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G. Translating/transforming data into policy making tools

Environmental accounting for decision making
Environmental valuation
Techniques of translating environmental data

The step of integrating environmental considerations into economic policy and plans represent major objective of an EA undertaking. In this case environmental “considerations” which come in the composite form of factual database on magnitude, scale and duration of impacts comprising technical issues, need to be simplified. With a view to support sustainable development approach, adoption of natural resource accounting into national account system has been emphasized. There are different techniques of environmental valuation and economist are increasingly attempting to place value on the indirect use value so as to facilitate formulation of an environment friendly and realistic national to regional economic policy and plan.

Environmental accounting for decision making

Environmental accounting is one of the tools to translate environment related database into information which area easily understood by decision makers (in particular economic policy makers). Traditionally in national accounting such as estimation of Gross Domestic Production (GDP), only revenue or benefit of production items was used and hidden cost was neglected. For example a cigarette factory used to stand one of the highest revenue producing enterprise. In actual this provided a false picture, as true picture or actual revenue comes only when cost of illness due to cigarette smoking related disease were deducted. Environmental accounting is of relevance to wide cross section of people such as;

• Policy makers, Legislators, Top executives.
• Environmental and accounting specialists.
• Business community and individual firms.

This way, environmental accounting will serve to:

• Check neglect in depletion of natural resource base.
• Highlight hidden cost of direct use / consumptive items on human health and human welfare.
• Allocate budget for environmental restoration and prevention of environmental damages.

What are the uses of environmental accounting at various levels? (More..)

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Environmental valuation

Environmental valuation is a technique to assess economic value of environment whose value are usually not expressed in economic terms and thus often ignored in economic decision making process.

Total economic value of an environmental resource may be broken down into a range of direct use and indirect use values as well as non-use values such as option, bequest and existence values. The direct use value represents consumptive use items having price tag or monetary value, hence easy to estimate cost. This is used by population through harvesting, marketing of cultivated or wild items like food, fodder, fuel wood, medicines etc.

What is the value of "environment"?

	Market price	Environment evaluation
Commercial value from the consumption at present (e.g. price of a tree in the market)
Commercial value from the consumption in the future (e.g. price of the tree in the future)
Non-commercial value (e.g. benefit gained by having a tree in certain place)

Economic valuation has been made of only limited natural resources. For example knowledge on existing biodiversity is “just a tip of an iceberg”. It is said that ‘greatest loss on earth due to environmental degradation would be extinction of a species of which we don’t know the value yet!”. The very existence of environmental assets is valuable and holds benefit for ecosystem management and for future generation. A tiger is an endangered dangerous animal posing threat to human and livestock and difficult to convince people for it’s saving. Actually it holds top position in food chain of a forest ecosystem and once a tiger is lost it will be only in picture. Once biodiversity is lost at the price of development, the possibility (option) of benefiting from it is lost for ever. Similarly a national park may benefit future generation, although not every body of present generation intends to visit the park. This represents a bequest value.

Indirect use values including ecosystem services and different aspect of environmental quality such as conservation of water, balance of oxygen in atmosphere, maintenance of soil fertility, aesthetic view is difficult to estimate in monetary terms. Such indirect use values are determined on the basis of human willingness to pay. Some items like clean water, clear air which are considered used at no cost as free gift of nature in rural area, are now getting marketed in urban area. For example an interested person can get extra pure oxygen at a price in form of oxygen bottle and oxygen chamber.

Since indirect use values such as conservation of water by a watershed and release of oxygen by a tree are widely available but not often recognized and marketed. As a result, such values are not accounted into development decisions and national accounts. Risk –aversion dictates that societies show willingness to pay an additional sum of an indirect use service, for future use values and guarantee future access.

Inclusion of non-commercial value may significantly affect the assessment of potential or current benefits of some policies and programmes and thus affect the decision on the desirability of the policy and programmes, reflecting in some part real "value" of the environment.

How does the valuation technique affect the decision-making?
e.g., cost benefit analysis of an environment conservation programme

	Cost	Benefit	Evaluation of the programme
Commercial value			Cost may be bigger than benefit
Non-Commercial value			Benefit may be bigger than the cost
Total			Benefit from the programme may be bigger than the cost when non-commercial benefits are taken account

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Techniques of translating environmental data

There are various evolving methods for natural resource valuation (..more in the next page). Some of more familiar techniques for environmental valuation include:

Hedonic pricing method attempts to estimate economic value of environmental goods and services (e.g. clean air) from proxy variables which have market values (e.g. property prices)

Contingent valuation is a technique to estimate the economic value of environment by directly asking people how much they are willing to pay for specific environmental goods or services.

Travel cost approach attempts to assess economic value of environmental assets (e.g. recreation sites) by calculating time and expenditure required to consume the specific environmental asset (e.g. cost of visiting the site).

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Translating environmental information into economic terms

For translating environmental information into economic plans require assessment of data and strategies to ensure that the selected plans and strategies meet the need of human, plants and animals. The need of sustenance of life support system should be prioritized. It undergoes following stages;

1. Develop required type and quantity of database from ecosystem and holistic approach.
2. Ensure quality of environmental database.
3. Analysis/ assessment of data.
4. Benefit Cost Analysis (BCA) of database.
5. Develop natural resource accounting.
6. Develop sustainable development indicators.
7. Synthesize environmental data with outcomes of environmental valuation.
8. Justify recommendation with outcomes of benefit cost analysis and resource accounting.
9. Monitor implementation of the program/project by using sustainable development indicators.
   

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