Impact prediction, evaluation and mitigation - Introduction to Environmental Impact Assessment - page 151

Table 5.7 Summary of environmental
monetary valuation techniques

Direct household production function (HPF)
HPF methods seek to determine expenditure on commodities that are substitutes or complements
for an environmental characteristic to value changes in that characteristic. Subtypes include the
following:

• Avertive expenditures: expenditure on various substitutes for environmental change (e.g. noise
insulation as an estimate of the value of peace and quiet).
• Travel cost method: expenditure, in terms of cost and time, incurred in travelling to a particular
location (e.g. a recreation site) is taken as an estimate of the value placed on the environmental
good at that location (e.g. benefit arising from use of the site).
Direct hedonic price methods (HPM)

HPM methods seek to estimate the implicit price for environmental attributes by examining the real
markets in which those attributes are traded. Again, there are two main subtypes:

1. Hedonic house land prices: these prices are used to value characteristics such as “clean air” and
“peace and quiet”, through cross-sectional data analysis (e.g. on house price sales in different
locations).

2. Wage risk premia: the extra payments associated with certain higher risk occupations are used
to value changes in morbidity and mortality (and implicitly human life) associated with such
occupations.

Direct experimental markets
Survey methods are used to elicit individual values for non-market goods. Experimental markets
are created to discover how people would value certain environmental changes. Two kinds of
questioning, of a sample of the population, may be used:
1. Contingent valuation metbod (CVM): people are asked what they are willing to pay (WTP) for
keeping X (e.g. a good view, a historic building) or preventing Y, or what they are willing to
accept (WTA) for losing A, or tolerating B.
2. Contingent ranking method (CRM or stated preference): people are asked to rank their
preferences for various environmental goods, which may then be valued by linking the
preferences to the real price of something traded in the market (e.g. house prices).
Indirect methods
Indirect methods seek to establish preferences through the estimation of relationships between a
“dose” (e.g. reduction in air pollution) and an effect (e.g. health improvement). Approaches include
the following:
• Indirect market price approach: the dose-response approach seeks to measure the effect (e.g.

value of loss of fish stock) resulting from an environmental change (e.g. oil pollution of a fish
farm), by using the market value of the output involved. The replacement-cost approach uses
the cose of replacing or restoring a damaged asset as a measure of the benefit of restoration (e.g.
of an old stone bridge eroded by pollution and wear and tear).

• Effect on production approach: where a market exists for the goods and services involved, the

environmental impact can be represented by the value of the change in output that it causes. It is
widely used in developing countries, and is a continuation of the dose-response approach.