Environmental Economics for Sustainable Growth

Transcription

1 Environmental Economics for Sustainable Growth A Handbook for Practitioners Anil Markandya Professor of Economics, University of Bath, UK, and Lead Economist, World Bank, USA Patrice Harou Senior Environmental Economist, World Bank, USA, and Visiting Professor, ENGREF, Nancy, France Lorenzo Giovanni Bellu Economist, and Policy Support Officer, Food and Agriculture Organization of the United Nations, Rome, Italy Vito Cistulli Senior Economist at the Blue Plan, a regional activity centre of the Mediterranean Action Plan of the United Nations Environment Programme (UNEP), Sophia Antipolis, France IN ASSOCIATION WITH THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT!fHE WORLD BANK Edward Elgar Cheltenham, UK Northampton, MA, USA.--. I _ " ~. d,. '_" _"~ _._._ ",,_,~.._ A'_~_ " +'~"--"-. -

2 The International Bank for Reconstruction and Development, The World Bank, 2002 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Glensanda House Montpellier Parade Cheltenham Glos GL50 IUA UK Edward Elgar Publishing, 136 West Street Suite 202 Northampton Massachusetts 0 I060 USA Limited Inc. A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Environmental economics for sustainable growth: a handbook for practitioners / Anil Markandya... let al.] p. em. "In association with the International Bank for Reconstruction and Development/ The World Bank." Includes bibliographical references and index. I. Environmental policy-economic aspects-handbooks, manuals, etc. 2. Sustainable development-handbooks, manuals, etc. I. Markandya, Anil, HC79.E5 E '27-dc ISBN I (cased) ISBN I (paperback) Printed and bound in Great Britain by BiddIes Ltd,

3 Contents List oftlrures List of tahles List of hoxes Foreword AcknowledRements IX Xlll XIX XXI XXlll 1 Introduction and structure Introduction Objectives of the book Description of the chapters 7 PART I ECONOMY-WIDE POLICIES AND THE ENVIRONMENT 2 Sustainable development vision in a global context The earliest definition of sustainable development Economic dimension of sustainable development Environmental sustainability Social sustainability Measures of strong and weak sustainability Sustainable development vision in a political context Integrating environment and development Strategies and political economy 37 3 Macroeconomic policies and the environment Introduction Macroeconomic policies and the environment Tools and methods of macroeconomic analysis Conclusions 68 3Al Case study 1: Structural adjustment and sustainable development in Zambia: a study of the impact of macroeconomic policies on the environment 74 3A2 Case study 2: A general equilibrium model of the Botswana economy, including the livestock sector 93 3A3 Case study 3: System of national accounts and the environment 103

4 vi ConunU 4 Sectoral policies and the environment Introduction III 4.2 Partial or sectoral market equilibrium III 4.3 Consumer and producer surplus Market failures Policy and institutional failures Shadow pricing Environmental management principles Conclusions 127 4A 1 Case study I: Economic analysis of the beef protocol in Botswana 129 4A2 Case study 2: GAP analysis: forestry sector 135 4A3 Case study 3: Land use and sectoral policies 142 4A4 Case study 4: Energy and industry sectors Policies, instruments and the environment Introduction Analytical tools Optimality of private decisions Environmental instruments Instruments in practice Lessons and conclusions to the chapter Problem set Solution to problem set Laws, regulations and institutions Introduction Legal system for environmental protection International legal instruments Environmental laws Environmental institutions Conclusions 235 6Al List of multilateral treaties and other agreements in the field of the environment 238 6A2 Discussion notes to check-list National environmental strategies Introduction Past experience Identifying and prioritizing problems Defining priorities for action: diagnosing causes Defining priorities for action: finding solutions Plan implementation Conclusions 264 7Al Questions for discussion 268

5 Contents vii 8 Economy-wide policies and the valuation of environmental impacts Introduction The project cycle and environmental assessment Appraisal of a project with environmental impacts Step I: EA and the with - without analysis Step 2: financial and economic appraisal Step 3: shadow pricing for market failures Step 4: discount rate and comparison of costs and benefits Step 5: decision-making with participation Conclusion 286 PART II ENVIRONMENTAL VALUATION METHODS FOR POLICIES AND PROJECTS 9 Economic principles and overview of valuation methods Introduction Total economic value of an environmental asset Basic concepts of valuation methods Overview of valuation methods 308 9A I Economics underlying valuation methods Revealed preference: direct proxy methods Introduction Productivity change method (PCM) Substitute cost method (SCM) 339 loa I Case study I: a numerical example of PCM 344 IOA2 Case study 2: a numerical example of SCM 353 IOA3 Technical substitutability of inputs and factors 360 II Revealed preference: indirect proxy methods Travel cost method Hedonic price method (HPM): the conceptual framework 371 IIA I Exercise I: Zonal travel cost method (ZTCM): a numerical example 379 IIA2 Exercise 2: Individual travel cost method (ITCM): a numerical example 389 II A3 Exercise 3: Hedonic price method (HPM): a numerical example 403 II A4 The linear model for ITCM demand functions 416 II A5 Mathematical functions for HPM Stated preference: contingent valuation methods Contingent valuation method: the conceptual framework CVM methodology 428

6 VIII Contents l2al Contingent valuation method: bidding game (CVMBG): numerical examples 436 l2a2 Contingent valuation method: dichotomous choice (CVMD) 452 l2a3 Dichotomous CVM using the logit model: a numerical example 465 l2a4 Dichotomous and polichotomous logit models 484 l2a5 Mean and median maximum WTP in the linear utility difference model Use of monetary values of environmental and natural resources for benefit-cost analysis: an application to a soil moisture conservation project in Tunisia Background Methodology Exercise: case study of the BCA for the Tunisia soil moisture conservation project Solution set Discussion Use of monetary values of environmental and natural resources in the framework of national accounts: an application to Costa Rica Theoretical background Methodology Exercise: Case study of environmental accounts for Costa Rica Valuing health impacts: a case study of air pollution in New Delhi, India Introduction Conceptual framework Case study: Valuing Health impacts in Delhi 545 Index 557

7 Figures 1.1 Schematic representation of chapters A vision of sustainable development The path of consumption in Dasgupta and Heal's model The ecological services of the natural environment An example of an environmental Kuznets curve Genuine saving rates by region Demand and supply for sawn wood Supply and demand corrected for policy, institutional and market failures Supply and demand corrected for open access 119 4A3.1 Sector and policy analyses linkage to land use 143 4A4.1 Hierarchical conceptual framework for integrated national (or resource) energy planning and environmental analysis 149 4A4.2 Example of an integrated supply curve for electricity 153 4A4.3 Private cost of electricity generation options 160 4A4.4 Social cost of electricity generation options Production of paper: (a) optimal private choice; (b) optimal private choice versus optimal social choice Forest exploitation: (a) optimal private choice; (b) optimal private choice versus optimal social choice Fisheries exploitation: (a) optimal private choice with and without subsidies; (b) optimal private choice versus optimal social choice Consumption of water from groundwater well: (a) optimal private choice; (b) optimal private choice versus optimal social choice Improving environmental quality: (a) optimal private choice; (b) optimal private choice versus optimal social choice Optimal level of pollution Optimal standards Impact of pollution charge on firm's pollution Differentiated Pigovian tax Marginal abatement cost curves Marginal abatement cost 215 IY

8 x Figures 7.1 Causes of environmental problems Environmental assessment and the project cycle Land productivity: with and without analysis A possible taxonomy of valuation techniques Price as lower bound to max WTP and upper bound to min WT A Measures of max WTP and min WT A for price and quantity changes Price decrease: CV, EV and CS Price increase: CV, EV and CS Dupuit or Marshall consumer surplus Environmental improvement: CSU and ESU Environmental damage: CSU and ESU A possible taxonomy of valuation techniques Equilibrium price change due to changes in environmental inputs and related welfare measures Change in environmental inputs and related welfare measures Demand and supply framework of the productivity change exercise Procedure for the productivity change method Value of the environmental input using the substitute cost method Procedure for substitute cost method 341 loa 1.1 Demand and supply framework of the productivity change exercise: case with constant unit production costs Zonal travel cost Steps of the TCM study Hedonic price function of houses Hedonic price function as a locus of individuals' equilibria Implicit marginal price function of the environmental attribute E A I. I ZTCM: step-by-step procedure for consumer surplus calculation A 1.2 Zonal travel cost: estimated demand curve and CS 386 II A2. I ITCM: major steps 394 II A2.2 ITCM: demand curve functions log-log and log-independent OLS: system l1a3.1 Step-by-step procedure for the calculation of the CS with HPM 405 I IA3.2 Estimated hedonic price function of houses for different levels of environmental good 410 IIA3.3 Inverse demand curve for different income levels 413

9 Figures xi lla4.l Estimating consumer surplus using a Linear Demand Function Environmental improvement: compensating surplus and equivalent surplus CVM combined elicitation formats (max WTP questions) General CVM methodology CYM: proposed step-by-step exercises 433 l2al.l Layout of the database for the CVM survey 440 l2a1.2 CVMB: step-by-step procedure for WTP/WTA calculation 441 l2a1.3 Cumulative frequency distribution of max WTP 446 l2a1.4 Sample average and median WTP by percentile of truncation 448 l2a2.1 Dichotomous choice CVM: step-by-step procedure for descriptive measures of individual max WTP 458 l2a2.2 Relative frequencies of acceptance 461 l2a2.3 Cumulative frequency distribution of max WTP 462 l2a2.4 Relative frequency of max WTP 463 l2a3.l Step-by-step procedure for probabilistic measures of max WTP with logit estimated by weighted least squares Schematic view of the soil moisture conservation project in Tunisia Production function of fruit trees versus water for different levels of soil fertility Estimated demand curve of daily visits Percentage composition of GDP Procedure for valuing impacts of environmental changes on premature mortality using number of deaths avoided Method for valuing impacts of environmental changes on reduced morbidity 546

10 Tables 2.1 Measures of genuine savings for selected countries Simple example of an action impact matrix (AIM) Integrating pollution into an I/O model 61 3Al.l Elasticities linking economic and ecological variables 82 3A1.2 Structural adjustment and sustainable development in Zambia: economic and social projections with no SAP 83 3A1.3 Agreement under the SAP 85 3A1.4 Estimates of impacts of SAP to be worked out 86 3A1.5 Structural adjustment and sustainable development in Zambia economic, social and environmental projections with SAP 88 3A2.1 Selected results from Tyler's model of a fall in the export price of beef A summary of the impact of externalities 117 4Al.l Projections of cattle numbers without subsidy 133 4A4.1 Data on sources and costs of electricity for a country 158 4A4.2 Supply options sorted by private cost 159 4A4.3 Supply options sorted by social cost Experience with taxes and charges on transport in selected developing countries Experience with natural resource taxes and charges in selected developing countries Water charges in selected developing countries Selected waste charges Selected charges and taxes on industry in developing countries Appraisal of projects with environmental impacts Financial and economic analysis Forest assets and their service flows CV and EV for price changes; CSU and ESU for environmental changes Environmental impacts, welfare issues and relevant valuation methods 310 XIlI