Our Environment - Mining and the Environment: From Ore to Metal - page 328

FIGURE 7.7
Environmental Valuation Methods

Preferences

The choice of the valuation method
will depend on each situation, the infor-
mation readily available, the time and
budget available, and level of expertise.
Source: based on Pagiola et al. 2004

Revealed
Preferences

Stated Preferences

Surrogate Markets

Market-Based

Non-Market-Based

Producer/
Consumer
Surplus

Factor of
Production

Defensive
Expenditures

Hedonic
Pricing

Tr ave l
Cost

Contingent
Valuation

Choices
Experiments

an ecosystem rather than in the exploitation of minerals within the ecosystem. Similarly,
such evaluations could lead to a better understanding of tax incentives, rebates or subsidies
that could give individuals an economic incentive to retain an ecosystem. Thus, society
could purchase the services provided by nature from individual land owners.
Methods of valuing ecosystem benefits can be divided into three categories as illustrated
in Figure 7.7 : market-based (direct proxies), surrogate markets (indirect proxies), and non-
market based (no proxies). In measuring value, it is important to remember that net value
is desired - the gross value of a benefit less the costs that must be incurred to receive that
benefit. The choice of the valuation method will depend on each situation, the information
readily available, the time and budget available, and level of expertise ( Table 7.4 ) .

Direct Proxies
Direct proxies involve cost or price information, which approximate values of environ-
mental assets. The advantage of using costs or market prices as proxies for willingness to
pay/willingness to accept is that they are easily observable.
Market equilibrium prices are an acceptable base for applying these techniques if mar-
kets of the goods and services involved are competitive and apply to small changes in their
demand and supply. The actual costs incurred as a result of environmental degradation
can represent the minimum benefits from avoiding environmental impacts. Examples of
direct proxies include (Pagiola et al. 2004):
●

The actual costs incurred
as a result of environmental
degradation can represent the
minimum benefi ts from avoiding
environmental impacts.

The loss of agriculture productivity from soil erosion (productivity loss);

●

Medical expenditure due to air pollution (cost of illness);

●

An ill person or premature death from air pollution (human capital cost);

●

Averting or mitigating environmental impacts (response/preventative cost);

●

Replacing environmental goods or services (replacement costs);

●

An environmental aid project such as grants and donations (aid costs) ;

●

The reconstruction of an environmental good (shadow project);

●

Cost per unit of output (cost-effectiveness); and

●

A close substitute (substitute costs).