Measuring Economic Values for the Environment

Economists recognize that people value and have preferences for environmental improvements, and are willing to pay for bettering their environment. As an example, people in major cities might be willing to pay for cleaner air and less smog, while someone whose local lake was closed by water pollution might be willing to pay to have it re-opened.

But environmental improvements such as cleaner air and water are not traded in markets. As a result, a series of special techniques - called non-market valuation - have been developed by economists to estimate or infer the values of envionmental improvements.

The effort to develop these techniques has been considerable with thousands of scientific articles published on the subject in the past two decades. Some of these techniques use surveys to ask people directly how much they would be willing to pay for improvements to the environment. Another class of techniques infers values by observing market prices associated with an environmental asset.

To value air pollution, a series of linkages are made between emissions and the dollar-value of environmental damage. For acid rain, the first step is to link a change in the emissions of SO2 and NOx to a change in the concentration of acid rain in the atmosphere. This concentration, in turn, is linked with a health or environmental effect, such as corrosion or lake acidification. This latter link is made using a concentration-response function. Finally, the impacts on humans are identified, such as lost fishing days, and then valued using the appropriate technique.

To appreciate the total value of an environmental improvement or asset, an approach called total economic value (TEV) has been developed by economists. TEV can be divided into two broad areas: use values and non-use values. Use values are associated with direct use of the environment such as fishing and swimming in a lake, hiking in a forest -- or commercial uses such as logging or farming. Non-use values are related to the knowledge of the continued existence of the environment (existence values), or the need to leave environmental resources to future generations (bequest values).

A critical tool for Canadians to learn more about environmental valuation is the Environmental Valuation Reference Inventory (EVRI). Canadians can gain free access to EVRI by filling in a subscription form at the Internet site. EVRI is a searchable storehouse of empirical studies on the economic value of environmental benefits and human health effects.

Economists also estimate a part of the value of the environment based on the amount of economic activity associated with its use. When people buy fishing rods, canoes, bird houses and binoculars, they contribute to employment and income, and help spur economic activity and growth.

Looking at this another way, people will trade off their wealth for better access and appreciation of nature and wildlife. This traditional economic approach is based on market prices; and gross domestic product (GDP), which is a measure of national income.

The Survey on the Importance of Nature to Canadians tells us that Canadians commit large amounts of their family income to activities that depend on natural areas and wildlife. In 1996, Canadians - along with U.S. tourists - spent a total of $11.7 billion on nature-related activities in this country. This represents a significant portion of the Canadian economy.