Cost-Benefit Analysis and Valuation

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A systematic method of comparing total expected costs against total expected benefits of a decision, including environmental and social factors.

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1) Direct use — timber, food, water. 2) Indirect use — pollination, flood protection. 3) Option value — potential future uses. 4) Non-use/existence value — knowing it exists.

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1) Makes environmental costs visible to policymakers. 2) Allows comparison of policy options. 3) Can justify conservation spending in economic terms.

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Useful but imperfect. It makes costs visible and helps compare options, but struggles with irreversible damage, intergenerational equity, and non-monetary values.

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The rate used to reduce future costs/benefits to present value. High discount rates undervalue future generations' wellbeing, making long-term environmental protection seem less worthwhile.

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Timber = market pricing. Flood defence = replacement cost. Visitor spending = travel cost. Whale survey = contingent valuation (willingness to pay).

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The stock of natural resources and ecosystems that provide benefits (ecosystem services) to humans. Depleting natural capital reduces the ability to provide these services.

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1) Reduces nature to monetary terms. 2) Ignores intrinsic value. 3) Cultural/spiritual values can't be monetised. 4) Valuations vary widely by method used.

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Natural capital is the stock (forests, oceans, soil). Ecosystem services are the flows (timber, clean water, pollination). Depleting capital reduces the flow of services.

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1) Market pricing — value of traded goods. 2) Replacement cost — artificial substitute cost. 3) Travel cost — spending to visit natural areas. 4) Willingness to pay — survey-based valuation.

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An ecocentric view argues nature has value beyond what economics can capture. Reducing a rainforest to its timber value ignores its intrinsic worth and spiritual significance.

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Estimating the value of environmental goods by asking people how much they would be willing to pay to protect them (surveys and questionnaires).

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1) Putting monetary value on species/ecosystems. 2) Discount rates undervalue future generations. 3) Irreversible damage can't be compensated. 4) Cultural/spiritual values can't be quantified.

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The value of keeping an ecosystem intact for potential future uses that may not yet be known — e.g., undiscovered medicines from rainforest plants.

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Mangroves provide coastal protection from storms and flooding — this is indirect use value because people benefit from the service without directly harvesting the mangroves.

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Valuing an ecosystem service by estimating how much it would cost to artificially replace it. E.g., a wetland's flood protection valued by cost of building flood defences.

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Discuss its usefulness (makes costs visible, aids comparison) AND limitations (can't capture intrinsic value, discount rates undervalue future, valuations vary). Conclude with a balanced judgement.

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Different methods give different answers. Market pricing captures only traded goods. Willingness-to-pay depends on income and awareness. Discount rates change present values dramatically.

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The value people place on knowing something exists, even if they never use or see it. E.g., many people value knowing blue whales exist even though they will never see one.

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High discount rates make future environmental damage seem unimportant in present-value terms. A forest worth billions in 100 years appears almost worthless today — undermining long-term protection.