Estimating the cost of environmental degradation : a training manual in English, French and Arabic

Abstract

Everyday decisions require information. For example, entrepreneurs decide whether to invest in new machinery; workers decide whether to accept a job; and families decide where to go on vacation. In the same way, governments have to decide whether to spend more money on defense, hospitals, or protecting the environment. Ideally, implementing such decisions should mean trading off the net benefit of the action with the net benefits of alternative actions. Environmental management does not escape this simple rule. Pollution control and regulation are not cost-free activities; they use financial resources that could be spent elsewhere. In order to make an informed decision about whether to undertake the activity, it must be known if the benefits of doing so exceed the costs. Information is crucial to making good decisions. The first step is to analyze what the elements of a good decision making process are. In this manual the authors do so from an economic point of view: it requires understanding the principles of benefit cost analysis (BCA) and its advantages and limitations. The second step is to identify the costs and benefits of controlling environmental degradation. The third step is to explore the range of techniques that are available to calculate the monetary value of benefits. This manual is intended to be a guide through the mechanics and practicalities of 'environmental valuation'. What is being evaluated is the willingness of individuals to spend scarce resources on the environment that could very well be used for alternative purposes. The following chapters describe a wide range of economic valuation techniques used to estimate the benefits of policies or projects yielding environmental improvements. While keeping technical jargon to a minimum, the guide addresses the following questions: 1) When is a valuation technique a useful tool for decision-making? 2) What is the theoretical basis of economic valuation? 3) What are the technical and human resources needed to engage in a valuation process? 4) How is valuation used in practice?