Techniques to Value Environmental Resources: an Introductory Handbook

Published as a joint exercise by the
Commonwealth Department of the Environment, Sport and Territories,
the Commonwealth Department of Finance,
and the Resource Assessment Commission

Australian Government Publishing Service, 1995

Environmental issues are of increasing concern to the community and are often presented to Commonwealth, state and local governments for attention and action. This increased awareness requires improved decision-making by all levels of government and by the general community. A number of major government initiatives have recognised the need for improved decision-making including the Inter-Governmental Agreement on the Environment, the National Strategy for Ecologically Sustainable Development and Agenda 21. These initiatives explicitly acknowledge the importance of environmental benefits and costs, the need to value them and the need to integrate them into the policy making process.

Extensive literature exists on environmental values and valuation but few books make this material generally accessible. Valuation of Environmental Impacts, a technical report from the Environment Protection Authority of New South Wales introduced some of the theory and noted some of the techniques. Values for the Environment-A Guide to Economic Appraisal, a publication of the United Kingdom Overseas Development Institute, discusses the techniques of valuation and their application to project appraisal and policy formulation. Various research papers of the Resource Assessment Commission reviewed individual techniques and decision-making procedures. A reading list is at the end of this handbook.

This guide complements the existing literature by introducing the techniques of valuation, illustrating them with a wide range of Australian examples and indicating how to use the techniques and the values to make informed decisions. The goal of this book is to assist practitioners and non-practitioners who need to appraise resource use decisions and to aid effective policy formulation. The book can be used in conjunction with the New South Wales Environment Protection Authority's database of descriptive information on specific valuation studies that have been undertaken.

The guide is not intended as a detailed handbook because this more complex role is well covered elsewhere in the literature. Its specific objectives are to:

  • indicate the importance of environmental values to the community
  • indicate the importance of values to managing the environment
  • introduce the economic concept of value and, in particular, environmental value
  • introduce techniques to estimate environmental values
  • indicate how to integrate environmental values into policy development and appraisal.

Part One outlines the contributions that economics can make to environmental management (Chapter 1) and to the measurement of environmental impacts (Chapter 2). Part Two (Chapters 3 to 5) introduces the range of techniques to estimate values. Part Three draws all the material together to indicate where techniques might be applied (Chapter 6) and offers a concluding overview.

Each part of the guide stands alone and can be read separately. For those unfamiliar with economic principles related to environmental management, Part One is essential reading. Part Two discusses the techniques as well as giving examples of their use and can be read for one technique or as a whole. Part Three is recommended for all readers as it summarises the issues that each technique can help to resolve. It is here that the reader can assess which technique may be applied to particular issues and the benefits and costs of each possible use.

Chapter 1 discusses the challenges for management, the role of information and natural, cultural and monetary values, the ways to integrate these values into decisions and the ways to assemble information for decisions.

Chapter 2 begins with the role of economics in decisions and then discusses differences between economic and financial analysis, quantitative and monetary measurement of values, the concept of total economic value and the limitations of monetary valuation.

The themes of Part One are:

  • management of the environment poses challenges and requires information
  • economic values are one of the required kinds of information
  • economic values can be integrated into decision-making
  • monetary valuation of environmental effects is subject to limitations.

The inclusion of Australian examples in the description of the techniques will assist readers to relate their particular issue to those previously tackled and to give a more practical context for the theoretical discussion of the valuation methods.

This handbook was a joint exercise involving the Commonwealth Department of the Environment, Sport and Territories, the Commonwealth Department of Finance, and the Resource Assessment Commission, a Commonwealth agency that ceased to exist at the end of 1993. It was prepared by Carl Binning, Marc Carter, Kathleen Mackie, Nicole Matthews, Gene McGlynn, Peter McVay, David Palmer, Michelle Scoccimarro and Leanne Wilks, with assistance from Jack Sinden of the University of New England and David James of Ecoservices Pty Ltd.

Contents

PART ONE: Economics and Environmental management

Chapter 1 The need to manage the environment

Chapter 2 The role of economics

PART TWO: The Techniques of Valuation

Chapter 3

Chapter 4 Surrogate market approaches

Chapter 5 Simulated market approaches

PART THREE: The Potential for Valuation

Chapter 6 Selecting a technique

Chapter 7 Conclusions