Economics studies the choices people make. ‘Rational choice’ involves the weighing up of costs and benefits and trying to maximise the surplus of benefits over costs. This surplus will be maximised when people do more of things where the marginal benefit exceeds the marginal cost and less of things where the marginal cost exceeds the marginal benefit. But, of course, measuring benefits and costs is not always easy. Nevertheless, for much of the time we do make conscious choices where we consider that choosing to do something is ‘worth it’: i.e. that the benefit to us exceeds the cost.
When we make a choice, often this involves expenditure. For example, when we choose to buy an item in a shop, we spend money on the item, and also, perhaps, spend money on transport to get us to the shop. But the full opportunity cost includes not only the money we spend, but also the best alternative activity sacrificed while we are out shopping.
Then there are the benefits. Not all pleasurable activity costs us money. The sight of beautiful contryside or the pleasure of the company of friends may cost us very little, if anything, in money terms. But they may still be very valuable to us.
If we are to make optimal decisions we need to have some estimate of all costs and benefits, not just ones involving the payment or receipt of money. This applies both to individual behaviour and to collective decisions made by governments or other agencies.
Cost–benefit analysis seeks to do this to help decisions about new projects, such as a new road, a new hospital, environmental projects, and so on. But just how do we set about putting a value on the environment – on the pleasure of a walk in bluebell woods, on protecting bird life in wetlands or sustaining ecosystems?
For the first time there has been a major study that attempts to value the environment. According to the introduction to the report:
The UK National Ecosystem Assessment (UK NEA) is the first analysis of the UK’s natural environment in terms of the benefits it provides to society and the nation’s continuing prosperity. Carried out between mid-2009 and mid-2011, the UK NEA has been a wide-ranging, multi-stakeholder, cross-disciplinary process, designed to provide a comprehensive picture of past, present and possible future trends in ecosystem services and their values; it is underpinned by the best available evidence and the most up-to-date conceptual thinking and analytical tools. The UK NEA is innovative in scale, scope and methodology, and has involved more than 500 natural scientists, economists, social scientists and other stakeholders from government, academic and private sector institutions, and non-governmental organisations (NGOs).
The following podcast and webcast look at the report and at some of the issues it raises in terms of quantifying and incorporating environmental costs and benefits into decision taking.
Podcast and Webcast
‘The hidden value’ of our green spaces BBC Today Programme, Tom Feilden (2/6/11)
Report puts monetary value on Britain’s natural assets BBC News, Jeremy Cooke (2/6/11)
NEA report highlights need for biodiversity Farmers Guardian, Ben Briggs (2/6/11)
Nature is worth £19bn a year to the UK economy – report Energy & Environmental Management Magazine (2/6/11)
In praise of… the unquantifiable Guardian (3/6/11)
Priceless benefits of bluebell woods Guardian letters, Dr Bhaskar Vira and Professor Roy Haines-Young (4/6/11)
Nature ‘is worth billions’ to UK BBC News, Richard Black (2/6/11)
Putting a price on nature BBC News, Tom Feilden (2/6/11)
Value of Britain’s trees and waterways calculated in ‘ground-breaking’ study The Telegraph, Andy Bloxham (2/6/11)
Nature worth billions, says environment audit Financial Times, Clive Cookson (2/6/11)
Nature gives UK free services worth billions Planet Earth, Tom Marshall (3/6/11)
UK scientists put price on nature with National Ecosystem Assessment GreenWise, Ann Elise Taylor (2/6/11)
- How would you set about valuing the benefits of woodlands?
- According to the report, the health benefits of living close to a green space are worth up to £300 per person per year. How much credance sould we attach to such a figure?
- What do you understand by the ‘ecosystem approach’ and the term ‘ecosystem services’?
- Explain Figure 2 on page 3 of Chapter 2 of the report.
- Should decision makers quantify only those benefits of ecosystems experienced by humans? Would all environmentalists agree with this approach?
- What are the advantages and disadvantages of quantifying all costs and benefits in money terms?
- Compare the consequences over the next 50 years of a ‘world markets’ scenarios with that of a ‘nature at work’ scenario.
- What policy implications follow from the report?