Economic valuation studies can be done for many purposes. They can serve as the core for:
- cost-benefit analyses (e.g., for deciding whether to become a Party to an MEA or for examining legal or regulatory options), or
- assessing the damage to natural resources and the environment (e.g., in deciding an appropriate penalty in a case).
In conducting an economic valuation, States and the individuals performing the valuation may consider the following:
- Start the analysis simply, with the most easily valued environmental impacts. Any analysis will quickly become complicated, so it is important to focus on the major environmental issues, and especially those where valuation is most feasible. This often means a focus on production or health impacts. In other situations it may be loss of recreational benefits.
- Recognise the symmetry between benefits and costs. In the case of air or water pollution, health costs avoided (including costs of treatment, drugs, and lost work-days) are an important measure of the benefits from pollution reduction.
- Always carry out the analysis in a with-intervention and without-intervention framework. The correct comparison is not between now and some time in the future, but rather between what would be the situation with the intervention, versus what would be the situation without the intervention. In some cases conditions may worsen over time, even with the proposed intervention, but would have become even worse had no action been taken.
- State all assumptions explicitly, and identify data used and any additional data needs. Others can assess the analysis and results only if they clearly understand the assumptions and data used. Such understanding will allow replication of the analysis using alternative assumptions and/or data.
- Finally, valuation studies should be well documented and should pass peer review. This step helps ensure that the results are credible and can be used for policy analysis.
Source: OECD Background Paper on Valuing Environmental Benefits and Damages in the NIS: Opportunities to Integrate Environmental Concerns into Policy and Investment Decisions, available at http://www.oecd.org/dataoecd/22/48/2382184.pdf
See also case study on “Resources on Defining and Valuing Environmental Damage” following Guideline 40(c)
and discussion of economic instruments following Guideline 41(g).