Jochen Jesinghaus
'It is when the hidden decisions are
made explicit that the arguments begin.
The problem for the years ahead is to work out
an acceptable theory of weighting.'
Garrett Hardin, The Tragedy of the Commons, Science, Vol. 162, December 1968.
There is broad consensus that a valuation of environmental damage caused by human activities is necessary in order to raise the efficiency of environmental policy. The broad range of views on the 'right' valuation of environmental damage suggests a more detailed subdivision into eight alternative schemes. In the following 'weighting schemes', it is assumed that valuations lead to 'common units' which are applied to weigh different physical pressure indicators into pressure indices. This is not always the explicit goal of those who are working with the described weighting schemes, especially not in the case of monetary valuations of the 'Contingent Valuation' and 'Avoidance Costs' families. However, since all methods claim to define a common unit of pressure, it must be possible to use these methods to calculate the relative valuations required for the aggregation of pressure indicators to indices.
WEIGHTING SCHEME NO.1: DIRECT MONETIZATION OF DAMAGE
This approach values environmental damage with the help of Contingent Valuation methods like Willingness-To-Pay (WTP), Willingness-To-Accept (WTA), market prices ('Hedonic Pricing', 'Travel Cost Approach') and similar ways of estimating the economic damage people assign to the consequences of pollution (for the valuation by 'avoidance costs', see schemes 6 and 7). The (negative) value of environmental damage consists of use value, existence value and option value (the joint CEC/US 'Study on the External Costs of Fuel Cycles' is a good example of this method).
This approach has a sound 'welfare economics background'. Results are directly usable for the analysis of the social benefits of political measures, at least in theory. In practice, one main problem is that people not only have different incomes (influencing their WTP), but also considerably different views about the overall importance of the environment. Some risk their lives on Green peace boats to help whales, others spend their holidays diving on the Australian Great Barrier Reef, in spite of the consequences for this ecosystem (not to mention the impact of air travel emissions). Therefore, individuals' WTP may range from zero to infinity. Another problem is that both people (WTP, WTA) and markets ('Hedonic Pricing', TCA) must be very well informed about the physical consequences of environmental pressures, which is rarely the case.
Results of direct monetization methods vary considerably. For example, WTA yields systematically three times the value of WTP (Markandya 1989). This can partly be explained by human features such as risk aversion and resistance to change. This variance is an obstacle to statistical application, since published weighting coefficients would be highly contestable.
WEIGHTING SCHEME NO.2: EXPERT ASSESSMENTS
WTP soon reaches its limits when physical indicators, which have little or no meaning to the interviewed person, have to be assessed. While an ordinary citizen might have a feeling about how much they would be willing to pay for cleaner air or a more quiet environment, WTP will fail if the person is asked to judge the relative importance of NOx versus SO2 emissions. Obviously, one has to ask the experts. In some policy fields, such as climate change and ozone layer depletion, there is consensus among experts on how to judge at least the relative contribution of physical indicators to the overall problem, measured, for example, as Greenhouse Warming Potentials, GWP or Ozone Depletion Potentials, ODP. However, there is no firm scientific evidence available for most other policy areas. For such cases, a kind of 'WTP for experts' can be applied. For example, the policy field 'air pollution' could be described by the physical pressure indicators NOx, SO2, particle and VOC emissions. Air pollution experts would be given a 'budget' of 100 points, to be distributed over these four physical indicators. If they want to stress the importance of particle emissions, for instance, they have to 'pay' with less weight to NOx or SO2 and vice versa. A test, using this method, given to 400 German environmental experts in 1991 showed very consistent results, in spite of the fact that the experts came from opposing social spheres like the industry sector and the environmental sector.
Like direct monetization, this approach measures environmental damage directly. However, the unit is not monetary, but rather a Pressure Index Point, measuring 'urgency' or 'need for political intervention', the latter corresponding roughly to 'external costs' in the Pigouvian sense.
WEIGHTING SCHEME NO.3: PUBLIC OPINION POLLS
Instead of letting environmental experts determine the weights of indicators in an index, one could ask the general public. Parker (1991, p. 95-98) argues that 'public opinion polls have been extensively employed for many years for many purposes, including the setting of weights' and they are easy to carry out and inexpensive. In his index, Parker uses measures of concern about environmental problems, which mainly consist of results of existing surveys like the European Omnibus Survey (Parker 1991, 121ff). He made a sensitivity analysis based on four European Omnibus Surveys (UK 1988, EC 1982, 1986, 1988), the Digest Survey (UK 1990) and equal weights for each of the (maximum) eleven indicators. He found a similar behaviour of the overall indices:
This stability is not particularly surprising, since 'there would appear to be a strong case for allowing experts to select the component environmental indicators' (Parker 1991, p.98). In public opinion polls, issues are selected which are already on the public agenda, and thus enjoy roughly the same attention in the media. Methodologically, there is some relationship to WTP, since in both cases individuals with no particular 'professional bias' are surveyed. Whereas WTP asks for a willingness to sacrifice, the opinion polls focus on the more vague notion of 'concern'. As with expert assessments, the 'budget allocation' method could also be applied (but it is more difficult to allocate a hundred points correctly than to express 'much' or 'little concern').
WEIGHTING SCHEME NO.4: SUSTAINABILITY LEVELS
Like schemes No.2 and 3, this method also measures, roughly, the need for political intervention, and the 'urgency' of a problem, but in an indirect way, actual pressures are being related to a goal. The urgency is high if we are far away from the goal, and low if the goal is reached. The sustainability goals must be formulated by experts in the relevant policy field. The main differences to experts' direct assessments of 'urgency' lie in the scaling procedure ('distance-to-target'), and the necessity to formulate an operational goal. While in the case of EXTASY, experts only have to give relative weights (distribution of a 100-point budget), sustainability goals have to be formulated in absolute figures (e.g. 'greenhouse gas emissions must be reduced to pre-industrial levels'; see Adriaanse 1993, p. 74f). Like direct monetization, the definition of such targets is influenced by the weight the person attaches to 'the environment'. Industry experts may have completely different views on 'sustainable' levels from experts from NGOs. Accordingly, there are many views on how to define 'sustainability'.
WEIGHTING SCHEME NO.5: POLICY TARGETS
One way to avoid the definition of 'sustainability' (as required for scheme No.4) is to use policy-defined goals (Adriaanse 1993, p. 75f). It is also a comfortable way to convince policy makers that the weighting procedures are 'sound' , as long as those policy makers have defined the targets themselves. This approach is technically feasible when there is a we1l-defined basis for environmental policy, for example the Dutch National Environmental Policy Plan (NEPP) or similar reference documents (Adriaanse 1993, p. 53). For international comparisons, such references are often not available, or they deliver contradictory results. Apart from these practical difficulties, policy targets obviously are the result of a Social Cost-Benefit Analysis. There is no logical justification for the use of such results as an input to Cost-Benefit Analysis. The benefits of environmental policy, measured as pressure reductions, must be valued independently of existing policy goals.
WEIGHTING SCHEME NO.6: SUSTAINABILITY LEVELS AND AVOIDANCE COSTS
National accountants tend to structure the world their own way. In their view, the environment is an 'asset' which has to be treated the same way as capital. However, in order not to disrupt the structure of the System of National Accounts (SNA), the environment is relegated to Satellite Accounts which have links to the core system but do not disturb it. The most widely discussed proposal is probably the United Nations' SEEA. Not surprisingly, it favours valuation methods which are widely applied in calculating GNP. For example, sub-soil assets like crude oil should be valued on the basis of current market prices (UN SEEA). This is not in line with the observation that current market structures, as a rule, often generate prices that are far away from the shadow prices that would be asked for by the theory of natural resources. But they are in line with the SNA world of real prices. Unfortunately, examples such as clean air and water do not have market prices, therefore other valuation methods have to be found. Calculation of damages on the basis of Willingness- To-Pay (WTP) and other 'direct monetization' methods (see scheme No.1) is only one of the alternatives (the SEEA is very flexible with regard to valuation methods). However, Hueting (1992, p. 2) argues that it is impossible to construct a monetary damage function (which he calls 'demand curve') for environmental functions.
In the logic of the SNA, a 'sustainable' environment could be regarded as 'capital' which we can use for production, leisure activities and other purposes. Accordingly, degradation of the environment would mean a loss of capital. A popular way to account for such capital losses is depreciation. Hueting (1992) proposes to apply the depreciation method to arrive at a 'sustainable national income' .In order to do that, costs must be calculated to reach a 'sustainability level' (Hueting 1992, p. 3), that is, the hypothetical costs to avoid environmental degradation. Without commenting on the theoretical foundation of the avoidance cost approach, the results of such a weighting procedure will very much resemble scheme No.4 (sustainability levels) because 'distance to a goal' and the 'cost to reach a goal' are roughly proportional.
WEIGHTING SCHEME NO.7: POLICY TARGETS AND AVOIDANCE COSTS
This scheme is identical with scheme No.6, except that sustainability levels are replaced by policy targets, in order to facilitate the search for the right target. Suppose, for example, that it was known which level of NOx, SO2 or methane emissions is 'sustainable', and that society regarded this level as desirable, in spite of the costs to reach it. In the logic of a cost-benefit analysis, this is an 'optimal' situation. Economic theory tells us that at the optimum marginal costs of environmental protection equal marginal damages. Therefore, if the optimum is known and if the costs to achieve it are known, the damage costs would thus be known. They then could be used, for example as weighting coefficients for a pressure index. Like scheme No.5, this approach ignores that policy targets are the result of a social cost-benefit analysis and therefore logically cannot be used as an input to that same analysis.
Again, the results will resemble the corresponding results of the distance-to- policy-targets method, since distance and the costs to bridge this distance are roughly proportional. 'Roughly' means that, as a rule, the costs to reach a target are normally higher if the target is still far away. This may not be true in cases where the current situation is very far from the optimum (e.g. in cases where harmful effects have only recently been discovered and could be avoided at very low cost). However, such situations are not persistent, since both experts and environmentalists will insist on reducing the harmful impact, if it is clear that the costs to do this are negligible in comparison to the damages.
WEIGHTING SCHEME NO.8: 'IMPLICIT' WEIGHTING
Finally, there is a 'weighting' procedure where 'weighting' is based on tons or similar units. In many statistical compendiums, one can find a figure saying, for example, 'the total amount of hazardous waste dropped by 5 per cent, from x to y tonnes' .Technically speaking, this figure is an index, because various types of hazardous waste have been aggregated to one magic number. Inevitably, this figure will be used by journalists, politicians and others to show that the hazardous waste situation has improved by five per cent, ignoring that 'hazardous waste' is a category comprising waste streams which may differ by orders of magnitude, regarding their impact on the environment. A drop by five per cent may easily disguise a doubling of some highly toxic waste streams, if simultaneously other, less dangerous streams are decreased considerably. Waste streams are only background indicators pointing to potential impacts caused by leaking dumping sites, transport accidents or incineration plants without adequate flow gas treatment. This is even worse, from the point of view of the user who wants to know something about the environmental aspects of toxic waste. The figures are statistically 'correct' in the sense that the total amount of hazardous waste, measured in tons, may indeed have decreased by exactly five per cent. However, the 'analytical soundness' of such indices is extremely low.
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