RESTRICTED
WORLD TRADE WT/CTE/W/72
26November 1997
ORGANIZATION(97-5199)
Committee onTrade andEnvironment
METHODOLOGIES FOR ENVIRONMENTAL VALUATION:
ASELECTED BIBLIOGRAPHY
Note bytheSecretariat
1. ThisNotehasbeenprepared inresponse toarequest fromMembers oftheCommittee onTrade
andEnvironment fortheSecretariat toprepare abibliography ofreferences which dealwithissues
related toenvironmental valuation.1Thefollowing provides anintroduction tosome oftheissues which
areaddressed inthereferences contained inthebibliography.
2. Anumber oftoolshavebeendeveloped tovalue thebenefit ofenvironmental improvements,
ortovalue thedamage caused byenvironmental degradation. Oneofthetechniques which hasbeen
usedtovalue theenvironment iscost/benefit analysis. Thistechnique ofenvironmental valuation is
used, forexample, todetermine theviability ofenvironmental management policies. Inthisrespect,
experience hasillustrated thatitisdifficult toquantify withanyprecision many ofthevariables that
should beincluded inacalculation ofenvironmental costsandbenefits, given thatmany environmental
goods andservices arenotexchanged inthemarket place andtherefore arenotassigned amarket value.
3. Environmental valuation wasinitially usedtocalculate liability, suchasthecostofcleaning-up
environmental accidents, andcompensating environmental damage. Thewelfare ofsociety canbe
undermined when market prices failtocapture theeffects ofenvironmentally-damaging activities and
therefore sendmisleading signals concerning theoptimal useofenvironmental goods andservices.
Environmental valuation hasalsobeenusedtoincorporate environmental costsandbenefits insystems
ofnational accounting; tomeasure environmental benefits associated withtrade liberalisation; and
todetermine anappropriate rateofenvironmental taxes orcharges.
4. Various environmental valuation techniques haveemerged inrecent years. Work hasbeen
carried outinacademic research institutes andintergovernmental foras, such astheUNCTAD
Intergovernmental Group ofExperts onStandards ofAccounting andReporting, theWorld Bank and
UNEP. Inaddition totheon-going work onnatural resource accounting, anextensive bodyofliterature
inthefieldofenvironmental economics continues tobedeveloped onvaluation methodologies. The
attached bibliography contains references toanumber ofcontributions inthisfield.
5. Environmental valuation hasconcentrated ontwoareas: (a)quantifying damages arising from
environmental degradation. Thisincludes defensive expenditures which encompass pollution abatement
costs andthecosts oftreating hazardous ortoxic wastes. Defensive expenditures alsoinclude the
environmental costsrelated tochanges inecosystem functions, suchaswithrespect towildlife habitats,
1ReferencestoenvironmentalvaluationarecontainedintheSecretariat'ssectoralanalysisoftheenvironmental
benefits ofremoving trade restrictions anddistortions (WT/CTE/W/67).WT/CTE/W/72
Page2
biodiversity lossandsoilorairquality; and(b)quantifying theextent towhich different environmental
functions contribute directly andindirectly toconventional calculations ofeconomic wealth.2
6. Thevalue derived fromenvironmental resources canbeclassified intousevalue which iscreated
bythecurrent useofenvironmental resources either directly orindirectly, andnon-use value which
iscreated bythedesire toensure thatanenvironmental resource willcontinue tobeprovided inthe
future. Theliterature examines, forexample, thebenefits associated withestablishing economic values
forbiodiversity, wetlands, forests, wildlife, water andairquality, andvarious other environmental
goods andservices which arepublic orcollective goods.
7. Environmental valuation techniques undertake thecomplex taskofidentifying environmental
benefits anddamages andthenassigning amonetary value tothem. Inthiscontext, itisimportant
toemphasize thatmostenvironmental valuation techniques donotattempt toquantify thefullorintrinsic
value oftheenvironment, perse,butendeavour tomeasure public preferences orwillingness-to-pay
forchanges inenvironmental quality. Costeffectiveness andimpact analysis arealsousedtoidentify
andquantify theimpacts ofparticular policies ontheenvironment.
8. Different methods ofenvironmental valuation havebeenshown tohavedifferent strengths and
weaknesses. Forexample, contingent valuation isanapproach toenvironmental valuation which is
based onananalysis ofdetailed surveys andquestionnaires thatmeasure public willingness-to-pay for
anenvironmental goodorservice (e.g.formunicipal water, parks andrecreational areas, biodiversity
conservation). Surveys attempt tomeasure theuseandnon-use value ofenvironmental goods and
services. Among theconcerns raised about suchanapproach isthatthedesign ofsurvey questions
maybebiased. Other valuation techniques which aredescribed intheliterature include damage function
valuation, household production function valuation andhedonic pricing methods.
2Forexample, although wetlands tendtobeundervalued using conventional economic calculations, onestudy
hasestimated theeconomic returns from clearing wetlands forother usestobeUS$29 perhectare ofland, while
theindirect usevalue from protecting thewetland wasintherange ofUS$167 perhectare. SeeE.Barbier,
et.al.,(1993).WT/CTE/W/72
Page3
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