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Monetary Valuation of Environmental Externalities for the Purpose of Cost

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Monetary Valuation of Environmental Externalities for the Purpose of Cost EFORWOOD Tools for Sustainability Impact Assessment Monetary values of environmental and social externalities for the purpose of cost-benefit analysis in the EFORWOOD project Irina Prokofieva, Beatriz Lucas, Bo Jellesmark Thorsen and Kirsten Carlsen EFI Technical Report 50, 2011 Monetary values of environmental and social externalities for the purpose of cost-benefit analysis in the EFORWOOD project Irina Prokofieva, Beatriz Lucas, Bo Jellesmark Thorsen and Kirsten Carlsen Publisher: European Forest Institute Torikatu 34, FI-80100 Joensuu, Finland Email: [email protected] http://www.efi.int Editor-in-Chief: Risto Päivinen Disclaimer: The views expressed are those of the author(s) and do not necessarily represent those of the European Forest Institute or the European Commission. This report is a deliverable from the EU FP6 Integrated Project EFORWOOD – Tools for Sustainability Impact Assessment of the Forestry-Wood Chain. Preface This report is a deliverable from the EU FP6 Integrated Project EFORWOOD – Tools for Sustainability Impact Assessment of the Forestry-Wood Chain. The main objective of EFORWOOD was to develop a tool for Sustainability Impact Assessment (SIA) of Forestry- Wood Chains (FWC) at various scales of geographic area and time perspective. A FWC is determined by economic, ecological, technical, political and social factors, and consists of a number of interconnected processes, from forest regeneration to the end-of-life scenarios of wood-based products. EFORWOOD produced, as an output, a tool, which allows for analysis of sustainability impacts of existing and future FWCs. The European Forest Institute (EFI) kindly offered the EFORWOOD project consortium to publish relevant deliverables from the project in EFI Technical Reports. The reports published here are project deliverables/results produced over time during the fifty-two months (2005–2010) project period. The reports have not always been subject to a thorough review process and many of them are in the process of, or will be reworked into journal articles, etc. for publication elsewhere. Some of them are just published as a “front-page”, the reason being that they might contain restricted information. In case you are interested in one of these reports you may contact the corresponding organisation highlighted on the cover page. Uppsala in November 2010 Kaj Rosén EFORWOOD coordinator The Forestry Research Institute of Sweden (Skogforsk) Uppsala Science Park SE-751 83 Uppsala E-mail: [email protected] Project no. 518128 EFORWOOD Tools for Sustainability Impact Assessment Instrument: IP Thematic Priority: 6.3 Global Change and Ecosystems Deliverable D1.5.6 Monetary values of environmental and social externalities for the purpose of cost-benefit analysis in the EFORWOOD project Due date of deliverable: Month 48 Actual submission date: Month 52 Start date of project: 011105 Duration: 4 years Organisation name of lead contractor for this deliverable: CTFC, Spain Final version Project co-funded by the European Commission within the Sixth Framework Programme Dissemination(2002 2006) Level PU Public PP Restricted to other programme participants (including the Commission RE Restricted to a group specified by the consortium (including the Commission X Confidential, only for members of the consortium (including the Commission CO Services) 1 WP 1.5 Sustainability Impact Evaluation Monetary values of environmental and social externalities for the purpose of cost- benefit analysis in the EFORWOOD project Irina Prokofievaa, Beatriz Lucasa, Bo Jellesmark Thorsenb, Kirsten Carlsenb a Forest Technological Center of Catalonia (CTFC), Solsona, Spain b University of Copenhagen, Denmark Executive Summary The objective of the present document is to summarise the work on the monetary valuation of environmental and social externalities in the WP1.5 within the EFORWOOD project. The monetary estimates presented in this document form the core of the cost-benefit analysis implemented in the TOSIA-E software package developed during the project. The report partially builds on the previous deliverable PD1.5.1., which laid ground to this work by discussing the most important externalities that could potentially be included in the valuation process and suggesting the adequate indicators to measure these externalities. The present report takes a different perspective: it departs from the final set of indicators considered in the EFORWOOD project and establishes a link between these indicators and the relevant externalities included in the valuation exercise. The overall method chosen in EFORWOOD for this task is that of unit value transfer. No primary valuation studies were planned or have been undertaken in EFORWOOD. When possible and relevant, adjustments to unit values have been adopted. The transfer unit depends in all cases on the actual externality valued. A spatial transfer adjustment for several externalities has been undertaken, when relevant. For this purpose, variation in wealth and income (as captured in GDP/capita) also at the intra- national level have been used, and for the international transfer, purchasing power parity corrected adjusted measures have been used along with the related exchange rates. Across time, several assumptions on the growth in wealth and income (GDP/capita) and on the link between this measure and the valuation have been applied. This approach allowed us to assign value estimates to several of the externalities related to the EFORWOOD indicator set for sustainability assessment. These included recreation, non-greenhouse gas emissions, GHG emissions and carbon stock, water pollution, transport externalities and waste externalities. The following externalities were not covered, with monetary values at least, in the EFORWOOD project: biodiversity, landscape beauty, soil pollution, noise, odour, occupational accidents, and erosion. 2 Contents 1 Introduction ......................................................................................................................... 6 2 Environmental externalities ................................................................................................ 6 2.1 The concept of externality ........................................................................................... 6 2.2 Private vs. social costs and benefits............................................................................. 7 2.3 Externalities and their links to processes in EFORWOOD ......................................... 8 3 The concept of value and valuation methods ...................................................................... 9 3.1 Total economic value ................................................................................................... 9 3.2 The market price method ........................................................................................... 11 3.3 Revealed preferences techniques (RP) ...................................................................... 12 3.4 Stated preferences techniques (SP) ............................................................................ 13 3.5 Value transfer ............................................................................................................ 14 4 Obtaining values for specific externalities included in the EFORWOOD project ........... 16 4.1 Recreation .................................................................................................................. 16 4.1.1 Forest recreation in FWCs .................................................................................. 16 4.1.2 Recreation in the indicator set in EFORWOOD ................................................ 17 4.1.3 Transfer of recreational values ........................................................................... 18 4.1.3.1 Selection of relevant studies ........................................................................... 18 4.1.3.2 Harmonisation of values to €/visit per person per year .................................. 19 4.1.3.3 Spatial transfer of the values .......................................................................... 20 4.1.3.4 Time transfer of the values ............................................................................. 21 4.1.3.5 Income elasticity of WTP ............................................................................... 21 4.1.3.6 Recreation values used in EFORWOOD........................................................ 21 4.1.3.7 Limitations of using value transfer for recreation .......................................... 23 4.2 Non-greenhouse gas emissions .................................................................................. 23 4.2.1 Non-greenhouse gas emissions in FWCs ........................................................... 23 4.2.2 Existing valuation studies ................................................................................... 24 4.2.3 Comparison of valuation studies ........................................................................ 28 4.2.4 Monetary values used in EFORWOOD ............................................................. 29 4.3 GHG emissions and carbon stock in FWCs .............................................................. 32 4.3.1 Changes in the GHG emissions and carbon stock processes ............................. 33 4.3.2 Methods to estimate the price of carbon dioxide emissions ............................... 34 4.3.2.1 The marginal damage cost method ................................................................
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