t
Environmental damages Costs of actions taken in response to complaints <1 $/t
Public sector costs Monitoring and approvals commitments <1 $/t


Moreover, comparisons with recycling ought to consider not only the full costs of landfills, but also the full costs of recycling, which will include reductions in mine tailings or forest harvesting impacts, but also noise and odours at multi-material recovery facilities, and impacts associated with collection. Such comparisons need also to make clear the geographic perspective taken for the valuation, especially in situations where local and regional impacts may vary.


Environmental damages from transportation


Assessing values of intercity passenger transportation is complicated by two major factors: a lack of good data on physical effects and regional variations. Estimating the value of environmental damages from transportation requires an estimate of environmental releases (for which reasonably good data are available), an assessment of environmental impacts (for which the data are deficient), and a valuation of the environmental impacts in economic terms. For the latter, valuation may be in terms of the costs associated with emissions, rather than impacts. Several analyses of the costs associated with emissions, largely for the assessment of damages from electricity generation emissions exist. Studies for the US and for individual Ontario Hydro generating stations show significantly different values, representing different assumptions about the value of morbidity and mortality, different receptor populations and so on.

Based on this approach, the cost of environmental damage, including human mortality and morbidity, crop damage, loss of visibility and effects on global warming, were found to vary significantly depending on the mode of transportation chosen. Note that, these results are driven by the high value attributed to emissions of sulphur dioxides.

Environmental damages by transport mode
(1989$ per 1000 passenger-kilometres)
ModeLowHigh
Intercity bus transport2.123.75
Motor vehicles5.926.31
Air transport2.797.68
Railroad transport (VIA only)8.7417.07
Marine transport0.631.44



The value of environmental damages need to be interpreted with caution for at least four reasons:
    • technological, behavioural or regulatory changes (like reducing the allowable sulphur content of diesel fuel) would change the valuation results;
    • results may not be transferable with cost estimates for emissions varying from one context to another;
    • there may be significant differences between national averages shown here and values within specific corridors, like Edmonton-Calgary, or Montreal-Toronto; and
    • the focus of this work was on operations, not the full life cycle of the transportation system.

Summary



What both these examples show is that although there are difficulties associated with valuation, the process can be advanced far enough to give us pause about some of our common assumption. For example, landfilling is grossly underpriced, or the train is the transport mode of choice from an environmental perspective. It is only through thinking about these problems, and trying to address them in a systematic way, such as by valuing environmental damages, that we will improve our decision-making.

Source document

Based on information presented to: Full cost accounting workshop, B.C. Ministry of Environment, Lands and Parks, Victoria, B.C. 19 March 1993