Environmental Valuation & Cost-Benefit News

2. How to be an ecological economist
Pages 1-7
by Malte Faber
Abstract: To answer the question “How to be an Ecological Economist”, we must start by defining the field of Ecological Economics. Mainstream Economics altogether lacks the concepts required to deal adequately with nature, justice and time. It was the absence of these three concepts in this otherwise great social science that led to the establishment of Ecological Economics. The interest in nature, justice and time is its defining characteristic. The main thesis of this paper is that our field is a fragile institution and that the professional existence of an ecological economist is no less fragile. However, this very fragility also represents freedom, scope for free thinking, conceptualising and research. Nevertheless, to be able to really use and in turn enjoy the full scope of this freedom, an ecological economist needs certain specific characteristics, in particular what is termed in the German philosophical tradition “Urteilskraft” and in English “power of judgement”. A description of these characteristics is developed in this paper, providing an answer to the question “How to be an ecological economist?”

3. A comment on “Economy-wide estimates of the implications of climate change: Human health”
Pages 8-13
by Frank Ackerman and Elizabeth A. Stanton
Abstract: In a recent article in this journal, Francesco Bosello, Roberto Roson, and Richard Tol make the remarkable prediction that one degree of global warming will, on balance, save more than 800,000 lives annually by 2050. They introduce enormous, controversial monetary valuations of mortality and morbidity, varying with income; they then focus primarily on modeling the much smaller, indirect economic effects of the changes in health outcomes. Their calculations, large and small, are driven by the huge projected reduction in mortality — an estimate that Bosello et al. fail to substantiate. They rely on research that identifies a simple empirical relationship between temperature and mortality, but ignores the countervailing effect of human adaptation to gradual changes in average temperature. While focusing on small changes in average temperatures, they ignore the important health impacts of extreme weather events. They extrapolate the effects of small changes in average temperature far beyond the level that is apparently supported by their principal sources, and introduce arbitrary assumptions that may bias the result toward finding net health benefits from warming.

4. Economy-wide estimates of the implications of climate change – a rejoinder
Pages 14-15
Fby rancesco Bosello, Roberto Roson and Richard S.J. Tol
Abstract:

5. Integrated hydro-economic modelling: Approaches, key issues and future research directions
Pages 16-22
by Roy Brouwer and Marjan Hofkes
Abstract: Integrated hydro-economic models aim to capture the complexity of interactions between water and the economy. Three main approaches are distinguished: modular, holistic and computable general equilibrium models. The latter top-down models counterbalance the traditional emphasis on bottom-up water engineering approaches. Key issues and future research directions in integrated hydro-economic modelling are discussed and illustrated through a variety of case study applications worldwide. Although the interaction works both ways, feedback effects of water changes on the economy and changes in the economy on the water system are often missing in practice. The link between water and ecology is another important future research direction.

6. Efficiency, equity, and sustainability in a water quantity–quality optimization model in the Rio Grande basin
Pages 23-37
by Frank A. Ward and Manuel Pulido-Velázquez
Abstract: Integrated hydrologic and economic optimization models at the basin scale provide a framework for policy design, implementation, and evaluation in water-stressed basins. Despite the considerable potential that basin scale analysis offers, few basin-wide studies have examined tradeoffs among efficiency, equity, and sustainability when analyzing the design of water resource programs. This paper develops a basin scale framework to identify hydrologic and economic impacts of alternative water pricing programs that comply with environmental regulations for protecting water quality. Key issues are examined that confront integrated hydroeconomic basin models: linking water and economics, spatial and temporal scale integration, and quantity–quality relationships. Economic efficiency is defined and measured for each of two urban water pricing arrangements that comply with urban water quality protection regulations. Alternative measures of equity are analyzed in both spatial and temporal dimensions. Sustainability is evaluated physically for protecting the water supply and financially for long-term revenue viability. The approach is illustrated from results of a dynamic nonlinear programming optimization model of water use in North America's Rio Grande basin. The model optimizes the net present value of the basin's total economic benefits subject to constraints on equity, sustainability, hydrology, and institutions. It is applied to assess impacts of a two-tiered pricing program that complies with recently implemented drinking water quality standards for the basin's two largest U.S. cities: Albuquerque, New Mexico, and El Paso, Texas. Results suggest that two-tiered pricing of urban water supply has considerable potential to perform well in meeting the aims of efficiency, equity, and sustainability. Findings provide a general framework for designing water pricing programs that comply with environmental regulations.

7. Substitution between water and other agricultural inputs: Implications for water conservation in a River Basin context
Pages 38-50
by Ximing Cai, Claudia Ringler and Jiing-Yun You
Abstract: Substitution of irrigation water with other agricultural inputs could be an important means to conserve water in the face of growing pressures on water resources from both nonagricultural water demands and environmental water requirements. This paper discusses the potential of such substitution through an empirical analysis based on a multiple-input crop production function at the field and farm scales complemented with a numerical modeling exercise at the basin scale. Results from the crop production function analysis show that under both crop yield and net profit maximization, water is a substitute to other crop inputs for high-value crops, and is a complement to water for low-valued crops. At the basin scale, an integrated economic–hydrologic river basin model is used to analyze the role of other factors in crop input substitution, including the spatial connections among water sources and demands, hydro-agronomic conditions, and institutional settings for water allocation. Results show that in the case study area, the Maipo River basin in Chile, where water is very scarce, moving from the current, input-constrained, situation to full optimization of water resources leads to an increase in all crop inputs, including water. In that case, 301 million m3 of additional water use results in additional net profits of USD 11 million. However, if the water fee is raised by a factor of eight while overall basin irrigation profits are maintained at the original, baseline level, a reduction of water withdrawals by 326 million m3 is traded off with costs of USD 43.2 million for other inputs. Irrigation districts with a high share of low-value crops have a low potential for substituting water with other crop inputs. Therefore, investments for water substitution should also be kept low in these areas.

8. Hydro-economic river basin modelling: The application of a holistic surface–groundwater model to assess opportunity costs of water use in Spain
Pages 51-65
by Manuel Pulido-Velazquez, Joaquín Andreu, Andrés Sahuquillo and David Pulido-Velazquez
Abstract: Combined hydro-economic models of river basins are fundamental tools for assessing management and infrastructure strategies to improve the economic efficiency of water use in a context of competition over scarce water resources. Integrated hydro-economic models have to be capable to properly reproduce the physical behavior of the system, with a realistic representation of the different surface and groundwater resources, including their interaction, and the spatial and temporal variability of resource availability. On the other hand, such models must incorporate the value of water for different urban, agricultural and industrial uses and users. Economic values for water use are defined according to the marginal residual value of water for production (for agricultural and industrial uses) or the aggregated willingness-to-pay (WTP) for urban supply and other final water uses. In this paper, we present a systematic approach to estimate the marginal economic value of surface and groundwater resources at different locations within a complex water resources system. Based on a holistic conjunctive optimization model applied to the Adra river system in Spain we asses the total and marginal opportunity costs of capacity and operation constraints, including the opportunity cost of imposing environmental constraints on water use as foreseen in future Spanish water policy following the implementation of the European Water Framework Directive. The resulting opportunity costs provide important information to water managers about economic inefficiencies of current water allocation policy or infrastructure design, and about the resource opportunity costs to be considered in the design of efficient pricing policies in regions with water scarcity issues.

9. Integrated ecological-economic modelling of water pollution abatement management options in the Upper Ems River Basin
Pages 66-76
by Martin Volk, Jesko Hirschfeld, Alexandra Dehnhardt, Gerd Schmidt, Carsten Bohn, Stefan Liersch and Philip W. Gassman
Abstract: This paper presents the results of the FLUMAGIS project, in which we developed a spatial decision support system (SDSS) to support the implementation of the European Water Framework Directive (WFD). The modelling approach is based on the integration of ecological and socio-economic assessment methods, scale-specific and GIS-based data and knowledge modelling and visualization techniques. The project study area is the intensively cropped Upper Ems River Basin in north-western Germany. A method was developed that enables the transfer of scale-specific data and information. Analyses were performed for baseline conditions and specific management and planning scenarios to improve water quantity and quality at micro-, meso- and macro-scale. The results of the study indicate that substantial, expensive water and land management changes at different scales would be necessary to achieve the WFD water quality targets in this basin. Ecological-economic analysis of cost-effectiveness reveals that the costs of achieving certain goals of the WFD can vary more than tenfold depending on which measure is chosen out of the pool of management alternatives. Moreover, the study shows that the differentiation between landscapes and other regional characteristics although considered essential to the successful implementation of WFD measures is very data intensive.

10. Integrated hydrodynamic and economic modelling of flood damage in the Netherlands
Pages 77-90
by S.N. Jonkman, M. Bočkarjova, M. Kok and P. Bernardini
Abstract: This paper presents a model developed in the Netherlands for the estimation of damage caused by floods. The model attempts to fill the gap in the international literature about integrated flood damage modelling and develop an integrated framework for the assessment of both direct hazard-induced damages and indirect economic damages such as the interruption of production flows outside the flood affected area, as well as loss of life due to flooding. The scale of damage assessment varies from a specified flood-prone area in a river basin or a coastal region to the country's entire economy. The integrative character of the presented model is featured by the combination of information on land use and economic data, and data on flood characteristics and stage-damage functions, where the geographical dimension is supported by modern GIS to obtain a damage estimate for various damage categories. The usefulness of the model is demonstrated in a case study estimating expected flood damage in the largest flood-prone area in the Netherlands.

11. Bayesian belief networks as a meta-modelling tool in integrated river basin management — Pros and cons in evaluating nutrient abatement decisions under uncertainty in a Norwegian river basin
Pages 91-104
by D.N. Barton, T. Saloranta, S.J. Moe, H.O. Eggestad and S. Kuikka
Abstract: A Bayesian network approach is used to conduct decision analysis of nutrient abatement measures in the Morsa catchment, South Eastern Norway. The paper demonstrates the use of Bayesian networks as a meta-modelling tool in integrated river basin management (IRBM) for structuring and combining the probabilistic information available in existing cost-effectiveness studies, eutrophication models and data, non-market valuation studies and expert opinion. The Bayesian belief network is used to evaluate eutrophication mitigation costs relative to benefits, as part of the economic analysis under the EU Water Framework Directive (WFD). Pros and cons of Bayesian networks as reported in the literature are reviewed in light of the results from our Morsa catchment model. The reported advantages of Bayesian networks in promoting integrated, inter-disciplinary evaluation of uncertainty in IRBM, as well as the apparent advantages for risk communication with stakeholders, are offset in our case by the cost of obtaining reliable probabilistic data and meta-model validation procedures.

12. Integrated water and economic modelling of the impacts of water market instruments on the South African economy
Pages 105-116
by Jan H. van Heerden, James Blignaut and Mark Horridge
Abstract: A static computable general equilibrium model of South Africa is adapted to compare new taxes on water demand by two industries, namely forestry, and irrigated field crops. Comparisons are made with respect to both the short and the long run, in terms of three target variables, namely (i) the environment; (ii) the economy; and (iii) equity. Since the taxes on the two industries do not raise the same amount of revenue, the target variables are calculated per unit of real government revenue raised by the new taxes (also referred to as the marginal excess burdens of the taxes). The model results are robust for moderate values of the water elasticity of demand in the two industries, in both the long and the short run. The tax on irrigated field crops performs better in terms of all three the target variables in the short run. In the long run the tax on irrigated filed crops is better in terms of water saving, but reduces real GDP and the consumption by poor households.

13. The value of the high Aswan Dam to the Egyptian economy
Pages 117-126
by Kenneth M. Strzepek, Gary W. Yohe, Richard S.J. Tol, Mark W. Rosegrant
Abstract: The High Aswan Dam converted a variable and uncertain flow of Nile river water into a predictable and controllable water supply stored in Lake Nasser. We use a computable general equilibrium model of the Egyptian economy to estimate the economic impact of the High Aswan Dam. We compare the actual 1997 economy to the 1997 economy as it would have been if historical pre-dam Nile flows (drawn from a 72 year portrait) had applied (i.e., the Dam had not been built). The steady water supply sustained by the High Aswan Dam increased transport productivity, and year round availability of predictable and adequate water sustained a shift towards more valuable summer crops. These static effects are worth EGP 4.9 billion. Investments in transport and agriculture increased as a consequence; these investments, assuming that Egypt is a small open economy, added another EGP 1.1 billion to the value of the Dam. The risk premium on the reduced variability is estimated to be EGP 1.1 billion for a modest risk aversion, and perhaps EGP 4.4 billion for a high risk aversion. The total gain of EGP 7.1 billion to 10.3 EGP billion equals 2.7% to 4.0% of annual GDP in 1997.

14. General equilibrium modelling of the direct and indirect economic impacts of water quality improvements in the Netherlands at national and river basin scale
Pages 127-140
by Roy Brouwer, Marjan Hofkes and Vincent Linderhof
Abstract: The main objective of the study presented in this paper is to estimate the direct and indirect economic impacts of water quality policy scenarios in the Netherlands focusing on the reduction of emission levels of nutrients and a number of eco-toxicological substances. For this purpose, an Applied General Equilibrium (AGE) model consisting of 27 production sectors is extended to water through the inclusion of substitution elasticities between labour, capital and emissions to water in the sectors' production functions. The macro-economic costs of a 10, 20 and 50% reduction of the emission levels in the year 2000 of ten priority substances in the EU Water Framework Directive vary between 0.2 and 9.4% of Net National Income (NNI). A large share of the total economic costs are borne by important sources of pollution like commercial shipping, the chemical and metal industry. However, important spin-off effects due to adaptation take place in the tertiary service sector. Besides the estimation of the economy-wide impacts of water quality improvements, the novelty of the study presented here is found in the downscaling of national and sector results to river basin level and the estimation of shadow prices for water-polluting substances through the introduction of an emission permits market.

15. The determinants of EST adoption by manufacturing plants in developing countries
Pages 141-152
by Ralph Luken, Frank Van Rompaey and Katarína Zigová
Abstract: This article reports on the findings of a survey undertaken in late 2001–early 2002 on the determinants of environmentally sound technology (EST) adoption by 98 plants in eight developing countries. We review the literature on technology diffusion and technology capabilities as well as empirical studies with an exclusive focus on developing countries that explicitly addressed environmental performance or EST adoption to formulate our heuristic model that guided our investigation. We examine in some detail the determinants of both prevention and abatement technologies, which has seldom been investigated, in developing countries.

In full recognition of literature that cites a host of reasons that cause plants to adopt EST we take into account both contextual and plant-specific factors. We use an ordered choice model that revealed that plant-specific factors assume a pre-dominant role in explaining the adoption of higher order of complexity EST. Plant-specific factors, specifically environmental commitment, technological capabilities, and ownership, and market factors, specifically foreign involvement and water and energy price perception, matter in determining the type of technological response and thus in explaining the adoption of higher-order complexity EST. Two governmental factors, regulatory implementation strategy and international donor assistance, also play a role in the adoption of EST. However, civil society, in particular community pressure that has been identified as an important determinant of environmental performance, does not play a role because of the way the dependent variable is constructed to capture higher orders of technological complexity.

16. What triggers environmental management and innovation? Empirical evidence for Germany
Pages 153-160
by Manuel Frondel, Jens Horbach and Klaus Rennings
Abstract: It is frequently hypothesized that environmental management systems (EMSs) may improve firms' environmental innovation performance. Whether this hypothesis is true is as critical for environmental policy as questions pertaining to the relevant incentives for (1) a firm's voluntary adoption of an EMS and (2) its environmental innovation behavior. Based on ample empirical evidence for German manufacturing, this paper addresses the simultaneity of these issues on the basis of a recursive bivariate probit model that explores the hypothesis that a facility's decision on innovation activities is correlated with the decision on EMS adoption. Our empirical results, indicating that environmental innovation activities are not associated with EMS implementation nor any other single policy instrument, reflect the perceptions of the survey respondents and, hence, should be interpreted as correlations rather than causal relationships. According to these perceptions, innovation behavior seems to be mainly correlated with the stringency of environmental policy.

17. Poverty and resource dependence in rural India
Pages 161-176
by Urvashi Narain, Shreekant Gupta and Klaas van 't Veld
Abstract: Previous studies of rural households in developing countries have tended to find that the dependence of these households on common-pool resources declines with income. Our study of households in Jhabua, India, finds a more complex relationship. Using the share of resource income in total long-run or “permanent” income as our dependence measure—which we argue is more appropriate than the short-run income-based measure commonly used in the literature—we find that for households that collect any resources at all, dependence exhibits a U-shaped relationship with income. That is, the poorest and richest households depend more on resources than households with intermediate incomes. The poorest and richest households are also found to be least likely to collect, however, indicating that resource use at the income extremes is bimodal—either zero or above average. Moreover, the observed trends for resources as a whole are not mirrored in those for individual resources. Dependence on fuelwood and dung declines with income, for example, while dependence on fodder and construction wood increases. These findings suggest that common-pool resources are a productive source of income not just for the poor but also for the rich, and that improvements in the stocks of these resources can potentially form the basis of poverty reduction efforts in these economies.

18. The economics of biotechnology under ecosystem disruption
Pages 177-183
by Diemuth E. Pemsl, Andrew P. Gutierrez, Hermann Waibel
Abstract: Economic analysis of chemical pesticide use has shown that the interactions between plants, pests, damage control technology and state of the ecosystem are important variables to be considered. Hence, a bio-economic model was developed for the assessment of Bt variety and pesticide-based control strategies of the cotton–bollworm in China. The model simulates plant growth, the dynamics of pest populations and of natural enemies. The model predictions are used as major inputs for a stochastic micro-level profit model of alternative control strategies.

Results show that: (1) productivity effects of Bt varieties and pesticide use depend on the action of natural control agents, and (2) the profitability of damage control measures increases with the severity of ecosystem disruption. The findings highlight the importance of the choice of the counterfactual scenario in the assessment of the impact of agricultural biotechnology. Also, some doubts are raised whether the high benefits of Bt cotton varieties claimed by previous studies based on cross section comparisons are realistic.

19. Using choice experiments to assess smallholder farmers' preferences for pig breeding traits in different production systems in North–West Vietnam
Pages 184-192
by Regina Roessler, Adam G. Drucker, Riccardo Scarpa, André Markemann, Ute Lemke, Le T. Thuy, Anne Valle Zárate
Abstract: Livestock form key components of the livelihood strategies of many of the world's poorest people. However, despite the potential to alleviate poverty and improve food security through livestock development interventions, the lack of smallholders' participation in the planning and design of breeding programs has often been a major cause of the failure of such programs. Particularly in developing countries where livestock production is still mostly subsistence-oriented and livestock fulfil manifold functions a considerable number of livestock breeding programs have failed. The development of adequate tools to characterise these functions, bearing in mind that these are expressed only rarely in properly functioning markets, is therefore important.

This paper seeks to advance the application of such methodologies to the smallholder pig sector in Vietnam. A choice experiment was applied across 140 households involved in pig breeding in order to assess farmers' preferences and the trade-offs for a list of adaptive and productive traits. These included growth, reproduction, disease resistance, feed requirements and appearance.

The findings indicate that smallholders highly value both adaptive and performance traits, particularly in resource-driven (i.e. subsistence) production systems. Performance traits were more highly valued in the demand-driven (i.e. market-oriented) systems. These findings have implications for breeding program breed choice and breeding objectives.

20. Trade-offs between conservation and socio-economic objectives in managing a tropical marine ecosystem
Pages 193-210
by William W.L. Cheung and U. Rashid Sumaila
Abstract: Understanding the trade-off relationships between ecological, economic and social objectives is important in designing policies to manage or restore ecosystems. Using the northern South China Sea (NSCS) as a case study, we explore the trade-offs between conservation and socio-economic objectives in managing fisheries in tropical marine ecosystems. Using a numerical optimization routine and ecosystem modelling (Ecopath with Ecosim), the study shows that current management of the NSCS is sub-optimal both in terms of conservation and economic objectives. Therefore, improvement in both conservation status and economic benefits can be achieved by reducing fishing capacity. However, the implementation of conservation plans may be hindered by the reduced number of fisheries-related jobs and the lack of alternative livelihoods. Similar trade-offs are apparent in many tropical marine ecosystems. Thus, this paper supports claims from previous studies that solving the alternative livelihood problems appears to be a priority for improving management and conservation in these ecosystems. A buy-back scheme that is funded by fishers might be effective in reducing fishing capacity. However, public funds are required if management objectives focus strongly on conservation. This might be justified by the direct or indirect benefits to society that could be provided by well-conserved ecosystems. This study highlights the conflict between maximizing conservation and social objectives, although win–win solutions between conservation and economic objectives may be possible.

Book Reviews
21. Phillip Lawn, Frontier issues in ecological economics , Edward Elgar, Cheltenham, UK (2007) ISBN 978 1 84542 840 2 374 pages.
Pages 211-212
by John Gowdy
22. Environmental valuation in developed countries .David Pearce, Editor, Case Studies, Edward Elgar (2006) ISBN-13:978 1 84064 147 9, 458 pages.
Page 212
by Glenn-Marie Lange
23. Susanne Stoll-Kleemann and Martin Welp, Editors, Stakeholder Dialogues in Natural Resources Management Theory and Practice XXVIII, Springer Verlag (2006) ISBN 978-3-540-36916-5 386 p. 20 illus.
Pages 213-214
by Frank Wätzold

Ecological Economics via Elsevier Science Direct www.ScienceDirect.com
Volume 66, Issue 1; May 15, 2008; pages 1-214
Special Section: Integrated Hydro-Economic Modelling for Effective and Sustainable Water Management
http://www.sciencedirect.com/science?_ob=PublicationURL&_cdi=5995&_pubType=J&_auth=y&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=2db33f53d1556950baca7799008c110b&view=f