Assessing Costs and Benefits of Environmental Policies

1
Assessing Costs and Benefits of Environmental
Policies Regulations

• How do we quantify costs?
• How do we quantify benefits?

2
Whose costs and benefits?

• Recall cookbook want to account for all
  significant costs and benefits.
• Also recall Tuolumne study many environmental
  costs excluded, costs of dam still outweigh
  benefits (lesson if you dont have to rely on
  non-use values, then dont)
• Important to include costs benefits over time
  use NPV formulation (or ENPV if uncertainty).

3
Costs

• Direct costs
• Eg, equipment purchases
• Indirect costs
• Eg, consumers forced to buy lower quality low
  emission vehicles (LEVs)

Loss from mandate
Price
Subsidy
.
.
.
.
Q, LEVs
4
Costs (cont)

• Lower productivity associated with requiring
  water based instead of oil based paints
• Administrative and compliance costs

5
Benefits Types of values

• Market values
• Commodities traded in markets or values directly
  reflected in markets
• Usually from direct-use
• Often derived demand
• Recall, markets ignore externalities may
  misrepresent public good

• Non-market values
• Commodities that have value to humans, but whose
  value cannot be measured within a market.
• Includes Use and Non-Use Values

6
Use vs. non-use values

• Use values
• Value from consumption of a good
• Current use, expected future use, possible use
• Direct health impacts
• Non-health impacts (e.g. smell)
• Damage to ecosystems pollution degrades
  performance

• Non-use values
• Measurement is controversial
• Existence value, altruistic value, bequest value

7
Examples

• Market values
• 1 mbf Douglas Fir
• 1 ton SOx in RECLAIM
• 1 ton halibut in Alaska
• Red cockaded woodpecker in south
• Pharmaceutical potential of natural compounds

• Non-market values
• Sea otters on south coast
• Air/water quality
• Strong swell off Coal Oil Point
• Oil spill off Spain
• Yosemite Natl park
• Golden trout in Sierras

8
Measuring demand

• Revealed preference
• Observe a real choice in market infer value
• E.g. Value of living near urban open space
  Compare housing prices w/ and w/o urban open
  space.
• Hedonics, Travel Cost, Household production

• Stated preference
• Ask people (survey) how much they value
  environmental goods
• E.g. Would you accept a 0.05 increase in gas
  price to require double-hull oil tankers?
• Contingent valuation

9
Some examples of measuring demand

• Demand for park recreation
• Channel Islands MPA
• Demand for health risk reductions
• Seeps off Coal-Oil Point
• Morbitity
• Mortality
• Using Benefits Transfer Methods

10
Example Natl park fees

• Yosemite National Park charges 20 entrance fee,
  3 million visits.
• Want to use bus to eliminate cars in the Valley
  to improve recreational experience.
• Want to increased fee to pay for bus (10 million
  per year).
• Will increase to 30 pay for bus?
• Wrong calculation 103 million 30 mil

11
Change in natl park entrance fee

Revenue before fee increase ODEF
Entrance Fee
D
E
20
Demand for Park Visits
O
F
Q
Q20
12
Change in natl park entrance fee

Revenue after fee increase OABC
Entrance Fee
A
B
30
D
E
20
Demand for Park Visits
O
C
F
Q
Q20
Q30
13
Change in natl park entrance fee

Will a fee increase from 20 to 30 pay for the
bus system? ABCO-DEFO gt 10 mil?
Entrance Fee
A
B
30
D
E
20
Demand for Park Visits
O
C
F
Q
Q20
Q30
14
Human health values

• How estimate monetary value of changes in health
  from environmental change?
• 2 steps
• (1) environmental change to health impact,
• (2) change in health to where possible.
• Distinguish between mortality (death), morbidity
  (illness)
• Often disaggregate according to age, sex,
  physical condition, etc

15
Mortality

• Crude mortality rate deaths per time/relevant
  populationinterpreted as probability of dying.
• How will change affect probability of dying?
• In expectation, how many more people will die (or
  how many fewer will die)
• Total value /life lives.
• Lead in water 2.5 million per death avoided,
  2.5622 1.6 billion.

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Morbidity (sickness)

• Chronic or acute, degree of impairment, type of
  symptom
• restricted activity days, bed disability
  days, work loss days, symptom days
• Clean Air Act protect individuals from adverse
  health effects.
• Lead 1 million/non-fatal heart attack,
  628/case reduced chance of hypertension

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Benefits transfer approach

• See Rosenberger Loomis, 2000.
• The application of existing information
  knowledge to new contexts
• Useful when collecting primary data and analysis
  is impractical (cost or time)
• 3 important features
• Policy context must be well-defined
• Data must meet certain criteria
• Study site and new site should correspond

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Example Orange County Oil Spill

• Oil tanker spills at Huntington Beach, 2001
• Beaches in southern Orange County closed for
  month
• Big loss lost beach recreation days
• Benefits transfer value of lost beach recreation
  days at other beaches

19
Sample of other studies
20
Policy context

• Identify extent and type of impacts from proposed
  action
• Identify affected population
• Identify data needs of assessment
• Type of measure, kind of value, degree of
  uncertainty, etc.

21
Study site data requirements

• Make sure study site data analysis technique
  are sound
• Study site analysis contains details (for
  comparison) of physical socioeconomic
  characteristics, reports statistics

22
Correspondence between sites

• Similar expected change in resource quality and
  quantity.
• Markets in two sites are similar demographics
  are similar.
• Condition and quality of environmental good is
  similar.

23
Limitations of benefit transfer

• Quality of original study
• The more primary studies, the better.
• Primary data vs. summary statistics (may limit
  ability to conduct new analysis).
• Characteristics of sites may differ,
• Assumptions made in original study that do not
  apply.

24
Approaches to benefit transfer

• Value transfer
• Point estimate(s) from study site
• Identify change, translate into physical impact
  (e.g. use), identify applicable study sites,
  select (range of) benefit measures, calculate
  value.

• Function transfer
• Demand or benefits function from study site.
• Identify change, translate into physical impact,
  identify applicable study sties, determine if
  demand function available, adapt demand (benefit)
  function to fit new site.

25
Next 2 lectures

• Stated Preference/ Constructed Markets
• Contingent Valuation

• Revealed Preference
• Hedonics
• Travel Cost
• Household Production