Edi Defrancesco
Dept. TeSAF, University of Padova [email protected]
Yoshkar-Ola, November 5-6th 2007
Valuing Environmental Damage:
an integrated economic
framework
Forest fire damage case
Environmental damage
compensation: Main issues
1) Theoretical background
2) Multi-dimensional operating procedure to identify damage elements
3) Valuation methods
4) Multi-dimensional scale of damage: profile across time
1) Environmental damage
• Measurable adverse change in a natural resource or measurable impairment of a natural resource
service
• Measure injured Resource TEV change in terms of
Compensating surplus
Individuals react to damage Individuals do not change their behaviour
Welfare losses observing changes in expenditure
Welfare losses directly assessing WTP
Multi-dimensional approach:
Scale of injury:
• Geographical distribution of the injury
• Different resources involved
• Different individuals suffering welfare
losses
Multi-dimensional approach:
Assessing environmental
damage:
• Multi-dimensional scale of the effects
(in-site vs. off-site)
• Different evaluation methods
• Risk of double-counting errors
• Time length and choice of a ‘proper’
discount rate
2) Five steps multi-dimensional operating procedure
1 Step:
Detect and interrupt injury
Take remedial actions
Preliminary damage assesment: identify damaged ecosystems/resources
Abiotic Biotic
Matrix linking phisical indicators to related use/
passive values
Matrix linking phisical indicators to related use/
passive values
2
Matrix approach linking indicators to public services loss or impairment: a ‘Forest’
VALUE FUNCTIONS SERVICES INDICATORI W o o d p r o d u c ti o n No n -w o o d p r o d u c ti o n G o o d s p r o d u c ti o n En e r g y p r o d u c ti o n T r a n s p o r t T o u r is m Hu n ti n g No n -w o o d p r o d u c ts p ic k in g F u e l-w o o d Re c r e a ti o n a l u s e s Indicator 1 Indicator 2 Indicator 3 Ha b ita t c o n s e r v a ti o n O th e r … Pro te c ti o n a g a in s c k im a te c h a n g e (CO 2 u p ta k e ) Co n s e r v a ti o n fo r g e n e ti c i n h e r ita n c e Bi o d iv e r s ity c o n s e r v a ti o n O th e r … Prim a r y Se c to r In d u s tri a l s e c to r Se r v ic e s s e c to r O th e r … Ci v il Us e s Re c r e a ti o n a n d la n d s c a p e O th e r … Hy d r o g e o lo g ic a l p r o te c ti o n (s o il e r o s io n ) Hy d r o g e o lo g ic a l p r o te c ti o n (ru n o ff )
USE USE/PASSIVE PASSIVE
Production Demand Ecosystem Services
Co n s e r v a ti o n fo r g e n e ti c i n h e r ita n c e fo r fu tu r e g e n e r a ti o n s Co n s e r v a ti o n fo r r a r e e c o s y s te m s fo r fu tu r e g e n e r a ti o n s Hi s to r ic a l-c u ltu r a l v a lu e s
Matrix approach linking indicators to public services loss or impairment: a ‘River’
VALUE USE USE/PASSIVE PASSIVE
Production Demand Ecosystem services
FUNCTION/ SERVICES Pri m a r y sec to r M a n u fa c to r y S e c to r S e r v ic e s sec to r R e c re a ti o n a n d l a n d s c a p e INDICATORS Irr ig a ti o n L iv e s to c k Aq u a c u lt u re Fi sh in g G o o d s p r o d u c ti o n En e r g y pr o d u c ti o n T ra n s p o rt T o u r ism O th e rs … C iv il u ses S w immi n g B o a ti n g R e c re a ti o n a l f ish in g O th e r re c re a ti o n a l u ses O th e rs … F lo o d w a te r st o ra g e a n d c o n v e y a n c e G ro u n d w a te r re c h a rg e a n d disc h a rg e S h o re li n e st a b il iz a ti o n P o ll u ti o n a ss imi la ti o n B io d iv e rsi ty st o re h o u s e N u tr ie n t c y c li n g H a b it a t f o r sp e c ie s O th e rs … P re serv a ti o n f o r fu tu re ge n e ra ti o n s P re serv a ti o n o f g e n e ti c re s o u rc e s P re serv a ti o n f o r oth e rs C u lt u ra l-H ist o ri c a l O th e rs .. Indicator 1 Indicator 2 Indicator 3
Damage:
Reversible, the injured resource can be naturally
recovered
Irreversible, the injured resource can not be
naturally recovered
Resource:
Restorable, human intervention may activate and/or
accelerate natural resource recovery, at a ‘reasonable’ cost
Not Restorable, human intervention may not
activate and/or accelerate natural resource recovery, at a ‘reasonable’ cost
IDENTIFICATION OF DAMAGE PROFILE OVER TIME AND CHOICE OF VALUATION METHODS
Substitution possible Step 4 Resource restorable Resource not restorable Choice of restoration option Cost not ‘eccessive’ Cost ‘eccessive’ Restoration cost Interim losses (when necessary) permanent losses Substitution not possible Cost not ‘eccessive’ Cost ‘eccessive’ Substitution cost Interim losses (when necessary) permanent losses Interim losses Permanent losses
Compensation for environmental damage (con’t)
Damage
Resource
Restorable Not restorable
Reversible
(1)
Defensive expenditures Substitution Costs Restoration costs
Temporary welfare losses
(2) Defensive expenditures Substitution Costs Temporary welfare losses Irreversible (3) Defensive expenditures Substitution Costs Restoration costs
Temporary welfare losses
(4) Defensive expenditures Substitution Costs Temporary and permanent welfare losses
2) Approaches in valuing compensation for environmental resource damage
Approach Method Type of Study
Imputed preferences
Defensive cost Restoration cost
Substitution cost Primary study:
ad hocfield survey
Secondary study: benefit transfer Revealed preferences Market price Travel cost Hedonic pricing Stated preferences Contingent valuation Conjoin analysis
Valuation Methods for public services losses
FUNCTIONS/SERVICES Production Demand Ecosystem services ECONOMIC VALUATION METHODS P ri mar y sect o r M a n u fac to ry sect o r S erv ice s sec to r C iv il u se R ec rea ti o n al an d l a n d sca p e S p ec ies h ab it at P o ll u ti o n assim il a ti o n B io d iv ers it y sto re h o u se O th ers … P reserv a ti o n f o r fu tu re g e n era ti o n s P reserv a ti o n o f g e n e ti c res o u rce s P reserv a ti o n f o r o th ers C u lt u ral -H ist o ri c al O th ers .. Defensive expenditure cost X x x x x x x x Restoration cost x x x Substitution cost x x x x x x x x Market prices x x x x/X x Hedonic price x x x x/X X Travel cost X Contingent valuation x x X X X X X X X Conjoint Choice analysis x x X X X X X X X
Damage valuation and time
1) Welfare losses profiles across time
Periodo transitorio Interim/
permanent
losses Temporary phase
Irreversible damage Reversible damage Permanent phase Natural resource injury starting point Damage claim
Damage valuation and time (con’t)
2) Restoration/substitution costs and averting expenses profiles across time
Periodo transitorio Temporary phase
Restoration Costs Defensive
expenditures Permanent phase
Natural resource injury starting point 0 m n Time Damage claim Defensive expenses Restoration costs
Compensation for environmental damage
m n m -j r) (1 1 ) ( r) (1 1 ) C (B r) )(1 C (B D n m j j j m 0 i i -m i i m r C Bk k
Declining long term social discount rate
Period of years 0-30 31-75 76-125 126-200 201-300 > 300
Concluding remarks:
Experts’ valuation Judicial decision
ENVIRONMENTAL DAMAGE Imputed preferences Valuation approaches Revealed preferences Stated preferences Imputed preferences Defensive expenditure Restoration cost Substitution cost Valuation methods Market price Travel cost Hedonic pricing Contingent valuation Conjoint Analysis Restoration cost Profit gained through damage by causer Primary (ad hoc surveys) Secondary (benefit transfer) Primary (ad hoc surveys) Secondary (benefit transfer) COMPENSATION ACCORDINGTO ‘EQUIVALENCE’ PRINCIPLES COMPENSATION ACCORDINGTO ‘EQUITY’ PRINCIPLES Judicial discretion 2 1 COMPENSATION ACCORDINGTO ‘EQUIVALENCE’ PRINCIPLES COMPENSATION ACCORDINGTO ‘EQUITY’ PRINCIPLES ENVIRONMENTAL DAMAGE MONETARY COMPENSATION Environmental damage compensation under Italian law
(Art. 18, law 349/1986)
Conclusions: environmental
damage evaluation in a court
ISSUE CONCLUSION
Conflictual environment ‘Robust’ estimations are
needed
Monetary evaluations TEV but ‘parsimony’
principle
Many injury’s effects Different estimation
methods
Direct and indirect effects Double-counting risk ‘With-without’ principle not ‘ante-post’
