Quantifying environmental impacts

Question 1

Why should we quantify environmental impacts?

Answer 1

1. to have a currency for good policy making
2. budget constrains (which policy to favor/has the biggest societal benfit)
3. litigations (monetizing in case of legal proceedings).

Question 2

How can we value the consumer surplus?

Answer 2

1. consumer surplus (willingness to pay more than market price, what is something worth
2. fundamental problems (environmental goods have no price and unable to compare the value of environmental goods)
3. quantifying market levels (willingness to pay for the provision/to accept the absence).

Question 3

Which techniques can we use to quantify environmental goods?

Answer 3

We can use:

• stated preferences (hypothetical)
• revealed preferences from behavior (observations).

Question 4

Elaborate about the different forms of stated preferences?

Answer 4

1. Contingent valuation:
   - survey about willingness to pay
   - direct questions
   - pay attention to: bias/socially acceptable answers
2. Choice modeling:
   - survey using different statements
   - combining scenarios
   - “which state would you prefer”.

Question 5

Elaborate about the different forms of revealed preferences?

Answer 5

1. Production function approach:
   - adding it to production process
   - ex. water; effect can be quantified
2. Replacement cost / Averted expenditures approach:
   - compensating the impact
   - ex. noise; measures can be quantified
3. Travel cost approach:
   - derive used value from costs
   - estimate recreational value
   - obtain data on visits
   - put monetary value on trip cost
   - use regression equation (cost/demand)
4. Hedonic property approach:
   - infer value from difference in property prices
   - compare properties and surrounding (environment)
   - calculate with regression analysis (noise depreciation index).

Question 6

Which policy instruments can be used to mitigate environmental impacts?

Answer 6

1. Bargaining
2. Moral persuasion (influence behavior/moral compass)
3. Cap and trade (CO2 certificates, does not work well; price too low)
4. Taxes (reduces quantity, increases prices)
5. Command and controle (define level of environmental quality, no customization, no revenues, no investments).