Environmental economics in action,
Guidelines for EIAs
Renmin University 21 October 2004
Haakon Vennemo
haakon.vennemo@econ.no
2
What is ECON and who am I?
A think-tank in Scandinavia with 100 employees
Owned and run by employees
Economics and other social science on problems
of current interest
Particularly strong in environment&energy
1/3 of activity outside Europe
I have been in China since 1995
? Environmental cost model for China
? Climate and local pollution
? Air quality master plan Guangzhou City,Shanxi
Province
? Environment&Development Economics 2001,Energy
Policy 2004,Journal of Cleaner Production 2004…
3
The project background
Background I,Environmental impacts sometimes
ignored in economic development
Background II,Cost-benefit evaluation of
? Whole project
? Mitigation options/modifications
? Other changes in project design (location,technology)
? Benefits of environmental impacts,Awareness tool
? Reveal imperfections in EIA reports
Background II,Current EIA-law emphasises
cost-benefit calculation as part of EIA-report
But how?
4
The project
Project to demonstrate how environmental
economic tools can be integrated in EIA-
guidelines and practice
Obstacles and good practice
Advice/guidelines for future EIAs
Four case-studies:
? Air – power plant Datong,Shanxi Province
? Water – wastewater treatment plant
? Soil – waste irrigation Shijiazhuang,Hebei Province
? Land use – highway construction Chongqing
5
Integration from an abstract point of view
Activities/sources Stressors Environmental media
Receptors
ImpactsUnit valuationEnvironmental cost
6
Valuation linked to description of impacts
Impacts on production activities
?Industry (water)
?Fishery (water)
?Agriculture (water,air,soil,land use)
?Forestry (air,soil,land use)
Impacts on materials (air)
Impacts on human health
?Respiratory symptoms (air)
?Cancer (water,air)
?Hepatitis (water) etc.
7
What are the impacts?
Impacts on biological diversity (air,soil,land
use)
Impacts on ecological services (soil,land use)
Impacts on human welfare (air,water,land use)
? Water for fishing,swimming,recreation
? Visibility of air
? Changes in landscape
Political valuation
? distance to target
? cost of abatement in other sectors
Different valuation tailored to different impacts
8
Valuation of market impacts and health
Impacts on production activities,Market price
Material damage,Repair and replacement
? Theoretical economic concept is cost of increased
capital depreciation
Health,Several options
? Theoretical concept is Resource cost + Welfare cost
? Resource cost = Cost of having person at hospital +
medicines + work day loss etc
? Welfare cost = willingness to pay to reduce health risk
(in statistical ex ante sense),
? For morbidity we recommend only Resource cost (for
precautionary reasons)
9
Valuation of mortality risk
Mortality risk,Several options
?Market price of risk,Wage differential
?Contingent valuation (ask people)
– Several surveys in China recently
?(Adjusted) human capital approach not
recommended in Western countries
– Neither welfare cost nor resource cost
10
Other stuff
Biological diversity,Contingent valuation,
expert panel valuation,political valuation
Ecological services,Same + user value of
services
Impacts on human welfare,Contingent
valuation,political valuation
11
Questions for discussion
Are EIAs good enough?
1,Sufficient description of receptors and
impacts?
2,Sufficient definition of EIA area?
12
Questions for discussion
3,Are dose-response impact assessments
good enough?
Air,several recent health studies from China
Water,soil,land use,weaker basis
13
4,Is marginal benefit increasing?
Traditional view,Marginal benefit decreasingBenefit
Cost
Benefit of
enjoying
quality
Cost of maintaining/improving quality
Marginal
benefit
Environmental
quality
Point of maximum difference
benefit and cost
14
4,Is marginal benefit increasing?
Alternative view,Marginal benefit increasingBenefit
Cost
Benefit of
enjoying
quality
Cost of maintaining/improving quality
Environmental
qualityMax qualityand max
difference
15
4,Is marginal benefit increasing?
Alternative view,Marginal benefit increasingBenefit
Cost
Benefit of
enjoying
quality
Cost of maintaining/improving quality
Environmental
qualityMax quality
Optimum,
do nothing
16
From projects to the whole economy
Tools for environmental economic project level
evaluation
? Dose-response
? Evaluation principles
Are similar to those for whole economy
? Since the economy is nothing but a collection of
projects (some new,most old)
Synergies between this project and Green
Accounting,Green GDP,Environmental Cost
estimation etc.
Many practical challenges but we share the vision
That public policy is informed by environmental
economic analysis and principles
17
Haakon Vennemo
John Magne Skjelvik
Henrik Lindhjem
Guidelines for EIAs
Renmin University 21 October 2004
Haakon Vennemo
haakon.vennemo@econ.no
2
What is ECON and who am I?
A think-tank in Scandinavia with 100 employees
Owned and run by employees
Economics and other social science on problems
of current interest
Particularly strong in environment&energy
1/3 of activity outside Europe
I have been in China since 1995
? Environmental cost model for China
? Climate and local pollution
? Air quality master plan Guangzhou City,Shanxi
Province
? Environment&Development Economics 2001,Energy
Policy 2004,Journal of Cleaner Production 2004…
3
The project background
Background I,Environmental impacts sometimes
ignored in economic development
Background II,Cost-benefit evaluation of
? Whole project
? Mitigation options/modifications
? Other changes in project design (location,technology)
? Benefits of environmental impacts,Awareness tool
? Reveal imperfections in EIA reports
Background II,Current EIA-law emphasises
cost-benefit calculation as part of EIA-report
But how?
4
The project
Project to demonstrate how environmental
economic tools can be integrated in EIA-
guidelines and practice
Obstacles and good practice
Advice/guidelines for future EIAs
Four case-studies:
? Air – power plant Datong,Shanxi Province
? Water – wastewater treatment plant
? Soil – waste irrigation Shijiazhuang,Hebei Province
? Land use – highway construction Chongqing
5
Integration from an abstract point of view
Activities/sources Stressors Environmental media
Receptors
ImpactsUnit valuationEnvironmental cost
6
Valuation linked to description of impacts
Impacts on production activities
?Industry (water)
?Fishery (water)
?Agriculture (water,air,soil,land use)
?Forestry (air,soil,land use)
Impacts on materials (air)
Impacts on human health
?Respiratory symptoms (air)
?Cancer (water,air)
?Hepatitis (water) etc.
7
What are the impacts?
Impacts on biological diversity (air,soil,land
use)
Impacts on ecological services (soil,land use)
Impacts on human welfare (air,water,land use)
? Water for fishing,swimming,recreation
? Visibility of air
? Changes in landscape
Political valuation
? distance to target
? cost of abatement in other sectors
Different valuation tailored to different impacts
8
Valuation of market impacts and health
Impacts on production activities,Market price
Material damage,Repair and replacement
? Theoretical economic concept is cost of increased
capital depreciation
Health,Several options
? Theoretical concept is Resource cost + Welfare cost
? Resource cost = Cost of having person at hospital +
medicines + work day loss etc
? Welfare cost = willingness to pay to reduce health risk
(in statistical ex ante sense),
? For morbidity we recommend only Resource cost (for
precautionary reasons)
9
Valuation of mortality risk
Mortality risk,Several options
?Market price of risk,Wage differential
?Contingent valuation (ask people)
– Several surveys in China recently
?(Adjusted) human capital approach not
recommended in Western countries
– Neither welfare cost nor resource cost
10
Other stuff
Biological diversity,Contingent valuation,
expert panel valuation,political valuation
Ecological services,Same + user value of
services
Impacts on human welfare,Contingent
valuation,political valuation
11
Questions for discussion
Are EIAs good enough?
1,Sufficient description of receptors and
impacts?
2,Sufficient definition of EIA area?
12
Questions for discussion
3,Are dose-response impact assessments
good enough?
Air,several recent health studies from China
Water,soil,land use,weaker basis
13
4,Is marginal benefit increasing?
Traditional view,Marginal benefit decreasingBenefit
Cost
Benefit of
enjoying
quality
Cost of maintaining/improving quality
Marginal
benefit
Environmental
quality
Point of maximum difference
benefit and cost
14
4,Is marginal benefit increasing?
Alternative view,Marginal benefit increasingBenefit
Cost
Benefit of
enjoying
quality
Cost of maintaining/improving quality
Environmental
qualityMax qualityand max
difference
15
4,Is marginal benefit increasing?
Alternative view,Marginal benefit increasingBenefit
Cost
Benefit of
enjoying
quality
Cost of maintaining/improving quality
Environmental
qualityMax quality
Optimum,
do nothing
16
From projects to the whole economy
Tools for environmental economic project level
evaluation
? Dose-response
? Evaluation principles
Are similar to those for whole economy
? Since the economy is nothing but a collection of
projects (some new,most old)
Synergies between this project and Green
Accounting,Green GDP,Environmental Cost
estimation etc.
Many practical challenges but we share the vision
That public policy is informed by environmental
economic analysis and principles
17
Haakon Vennemo
John Magne Skjelvik
Henrik Lindhjem
