Environmetal economics for sustainable

Environmental Economics for Sustainable Growth A Handbook for Practitioners Anil Markandya Professor of Economics, University of Bath, UK, and Lead Economist, World Bank, USA Patrice Harou Senior Environmental Economist, World Bank, USA, and Visiting Professor, ENGREF, Nancy, France Lorenzo Giovanni Bellu Economist, and Policy Support Officer, Food and Agriculture Organization of the United Nations, Rome, Italy Vito Cistulli Senior Economist at the Blue Plan, a regional activity centre of the Mediterranean Action Plan of the United Nations Environment Programme (UNEP), Sophia Antipolis, France IN ASSOCIATION WITH THE INTERNATIONAL RECONSTRUCTION AND DEVELOPMENT!fHE BANK FOR WORLD BANK © The International Bank for Reconstruction and Development, The World Bank, 2002 All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior permission of the publisher Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 IUA UK Edward Elgar Publishing, Inc 136 West Street Suite 202 Northampton Massachusetts I060 USA A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Environmental economics for sustainable growth: a handbook for practitioners / Anil Markandya let al.] p em "In association with the International Bank for Reconstruction and Development/ The World Bank." Includes bibliographical references and index I Environmental policy-Economic aspects-Handbooks, manuals, etc Sustainable development-Handbooks, manuals, etc I Markandya, Anil, 1945HC79.E5 E57726 2002 338.9'27-dc21 ISBN I 84064 306 (cased) ISBN I 84064 8120 (paperback) Printed and bound in Great Britain by BiddIes Ltd, www.biddles.co.uk 2001053213 Contents List oftlRures List of tahles List of hoxes Foreword AcknowledRements XIX XXI XXlll Introduction and structure 1.1 Introduction 1.2 Objectives of the book 1.3 Description of the chapters PART I IX Xlll ECONOMY-WIDE POLICIES AND THE ENVIRONMENT Sustainable development vision in a global context 2.1 The earliest definition of sustainable development 2.2 Economic dimension of sustainable development 2.3 Environmental sustainability 2.4 Social sustainability Measures of strong and weak sustainability 2.5 2.6 Sustainable development vision in a political context 2.7 Integrating environment and development 2.8 Strategies and political economy Macroeconomic policies and the environment 3.1 Introduction Macroeconomic policies and the environment 3.2 Tools and methods of macroeconomic analysis 3.3 3.4 Conclusions 3Al Case study 1: Structural adjustment and sustainable development in Zambia: a study of the impact of macroeconomic policies on the environment 3A2 Case study 2: A general equilibrium model of the Botswana economy, including the livestock sector 3A3 Case study 3: System of national accounts and the environment 15 17 18 20 23 25 31 34 37 41 43 44 57 68 74 93 103 vi ConunU Sectoral policies and the environment 4.1 Introduction 4.2 Partial or sectoral market equilibrium 4.3 Consumer and producer surplus 4.4 Market failures 4.5 Policy and institutional failures 4.6 Shadow pricing 4.7 Environmental management principles 4.8 Conclusions 4A Case study I: Economic analysis of the beef protocol in Botswana 4A2 Case study 2: GAP analysis: forestry sector 4A3 Case study 3: Land use and sectoral policies 4A4 Case study 4: Energy and industry sectors Policies, instruments and the environment 5.1 Introduction 5.2 Analytical tools 5.3 Optimality of private decisions 5.4 Environmental instruments 5.5 Instruments in practice 5.6 Lessons and conclusions to the chapter 5.7 Problem set 5.8 Solution to problem set Laws, regulations and institutions 6.1 Introduction 6.2 Legal system for environmental protection 6.3 International legal instruments 6.4 Environmental laws 6.5 Environmental institutions 6.6 Conclusions 6Al List of multilateral treaties and other agreements in the field of the environment 6A2 Discussion notes to check-list National environmental strategies 7.1 Introduction 7.2 Past experience 7.3 Identifying and prioritizing problems 7.4 Defining priorities for action: diagnosing causes 7.5 Defining priorities for action: finding solutions 7.6 Plan implementation 7.7 Conclusions 7Al Questions for discussion 109 III III 113 116 120 122 123 127 129 135 142 145 165 167 167 170 177 197 211 214 215 219 221 221 222 222 231 235 238 242 247 249 249 254 257 259 260 264 268 Contents Economy-wide policies and the valuation of environmental impacts 8.1 Introduction 8.2 The project cycle and environmental assessment 8.3 Appraisal of a project with environmental impacts 8.4 Step I: EA and the with - without analysis 8.5 Step 2: financial and economic appraisal 8.6 Step 3: shadow pricing for market failures 8.7 Step 4: discount rate and comparison of costs and benefits 8.8 Step 5: decision-making with participation 8.9 Conclusion PART II vii 269 271 272 272 275 276 278 278 286 286 ENVIRONMENTAL VALUATION METHODS FOR POLICIES AND PROJECTS Economic principles and overview of valuation methods 9.1 Introduction 9.2 Total economic value of an environmental asset 9.3 Basic concepts of valuation methods 9.4 Overview of valuation methods 9A I Economics underlying valuation methods 10 Revealed preference: direct proxy methods 10.1 Introduction 10.2 Productivity change method (PCM) 10.3 Substitute cost method (SCM) lOA I Case study I: a numerical example of PCM IOA2 Case study 2: a numerical example of SCM IOA3 Technical substitutability of inputs and factors II Revealed preference: indirect proxy methods 11.1 Travel cost method 11.2 Hedonic price method (HPM): the conceptual framework IIA I Exercise I: Zonal travel cost method (ZTCM): a numerical example IIA2 Exercise 2: Individual travel cost method (ITCM): a numerical example II A3 Exercise 3: Hedonic price method (HPM): a numerical example II A4 The linear model for ITCM demand functions II A5 Mathematical functions for HPM 12 Stated preference: contingent valuation methods 12.1 Contingent valuation method: the conceptual framework 12.2 CVM methodology 291 293 293 296 308 320 331 333 336 339 344 353 360 363 365 371 379 389 403 416 418 421 423 428 Contents VIII l2Al Contingent valuation method: bidding game (CVMBG): numerical examples l2A2 Contingent valuation method: dichotomous choice (CVMD) l2A3 Dichotomous CVM using the logit model: a numerical example l2A4 Dichotomous and polichotomous logit models l2A5 Mean and median maximum WTP in the linear utility difference model 13 Use of monetary values of environmental and natural resources for benefit-cost analysis: an application to a soil moisture conservation project in Tunisia 13.1 Background 13.2 Methodology 13.3 Exercise: case study of the BCA for the Tunisia soil moisture conservation project 13.4 Solution set 13.5 Discussion 14 Use of monetary values of environmental and natural resources in the framework of national accounts: an application to Costa Rica 14.1 Theoretical background 14.2 Methodology 14.3 Exercise: Case study of environmental accounts for Costa Rica 15 Valuing health impacts: a case study of air pollution in New Delhi, India 15.1 Introduction 15.2 Conceptual framework 15.3 Case study: Valuing Health impacts in Delhi Index 436 452 465 484 486 489 491 493 496 501 513 515 517 518 521 533 535 535 545 557 Figures 1.1 2.1 2.2 2.3 2.4 2.5 4.1 4.2 4.3 4A3.1 4A4.1 4A4.2 4A4.3 4A4.4 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 Schematic representation of chapters A vision of sustainable development The path of consumption in Dasgupta and Heal's model The ecological services of the natural environment An example of an environmental Kuznets curve Genuine saving rates by region Demand and supply for sawn wood Supply and demand corrected for policy, institutional and market failures Supply and demand corrected for open access Sector and policy analyses linkage to land use Hierarchical conceptual framework for integrated national (or resource) energy planning and environmental analysis Example of an integrated supply curve for electricity Private cost of electricity generation options Social cost of electricity generation options Production of paper: (a) optimal private choice; (b) optimal private choice versus optimal social choice Forest exploitation: (a) optimal private choice; (b) optimal private choice versus optimal social choice Fisheries exploitation: (a) optimal private choice with and without subsidies; (b) optimal private choice versus optimal social choice Consumption of water from groundwater well: (a) optimal private choice; (b) optimal private choice versus optimal social choice Improving environmental quality: (a) optimal private choice; (b) optimal private choice versus optimal social choice Optimal level of pollution Optimal standards Impact of pollution charge on firm's pollution Differentiated Pigovian tax Marginal abatement cost curves Marginal abatement cost IY 18 19 21 23 28 112 115 119 143 149 153 160 161 171 172 173 174 175 176 183 187 188 191 215 x 7.1 8.1 8.2 8.3 9.1 Figures Causes of environmental problems Environmental assessment and the project cycle Land productivity: with and without analysis A possible taxonomy of valuation techniques Price as lower bound to max WTP and upper bound to WT A 9.2 Measures of max WTP and WT A for price and quantity changes 9.3 Price decrease: CV, EV and CS 9.4 Price increase: CV, EV and CS 9.5 Dupuit or Marshall consumer surplus 9.6 Environmental improvement: CSU and ESU 9.7 Environmental damage: CSU and ESU 9.8 A possible taxonomy of valuation techniques 10.1 Equilibrium price change due to changes in environmental inputs and related welfare measures 10.2 Change in environmental inputs and related welfare measures 10.3 Demand and supply framework of the productivity change exercise 10.4 Procedure for the productivity change method 10.5 Value of the environmental input using the substitute cost method 10.6 Procedure for substitute cost method lOA 1.1 Demand and supply framework of the productivity change exercise: case with constant unit production costs 11.1 Zonal travel cost 11.2 Steps of the TCM study 11.3 Hedonic price function of houses 11.4 Hedonic price function as a locus of individuals' equilibria 11.5 Implicit marginal price function of the environmental attribute E 11A I I ZTCM: step-by-step procedure for consumer surplus calculation 11A 1.2 Zonal travel cost: estimated demand curve and CS II A2 I ITCM: major steps II A2.2 ITCM: demand curve functions log-log and log-independent OLS: system l1A3.1 Step-by-step procedure for the calculation of the CS with HPM I IA3.2 Estimated hedonic price function of houses for different levels of environmental good IIA3.3 Inverse demand curve for different income levels 257 273 275 279 297 298 300 301 303 305 306 309 335 335 337 338 340 341 351 367 369 372 373 375 381 386 394 398 405 410 413 Figures llA4.l 12.1 12.2 12.3 12.4 l2Al.l l2A1.2 l2A1.3 l2A1.4 l2A2.1 l2A2.2 l2A2.3 l2A2.4 l2A3.l 13.1 13.2 14.1 14.2 15.1 15.2 Estimating consumer surplus using a Linear Demand Function Environmental improvement: compensating surplus and equivalent surplus CVM combined elicitation formats (max WTP questions) General CVM methodology CYM: proposed step-by-step exercises Layout of the database for the CVM survey CVMB: step-by-step procedure for WTP/WTA calculation Cumulative frequency distribution of max WTP Sample average and median WTP by percentile of truncation Dichotomous choice CVM: step-by-step procedure for descriptive measures of individual max WTP Relative frequencies of acceptance Cumulative frequency distribution of max WTP Relative frequency of max WTP Step-by-step procedure for probabilistic measures of max WTP with logit estimated by weighted least squares Schematic view of the soil moisture conservation project in Tunisia Production function of fruit trees versus water for different levels of soil fertility Estimated demand curve of daily visits Percentage composition of GDP Procedure for valuing impacts of environmental changes on premature mortality using number of deaths avoided Method for valuing impacts of environmental changes on reduced morbidity xi 417 424 427 429 433 440 441 446 448 458 461 462 463 476 492 495 527 530 543 546 Tables 2.1 3.1 3.2 3Al.l 3A1.2 3A1.3 3A1.4 3A1.5 3A2.1 4.1 4Al.l 4A4.1 4A4.2 4A4.3 5.1 5.2 5.3 5.4 5.5 8.1 8.2 9.1 9.2 9.3 Measures of genuine savings for selected countries Simple example of an action impact matrix (AIM) Integrating pollution into an I/O model Elasticities linking economic and ecological variables Structural adjustment and sustainable development in Zambia: economic and social projections with no SAP Agreement under the SAP Estimates of impacts of SAP to be worked out Structural adjustment and sustainable development in Zambia economic, social and environmental projections with SAP Selected results from Tyler's model of a fall in the export price of beef A summary of the impact of externalities Projections of cattle numbers without subsidy Data on sources and costs of electricity for a country Supply options sorted by private cost Supply options sorted by social cost Experience with taxes and charges on transport in selected developing countries Experience with natural resource taxes and charges in selected developing countries Water charges in selected developing countries Selected waste charges Selected charges and taxes on industry in developing countries Appraisal of projects with environmental impacts Financial and economic analysis Forest assets and their service flows CV and EV for price changes; CSU and ESU for environmental changes Environmental impacts, welfare issues and relevant valuation methods XIlI 29 59 61 82 83 85 86 88 96 117 133 158 159 160 198 200 202 204 205 274 277 294 307 310 Valuing health impacts: New Delhi 553 15.3.4 Discussion In many cases, due to lack of data for specific locations or pollutant, dose-response results for both mortality and morbidity are transferred from locations where thorough studies have been conducted Nevertheless, caution must be used in implementing these transfers Table 15.11 contrasts the dose-response results used in the exercise, which were taken from Cropper et al (1997b) for Delhi, with results of a similar study conducted in Philadelphia by Schwartz and Dockery (1992) Clear differences can be seen The reason for these differences lies in differences in the distribution of deaths by age and by cause The impact of TSP on total non-trauma deaths is lower in Delhi than in the United States because a smaller fraction of deaths in Delhi are attributable to cardio-vascular and respiratory disease, the main categories of disease affected by air pollution In the United States about half of all deaths are attributable to respiratory or cardio-vascular causes In Delhi the figure is 20 25 per cent The difference in impacts by age reflects the fact that, in the United States, three-quarters of all deaths occur after age 65 In Delhi three-quarters of all deaths occur before age 65 Table 15.11 Comparison of Delhi and Philadelphia estimates of impacts of TSP Mortality endpoint Increase in mortality per 1001lg/m3increase in TSP (%) Delhi (Cropper et aI.) Philadelphia (Schwartz and Dockery) By selected cause Total deaths Cardio-vascular disease Respiratory 2.3* 4.3* 3.1* 6.7* 9.2* Pneumonia: 10.2 Chronic obstructive lung disease: 17.8* By age group Ages Ages 5-14 Ages 15 44 Ages 45-64 Ages 65 and up 2.4 2.6* 4.3* 2.0* 0.8 2.7 Note: * Sources: 9.1* Indicates significance at 95% confidence level Schwartz and Dockery (1992) and Cropper et al (l997b) The fact that TSP has a smaller impact on cardio-vascular and respiratory deaths in Delhi is, in part, explained by differences in the composition of deaths 554 Environmental valuation methods within these categories A smaller proportion of respiratory deaths in Delhi is attributable to chronic obstructive lung disease and a larger fraction to pneumonia and tuberculosis, which are affected less by particulates Some of the differences in impacts by cause may be attributable to differences in the chemical composition and size distribution of particles between the United States and Delhi While the ratio of particles less than 10 microns in diameter (PM 10) to TSP is about 0.55 in both locations, little is known about the ratio of fine particles (PM2) to TSP in Delhi The valuation of mortality can also have a major impact on the estimated damages In this example a value based on the HCM was used This provides a much lower value than most estimates of VSL Hence any estimate based on the latter must be regarded as a lower bound to the true cost of mortality More work is being done to provide better estimates of VSL, or the value of life years lost, based on WTP methods In the case of morbidity, there is no choice but to use dose-response functions from other countries, since the collection of studies completed in the United States and other industrialized countries did not exist for Delhi In the exercise, calculations are made for the following morbidity endpoints: respiratory hospital admissions, emergency room visits, restricted activity days (for adults), respiratory symptom days and chronic bronchitis While this list is not exhaustive, it captures the health endpoints that are likely to have the largest monetary impact on total damages In valuing morbidity, one could use either cost of illness estimates, ideally based on Indian data, or estimates of willingness to pay to avoid morbidity transferred from US studies, with adjustment for income In estimating total damages from air pollution in 36 Indian cities, Brandon and Homman (1995) follow the cost of illness approach The values provided in Table 15.2 represent an average of their 'low' and 'high' estimates, with the exception of the value of chronic bronchitis Their value for a case of chronic bronchitis vastly understates the seriousness of this disease The US$542 figure is obtained by multiplying the human capital estimate for mortality (US$l 0,000) by the ratio of the value of a case of chronic bronchitis to the value of a statistical life in USEPA (1997) The numbers in Table 15.2 must be interpreted with caution Indeed, morbidity endpoints depend on cultural and economic factors that differ significantly between Delhi and the United States Respiratory hospital admissions and emergency room visits, for example, depend on the price and availability of health care What constitutes a restricted activity day depends on cultural factors, as well on the availability of paid sick leave Besides, the coefficients in Ostro (1994) reflect the baseline incidence of each health endpoint in the city where the original study was conducted, not baseline incidence in Delhi Valuing health impacts: New Delhi Furthermore, the magnitude exercise 300 micrograms Ostro study (1987) of the change in air pollution 555 considered of TSP is much larger than the variation in the in the original NOTES CITED BIBLIOGRAPHY Brandon, C and K Homman (1995), 'Valuing environmental costs in India: the economy-wide impact of environmental degradation', Mimeo, October Cropper, M., N Simon, A Alberini, S Arora and P.K Sharma (l997b) 'The health benefit of air pollution control in Delhi', American Journal of Agricultural Economics, 79, 1625-9 Cropper, M., N Simon, A Alberini and P.K Sharma (1997a), 'The health effects of air pollution in Delhi, India', Policy Research Working Paper No 1860, World Bank, Washington, DC ExternE (1999), Externalities of Energy, Volume 7, Methodological Update, Luxembourg: European Commission Freeman, A.M., III (1993), The Measurement of Environmental and Resourcc Valucs: Theory and Methods, Washington, DC: Resources for the Future Markandya, A (1996), 'External costs of electricity: valuation of health impacts', in Electricity, Health and the Environment: Comparative Assessment in Support of Decision-Making, Vienna: International Atomic Energy Agency, pp 199-214 Markandya, A (1999), 'The valuation of health impacts in developing countries', Plancjamento e Politicas Puhlicas, 18, 119-54 Ostro, B (1987), 'Air pollution and morbidity revisited: a specification test', Journal o/Environmental Economics and Management, 14, 87-98 Ostro, B (1994), 'Estimating the health effects of air pollutants A method with an application to Jakarta', Policy Research Working Paper No 1301, World Bank, Washington, DC Pope, C.A., MJ Thun, M.M Namboodiri, D.W Dockery, J.S Evans, F.E Speizer and C.W Heath (1995), 'Particulate air pollution as a predictor of mortality in a prospec- 556 Environmental valuation methods tive study of US adults', American Journal of Respiratory and Critical Care Medicine, 151, pp 669-74 Schwartz, J (1993), 'Particulate air pollution and chronic respiratory disease', Environmental Resources, 62, 7-73 Schwartz, J and D Dockery (1992), 'Increased mortality in Philadelphia associated with daily air pollution concentrations', American Review of Respiratory Disease, 145, 600-604 United States Environmental Protection Agency (USEPA) (1997), The Benefits and Costs of the Clean Air Act, /970 to /990, Washington, DC: EPA Index action impact matrices (AIMs) 57-60 adjusted net domestic product, Costa Rica 521-31 administrative charges for environmental regulation 192 African Convention on the Conservation of Nature and Natural Resources 238-9 Agenda 21, Rio Declaration 31-6 agriculture legislation 243 liberalization, environmental impact 52 see a/so land use air pollution abatement costs, Chile 261 health impact 535-55 legislation 245 performance indicators 235-6 pemlit trading 209 treaties 240 ambient environment quality standard 180,184 Anderson, D 336 ANDP (adjusted net domestic product), Costa Rica 521-31 Arrow, K 431-2 Atkinson, G 27-8 atmosphere, multilateral treaties 240 Barbier, E.B 336 Barbone, L 199 Bateman, I.J 40 1,427 Baum, W 272 BCA (benefit cost analysis) soil moisture conservation 493-513 Beckerman, W 27 beef, export price 94-6 Beef Protocol general equilibrium model 93-101 impact on beef market 132-4 partial equilibrium model 129-34 beef subsidy see Beef Protocol benefit cost analysis (BCA), soil moisture conservation 493-513 benefit transfer 281 bias in CVM studies 427-8 bidding game contingent valuation method 436-51 elicitation method, WTP/WT A 426 Bishop, R.C 30 Bajo,1 336 Botswana, economic impact of Beef Protocol 93-101, 129-34 Brandon, C 554 brick kilns, environmental fuel subsidies 206-7 broad leaf coverage, effect on house prices 403-15 Brundtland Commission 3,16,126 Bulgaria, pollution control coordination 233 Buongiorno, J 137 Cameron, T.A 482 Capistrano, A.D 54 Carson, R.T 308,425,482 cattle, and beef subsidy removal 93-9, 129 CEA (cost effectiveness approach) 314 CGE see computable general equilibrium model charges, environmental see taxes, environmental Chile air pollution abatement 261 environmental legislation 226 China environmental quality publicity 234 industrial pollution charges 203, 205 natural resource taxes 200-20 I Chopra, K 57 557 558 Environmental economicsfor Ciriacy-Wantrup, S.Y 30 climate change, discounting 284-5 climate regulation 21-2 Coase, R 178 Coase theorem 178-9 coastal zone conservation legislation 243 COI see cost of illness valuation approach Coleman, J 25 Colombia, water charges 201-2 command and control regulation, environmental protection 179-85 communities, role in environmental decisions 194, 196 compensating surplus 302-77, 424-5 compensating variation 297-304, 307 comprehensive models of individual behaviour 538 computable general equilibrium model 62-3, 79 Botswana economy 94-9 conservation, international treaties 238-40 constitutional environmental provision 222-3,242 consumer prices, energy 146-7 consumer surplus 113-16, 301-4 hedonic price method 405 individual travel cost method 392-3, 398-400,402 multiplicative model 419-20 sawn wood 112-13 tree coverage and house prices 408-9, 413-15 zonal travel cost method 381, 385-7 consumption forecasts 136 consumption path 19 contingent valuation method 281, 316-17,423-33 bidding game, irrigation water 436-51 dichotomous choice see dichotomous choice approach logit model 465 soil moisture conservation 495 Cooper, J.e 479 cost-based proxies 280 cost effectiveness approach 314 cost of illness valuation approach 313 morbidity 545 cost production function 333-6 sustainable r;rowth Costa Rica environmental accounts 521-31 environmental legislation 226 costs and benefits, environmental investment, discounting 278, 282-6 of natural resources 114-16 CPF (cost production function) 333 Cropper, M 285, 553 cross-sectional studies, air poll uti on and mortality 539 CYM see contingent valuation method CYMD see dichotomous choice approach Daly, H.E 22, 26-7, 287 Dasgupta, P.S 19 DE (defensive expenditure) valuation method 313 debt, environmental impact 53-4 defensive expenditure (DE) valuation method 313 deforestation, and SAP, Zambia 77-8 Delhi, health impacts of air pollution 545-55 demand elasticity 113-14 natural resources 114-16 sawn wood 112-13 demand-side management, energy supply 148-52 deposit refund schemes 209-10 deregulation, energy market, India 156 desertification 253 Devarajan, S 208 developing countries economic instruments 197-213 energy pricing 147-8 energy sector 157 policy reforms 212-3 development-environment integration 34-7 diamond price, impact on cattle stocks, Botswana 97-8 dichotomous choice approach contingent valuation method, forest use 452-64 logit model 465-82, 484-5 WTP/WT A elicitation 426 Index differential fuel taxation 192-3, 199 diminishing marginal utility 174 direct proxy valuation methods 280, 308, 312-14,333-41 disclosure instruments 194-7 discount rate 18-19,278,282-6 discriminatory pricing, energy 146-7 distributional characteristics of energy policy 147 Dixon, l.A 336 Djibouti Republic, forest resource valuation 344-59 Dockery, D 553 domestic pricing policies, in stabilization programmes 46 donor coordination, environmental programmes 266 double bounded approach, CVM 482 drinking water costs 174-5 Dupuit, l 302 EA see environmental assessment Earth Summit, and sustainable development 31-3 ecological impact, in problem prioritizing 255 ecological variables in macroeconomic model 81-2 economic appraisal of environmental investment 276-8 economic growth, resolving environmental problems 69-70 economic impact, in problem prioritizing 255-6 economic instruments developing countries 197-213 and environmental protection 36, 186-94 economic value of environmental asset 293-7 economic variables in macroeconomic model 80 ecosystems 21-3 eco-taxes see taxes, environmental Ecuador environmental legislation 226 industrial pollution charges 203, 205 natural resource tax 200, 20 I effluent standards 180-81 559 electricity pricing, developing countries 147-8 elicitation formats, WTP 425-7, 438-9 emission charges 210 emission standards 179-85 employment variables in macroeconomic model 80 EMS (environmental management systems) 213 Endangered Species of Wild Fauna and Flora, Convention on International Trade in 239 energy policies conservation efficiency 155-6 demand-side management 148-52 environmental effects 145-62 pricing 145-8 supply-side reforms 154 environment-development integration 34-7 environmental accounting 64-8 Costa Rica 521-31 Environmental Action Programme for Central and Eastern European Countries 233 environmental assessment laws 223-4 project appraisal 272-6 and project cycle 272-3 with-without analysis 275 environmental assets, effect on house value 403-15 environmental costs, pulp and paper production 171-2 environmental damage health impact 535-55 from oil spills 103-7,431-2 WTPjWTA 327-9 environmental impacts, valuation methods 271-87, 310-11 environmental improvement, WTPjWT A 325-6 environmental institutions 231-5 environmental instruments 68-9, 177-97 energy policy 155 selection of 260 environmental Kuznets curve 22-3, 70 environmental legislation 221-31 environmental management 123-7,213 Environmental Quality Act, Malaysia 225-6 environmental regulations see regulations, environmental environmental reputation of firms 195 environmental shadow pricing see shadow pricing environmental standards 179-85 environmental subsidies see subsidies environmental sustainability 20 23 environmental taxes see taxes, environmental episodic studies, air pollution and on mortality 539 Equatorial Guinea, forestry harvesting rights 199 equivalent surplus (ESU) 297-307 equivalent variation (EV) 297-304, 307 Eskeland, G.S 147,208 European Union, Beef Protocol see Beef Protocol eutrophication performance indicator, The Netherlands 236 exchange rate, environmental impact 45, 50 existence values, environmental assets 294 expenditure function, as measure of WTP/WT A 320-29 export barriers, environmental impact 53 externalities 116-17, 167 Fankhauser, S 285 fertilizer subsidies, environmental impact l21 field testing, environmental regulation 229 financial accounts, national 517 financial appraisal of environmental investment 276-8 financial instruments, and environmental protection 186-94 financial resources, and NES 263-4 fiscal instruments see taxes fiscal policy and stabilization programme 44-5 fisheries 173-4 legislation 244 property rights 118-19 flow accounts 67 forage value, Mani forest 344-59 forest areas action impact matrix analysis 59-60 depreciation assessment 519-20 environmental instruments 69 excessive exploitation 172-3 gap analysis 137-8 land-use policies 142-3 legislation 243 property rights ll9 recreation value 452-64 resource valuation 294-5, 344-59 taxes 199-200 France, oil recycling 192 free uncontrolled assets, valuation 304-6,325-9 Freeman, A.M 302,425,538 fuel oil taxation 192-3,207 developing countries 197-9 fuel subsidies, brick kilns 206-7 gap analysis, forestry sector 135-41 gasoline see fuel oil GDP see gross domestic product general equilibrium models 62-3 genuine savings, sustainability measure 27-9 Germany, oil recycling 192 global agricultural liberalization 52 global life-support services 20-21 GNP (see gross national product), effect of oil spill 105-7 Goodland, R 287 government failures and environmental problems 258-9 grandfathering, tradable permits 191 Gravelle, H 301 green taxation see taxes, environmental greenhouse gas emission 6l-2 gross domestic product l7 and environmental quality 70 and net domestic product 518-l9 gross national product, effect of oil spill 105-7 Gujarati, D.N 465 Gulati, S.c 57 Gupta, S 197-9 Hanemann,M.304,425,465,482 Hanley, N.D 40l Index Harou, P.A 11,27,31,62,169,213, 282,285,287 Hartwick rule 20 harvesting taxes 199-200 Hausman, J.A 304 hazardous waste legislation 245 HCA (human capital approach) 313 Heal, G 19 health code, and pollution legislation 244-5 health impact of air pollutants, 535-55 in problem prioritizing 255 Heck, W.W 336 hedonic price method 315-16, 371-6 broadleaf tree coverage and house prices 403-15 mathematical functions 418-20 Hodgson, G 336 Homman, K 554 house price function see hedonic price method household waste charges, developing countries 203 HPM see hedonic price method human capital valuation method 313 mortality valuation 541-2 IDA (International Development Association) 249 IEEA (integrated environmental and economic accounting) 36, 64-6 IEP (intergenerational equity principle) 126 implicit inverse demand function 408, 411-13 implicit price function 408, 411-12, 418-19 import barriers, environmental impact 51 incentives and environmental laws 233-4 India, Industrial Energy Efficiency and Modernization Project 156 indirect proxies as environmental valuation 280-81 revealed preference 315-16, 365-420 individual rate of time preference 283 individual travel cost method 366-8, 389-400,402 561 Indonesia energy policy 147 environmental legislation 223 PROPER programme 197 Industrial Energy Efficiency and Modernization Project, India 156 industrial pollution charges, developing countries 203, 205 INEP (integrated national energy planning) 148-51 informal regulation agents 194 input charges see pollution charges input-output analysis models 61-2 institutions energy sector 157 environmental 231-5, 245-6 environmental role 56-7, 120-22,259, 263 integrated environmental and economic accounting 36,64-6 integrated national energy planning 148-51 integrated supply curve 151-4 intergenerational equity principle 126 international cooperation, sustainability 31-3 International Development Association (IDA) 249 intemationallegal instruments 222 inverse demand function 411-13 multiplicative model 419 investment for energy conservation 155-6 I/O (input-output) analysis models 61-2 IREP (integrated resource energy planning) 148-51 irreversibility of environmental degradation 120 irrigation water valuation 436-51 ISC (integrated supply curve) 151-4 Italy, oil recycling 192 ITCM (individual travel cost method) 366-8,389-400,402 iterative elicitation, WTP/WT A 426 Jaganathan, V.N 54 Japan, environmental regulation 228 judiciary, role in implementing environmental policy 235 Kier, C.F 54 Knetsch, J.L 425 Kong, C 147 Kuznets curve 22-3, 70 Laguna Lake, water charges 20 I Lal, P.N 336 land productivity, with-without analysis 275 land tenure legislation 243 land use laws 242-3 policies 142-4 lead, health effects 537 legislation, environmental 35-6, 221-6 see also regulations, environmental licences 227 life-cycle models, premature mortality 538 Liguria forest, use-value 389-400 linear model, ITCM demand function 416-17 linear utility difference function 468 maximum WTP 486-7 logit model, dichotomous CYM 465-82 Lome agreement see Beef Protocol long-term impact projects, discounting 284-5 macroeconomic analysis 57-70 macroeconomic policies impact on environment 43-57 models 60 64 Zambia 79-84 Mahler, W 197-9 Malaysia pollution charges 203, 205 pollution legislation 225-6 Mani forest resource valuation 344-59 marginal abatement cost of pollution 176 and of permit trading 189-91 marginal benefits 170 77 marginal costs 170 77 marginal damage of pollution 176 marginal rate of technical substitution 360-61 marginal revenue 170-72 marginal social cost natural resource use 170-76 recycling schemes 210 marine environment, treaties 241 Markandya, A 541 market efficiency, and transaction costs 236 market equilibrium 111-]3 impact of subsidy removal 132-4 market failure, environmental impact 116-20,258 market rate of discount 284 marketable permits 188-91,208-9,211 Marshall demand curve 302-3 medium term stabilization programmes 46 Mexico fuel subsidies 206-7 resource depletion and national income 68 Misomali, E.D 339 Mitchell, R.C 308, 425 monetary accounting of the environment 66-8 monetary impact, in environmental problem prioritizing 255-6 monetary policy environmental impact 50 in stabilization programme 45 monitoring environmental policy 235-6, 264,266 morbidity impact of environmental change 542, 544-9,554-5 models of individual behaviour 538 mortality, premature impact of environmental change 539-43,547-54 life cycle models 538 multilateral treaties on the environment 238-41 Munasinghe, M 17,308 national accounts 517-20 Costa Rica 521-31 national conservation strategies 252 national environmental action plans 249, 252 National Environmental Protection Agency, China 234 national environmental strategies financing 263-4 formulation 249-54 implementation 260-66 Index monitoring 264, 266 problem prioritizing 254-60 national income and product (NIP) account 517 national sustainable development strategies 32-8, 252 natural capital accounting 64-8 natural resources damage from oil spills 431-2 depreciation 519 environmental taxes 199-20 I excessive exploitation 172-6 prices I 14-16, 120-23 and sustainability 19-20 nature conservation treaties 238 40 NCS (national conservation strategies) 252 Ndzinge, L 133 NEAP (national environmental action plans) 249, 252 negative externalities 167 negotiated rule making 236 NES see national environmental strategies net domestic product 518-19 Netherlands environmental policy plan 228 performance indicator for eutrophication 236 Newcomb, K 339 Nigeria, forestry sector gap analysis 137-8 NIP (national income and product) account 517 nitrogen oxides, health effects 537 noise pollution legislation 245 nomina] discount rate 282-3 non-use values, environmental assets 294-5 Norway, environmental charges 192 NSDS (national sustainable development strategies) 252 OCA (opportunity cost approach) 312-13 ocean fisheries] 69-70 OECD, valuation method classification 308 oil, environmental taxes 192,200,20] 563 oil spills, environmental damage evaluation 103-7, 43]-2 open access resources 169-70 exploitation 172 open-ended elicitation, WTP/WT A 425-6 opportunity cost approach, environmental valuation 280,312-13 of capita] 283 of time 392 optimal level of pollution 176-9 of production 170-72 optimal pricing, energy 146 optimal private choice 172-6 optimal social choice] 72-6 option values, environmental assets 293 Ostro, B 554 Our Common Future (Brundtland Report) 3, ]7, 126 output charges see pollution charges Panayotou, T 120-21 paper production, optimalleve] 170-72 partial equilibrium model, Botswana cattle sector 129-30 particulate matter, health effects 536 PCM (productivity change method) 312, 336-8,344-51 Pearce, D.W 27-8,29,425 performance indicators, environmental quality 235-6, 264 performance standard 181 permits 227 and pollution control 181-2, 185 tradable 188-91, 208-9, 211 pesticide control legislation 245 petrol taxes see fuel oil taxation PFA (production function approach) 333 Philippines, water charges 20] Pigovian tax 187-8 polichotomous ]ogit models 484-5 policy failures] 20-22 policy instruments see environmental instruments policy reforms, developing countries 212-3 polluter pays principle 124 564 Environmental economics for sustainable growth pollution air see air pollution charges 187-8, 207-8, 211 developing countries 197-206 damage valuation 67-8 efficient level 176-7 as externality 116-17 international environmental treaties 241-2 legislation 225-6, 244-5 marine, international treaties 241 regulation 179-85 socially optimal level 170-77 water 78-9, 175-6, 178-9 international treaties 241 population in macroeconomic model 80 relationship with environment 55-6, 257-8 positive externalities 167 poverty and environment 54-5, 258 in policy making 255 PPP (polluter pays principle) 124 precautionary principle (PP) 125-6 premature mortality see mortality, premature priced environmental goods, WTP/WT A 321-5 pricing natural resources 114-16, 120-23 pricing policy, forest recreation 453-64 prioritizing problems, NES 250-51, 254-6 private choice, optimal 170-77 privatization energy supply 157 property rights 178 process standard 181 producer prices, energy 146 producer surplus 113-16 product charges, pollution treatment 191-2 product standard 181 production forecasts 136 socially optimal level 170-72 production function approach 333 productivity change method 312, 336-8, 344-51 productivity change, soil moisture conservation 494-5 project cycle, and environmental assessment 272-3 PROPER programme, Indonesia 197 property rights and environmental problems 259 natural resources 118-19,177-9 property values see hedonic price method proxy methods direct 280, 308, 312-14, 333-41 indirect 280-81, 315-16, 365-420 public goods 118, 169 public involvement, environmental decisions 228-9, 286 public sector spending reduction, environmental impact 49 publicity, as environmental incentive 234 pulp and paper plants, pollution costs 170-72 Putnam, R 25 quantity constrained goods, welfare measurement 304-6 WTP/WT A 325-9 questionnaire design, CYM 430-31 Randall, A 425 real discount rate 282-3 recreation use valuation travel cost method 365-71 individual 389-400, 402 zonal 379-86,401 recycling schemes, subsidies 209-10, 211 Rces, R 30 I regulations, environmental 179-85, 196-7,226-31 energy policy 155 see also legislation, environmental Rennings, K 26 residual value technique, stumpage value 520 resources, natural see natural resources revealed preference direct proxy valuation methods 308, 312-14,333-41 indirect proxy methods 315-16, 365-420 Index Rio Declaration on Environment and Development 31-3 road pricing 198-9 Russia, greenhouse gas emissions 61-2 safe minimum standards rule 30-31 sawn wood, demand and supply 112-13 Schwartz, J 553 SCM (substitute cost method) 314, 339-41,353-9 second best policy 69 sectoral adjustment programmes (SECAL) 46 sectoral legislation 224-6 sectoral market equilibrium 111-13 SEEA (System of Environmental Economic Accounting) 64-6, 518 Seroa da Motta, R 20 I sewage charges, developing countries 191,203,204 shadow pricing 276-8 natural resources 122-3 shadow project constraint, sustainability 29-30 shadow project valuation approach 313-14 short-term stabilization programmes 44-6 environmental impact 47-50 Sierra Leone, environmental problem prioritizing 256 single bounded approach, CVM 482 Smith, V.K 315 Smithsonian Institute, recreation value analysis 379-87 SMS (safe minimum standards) rule 30-31 social benefits 168-9 social capital 24-5 social costs 168 natural resource use 172-6 pulp and paper production 171-2 social discount rate 283-4 socia] indicators, variables in macroeconomic mode] 81 social rate of time preference 283 social sustainability 23-5 socially optimal production 170-77 soil conservation legislation 243 soil moisture conservation, benefit cost analysis 491-513 565 Solow, R 20,431 SP (shadow project) valuation approach 3]3-14 stabilization programmes, short-term 44-6 environmental impact 47-50 standards, environmental 179-85 stated preference contingent valuation methods see contingent valuation methods stock accounts 67 Stoll, J.R 425 strategic regulatory planning 229-31 strong sustainability, 26-7, 29-31 structural adjustment programmes 46 environmental impact 48 and trade liberalization 50-53 Zambia 75-92 stumpage value, residual value technique 520 subsidiarity principle 126 subsidies beef see Beef Protocol environmental 206-7, 2]0-11 environmental impact 120-21 fisheries 173-4 recycling schemes 209-10, 211 substitute cost valuation approach 314, 339-41,353-9 supplyelasticites 113-16 supply-side planning, energy 150-57 sustainable development 17-20 consumption 18-20 environmental 20-23 measurement 25-31 policy 31-8 social 23-5 sustainomics 17-18 Sylvo-Pastoral Management and Reforestation Project, Mani forest 344-59 System of Environmental Economic Accounting 64-6, 518 taxes, environmental 49-50, 121-2, 186-94,199-201,207-8 in developing countries 197-206 differential 192-3 TCM see travel cost method 566 Environmental economics fli/' sustainahle growth TDR (transferable development rights) 208 technical substitutability 359, 360-61 technology-based standard 181 TFAP (tropical forestry action plans) 253 Thailand, energy demand management 152 Timber Agreement, International Tropical 239-40 timber demand and supply 112~13 production action impact matrix analysis 60 costs 172-3 time series studies, air pollution and mortality 539 total suspended particulate, impact on health 545-55 tradable permits 188-91,208-9,211 trade liberalization environmental impact 50-53 in structural adjustment programme 46 transaction costs and analysis of environmental resources 118 and market efficiency 236 transboundary pollution, international environmental treaties 240, 242 transferable development rights 208 transport, environmental charges 197-9 travel cost method 315, 365-71 forest recreation valuation 520 trees, effect on house prices 403-15 Tropical Forestry Action Programme 253 TSP (total suspended particulate), impact on health 545-55 Tunisia, soil moisture conservation 491-513 Turner, R.K 425 Tyler, G.J 94-6, 99 UN System of National Accounts 517-18 UNCED national reports 253 uncompensated demand curve 302-3 underground drinking water, costs 174-5 underpricing natural resources 121-2 Unemo, L 96-9 United States energy management 150-51 environmental regulation 228-9 health impact of air pollution 553-4 unpriced assets 117 UN-SNA (UN System of National Accounts) 517-18 UPP (user pays principle) 125 urban water pollution, and SAP, Zambia 78-9 use values, environmental assets 293-5 contingent valuation method 452-64 travel cost method valuation 365-71, 389-400 user charges for pollution treatment 191 user pays principle (UPP) 125 utility model 465-8 Uzbekistan, irrigation water valuation 436-51 valuation environmental impacts 271-87, 310-11 health impacts of air pollution 545-55 methods 278-81, 296-329, 308-17 natural resources 114-16 pollution damage 67~8 value life years lost (VL YL) 541 value of a statistical life (VSL) 541-2 Vartia, Y.O 304 voluntary agreements 236 wage differential method 316 Wang,J.199 Ward, H.W 339 waste charges 191, 203 water charges, developing countries 201-2 consumption costs 174-5 management legislation 243 pollution and property rights 178-9 and SAP, Zambia 78-9 quality costs 175-6 standards, Indonesia 197 valuation, Uzbekistan 436-51 water, underground drinking 174-5 WDM (wage differential method) 316 weak sustainability 25-6 27-9 Index Weitzman, M 285 welfare measurement, uncontrolled goods 304-6 Wiggering, H 26 wildlife international treaties 238-9 legislation 244 Zambia, and SAP 77 Willig, R.D 303 willingness to accept 296-7 contingent valuation method 423-8 defined by expenditure 320-29 elicitation formats 425-7 willingness to pay 276-7, 296-7 change in risk of death 540-44 contingent valuation method 423-8, 454 -63 defined by expenditure 320-29 dichotomous choice approach 465-79 elicitation formats 425-7 567 maximum, linear utility difference model 486-7 water price 440-51 with-without analysis 272, 275-6 wood see timber World Commission on Environment and Development 3,17,126 Warld Development Report (2000), World Bank 17 WT A see willingness to accept WTP see willingness to pay Zalduendo, L 199 Zambia economy 74-5 environmental legislation 223 structural adjustment programme 75-92 zonal travel cost method (ZTCM) 365-6, 379-87,401 ... catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Environmental economics for sustainable growth: a handbook for practitioners... database for dichotomous CVM Calculation of variables for the estimation of parameters Estimated parameters by OLS regression Database for dichotomous choice CVM Calculation of variables for the... seven-step model for strategic regulatory planning 7.1 Formulating priorities for an environmental strategy 7.2 Different approaches to national strategies Non-monetary cost-benefit analysis for prioritizing