PROJECT APPRAISAL AND VALUATION OF THE ENVIRONMENT

Transcription

1 PROJECT APPRAISAL AND VALUATION OF THE ENVIRONMENT

2 Also by Peter Abelson COST-BENEFIT ANALYSIS AND ENVIRONMENTAL PROBLEMS PRIVATISATION: An Australian Perspective (editor) THE ECONOMIC EVALUATION OF ROADS IN AUSTRALIA

3 Project Appraisal and Valuation of the Environment General Principles and Six Case-Studies in Developing Countries Peter Abelson Associate Professor of Economics Macquarie University Sydney, Australia

4 First published in Great Britain 1996 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library. ISBN DOI / First published in the United States of America 1996 by ST. MARTIN'S PRESS, INC.. Scholarly and Reference Division, 175 Fifth Avenue, New York, N.Y ISBN Library of Congress Cataloging-in-Publication Data Abelson, P. W. Project appraisal and valuation of the environment : general principles and six case-studies in developing countries I Peter Abelson. p. em. Includes bibliographical references and index. ISBN (cloth) I. Economic development projects-developing countries -Evaluation. 2. Economic development projects-developing countries---{::ost effectiveness. 3. Economic development projects -Environmental aspects-developing countries. I. Title. HC59.72.E44.A '09172'4--dc CIP Overseas Development Institute 1996 Softcover reprint of the hardcover 1st edition All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence pennitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London WI P 9HE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages ISBN (ebook)

5 To Jeanne, David, Julian and Antonia

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7 Contents List of Tables viii ~~~~ X Preface Acknowledgements Environmental Issues: An Overview 1 2 Cost-Benefit Analysis 15 3 Valuation Methods: General Principles 38 4 Valuation Methods for the Environment 57 5 Valuing Water Quality in Wuxi, China 88 6 Valuing Electricity and the Environment in Bangladesh Valuing Urban Slum Improvements in Visakhapatnam, India Valuing Mass Transit and the Environment in Lagos Valuing Tropical Forests in Kenya Valuing Soils in the Tropical Lowlands of Eastern Bolivia (with Penny Davies) Valuing the Environment: Main Conclusions 268 References 281 Index 294 xi xii vii

8 List of Tables 1.1 Major fonns of environmental degradation and main consequences Taxonomy of valuation methods Productive effects of some environmental changes Estimates of consumer surplus Examples of defensive expenditures Required sample sizes based on usable responses Applications of valuation methods Average water quality in Wuxi waterways Summary of capital and operating costs to year Class summary of canal water quality Survey record: observations of amenity quality Cost-benefit analysis of wastewater collection in Wuxi Cost-benefit analysis of expanded Wuxi sewerage treatment works ll3 5.7 Benefit percentages in various studies Estimated externality costs of electricity generation in existing power plants Estimated externality costs of electricity generation in new power plants Summary of system statistics for Bangladesh Greater Dhaka electricity statistics Bangladesh power sector improvements, : economic evaluation Dhaka electricity distribution improvements, : economic evaluation Main physical achievements Direct ODA-funded expenditures Housing and environment Health care and status Education, employment, income and assets Summary of project inputs, outputs and benefit measures Summary of project costs Summary of slum improvement programme costs and benefits Economic analysis of slum improvements 172 viii

9 List of Tables ix 7.10 Evaluation of training courses Estimated rail capital and operating costs Costs of buses and busways Consultant forecasts of metro passenger trips Accident costs in the north-south Lagos corridor Forecast emission levels over project life Noise levels in Lagos and some UK research results Summary of economic evaluation Proposed Lagos railway: summary economic spreadsheet Proposed Lagos railway: other costs and benefits Estimated product value of Kakamega forest in Estimated product value of Arabuko Sokoke forest in Carbon release due to deforestation Present value of damages per tonne of C Estimated forest values Impacts of conservation programmes compared with no-change strategies 237 IO.l Summary for slash and bum farm in Yapacani Summary of results for expansion zone large commercial farms 254 loa. I Evaluation of peasant farming in South Yapacani, Santa Cruz A.2 Evaluation of commercial farms in the expansion zones east of Santa Cruz Selected environmental impacts and valuations A taxonomy of valuation methods 273

10 List of Figures 2.1 Willingness to pay Consumer surpluses Project surpluses when costs and prices fall House prices and implicit environmental prices Environmental prices and the demand for environmental quality Park visits and consumer surpluses Locality plan Waterways around Wuxi The demand for electricity and substitutes The existing NRC railway Location of Kakamega forest Kakamega forest: forest type Location of Arabuko-Sokoke forest reserve in Kilifi District Arabuko Sokoke forest - nature reserve and vegetation Kakamega forest - proposed forest zoning Location of national colonisation areas in Santa Cruz 242 X

11 Preface In 1992 the Overseas Development Institute (London) commissioned the writer to prepare a guide to valuing environmental costs and benefits based on six international case-studies. The case-studies were chosen to reflect a representative set of environmental issues and a range of developing countries. The case-studies and the funding for the study were provided by the Overseas Development Administration (UK). This book is the result. The main purpose of the book is to present a number of in-depth studies that illustrate the application of economic concepts and techniques to environmental problems. It is hoped that this will clarify the ways in which economic analysis can be applied to environmental issues and show the relevance of economic analysis to policy making. The book consists of two main parts. The first deals with the general issues of project appraisal and valuation methods for the environment. The second part describes the six case-studies and draws conclusions. Nearly all the general discussion in the first part applies to developed as well as to developing countries. Likewise most of the conclusions have general application. The approach in the book is to treat environmental issues within a consistent and unified cost-benefit framework rather than as a separate set of issues. It examines how people value environmental services compared with other goods and services and how this should affect policy making. Within this framework, both market and non-market methods of valuing the environment are discussed. It is intended that the book should be of use to all those interested (as policy makers, professionals, academics or students) in the application of economic analysis to the use and improvement of the environment. I have tried to present the economic analysis with a rigour acceptable to professional economists and in language accessible to students and noneconomists. It has been a privilege and a pleasure to be entrusted the task of producing this book by the Overseas Development Institute. I hope that I have repaid this trust with a volume that is interesting and useful to the reader. Macquarie University, Sydney, and Overseas Development Institute, London PETER ABELSON xi

12 Acknowledgements Many people have contributed in one or other way to the production of this book. First and foremost I acknowledge the roles of the Overseas Development Administration (ODA) and the Overseas Development Institute (ODI). The ODA both funded the work and organised the six case-studies in the book. The organisation was no small task as anyone familiar with the logistics of international wmk will appreciate. Special thanks are due to the key administrators of the project, Dr Nick Highton and Peter Landymore (who also commented on several chapters), and the head of the Evaluation Department, John Morris, for organising and facilitating the project. Professor John Howell, director of the ODI, developed the project as a successor to the work by Jim Win penny (of the ODI), which was published in 1991 under the title Values for the Environment. My thanks are due especially to Jim Winpenny for his assistance in developing the case-studies for this book and for commenting on most of the draft chapters. The ODI provided excellent library and office support. Clare Johnson and the ODI staff were most helpful throughout the project and it was always a pleasure to return to the ODI, if not to British Rail, after a period of overseas research. Turning to the case-studies, for the study of water quality in Wuxi, China, I received considerable help from the Wuxi Science and Technology Commission, other members of the Wuxi municipal authorities, and Watson Hawksley Engineering Consultants. Special thanks are due to Sun Xiaobing, who arranged many meetings for me in Wuxi and interpreted for me, and to David Angus of Watson Hawksley, who organised my trip to Wuxi and commented on an early draft of the chapter. I am also grateful to Peter Faircloth for several discussions about valuation issues in water quality in Wuxi. I owe much of my knowledge of the electricity sector in Bangladesh to discussions with other members of the ODA Evaluation Mission of which I was a member, namely Andrew Barnett, David Watson, John Woodhouse, John Tyson and Simon Henderson, as well as to discussions with officers of the Bangladesh Power Development Board and the Dhaka Electricity Supply Authority. The chapter also benefited from comments on an earlier draft by Andrew Barnett. I am particularly grateful to David Crapper (ODA) for organising my field trip to Visakhapatnam, India, for briefing me on the slum improvement programme in Visakhapatnam, and for commenting in detail xii

13 Acknowledgements on a draft paper on this programme. In preparing this chapter I was also assisted greatly by Mr Patrudu and Mr Kumar from the Visakhapatnam Urban Community Development Program and Michael Slingsby (ODA). The case-study on mass transit in Lagos would not have been possible without invaluable assistance from Peter Speight~ who guided me around Lagos and introduced me to computer chess. I am also most grateful to Dar al-handassah Consultants for their professional cooperation and hospitality in Lagos and London. The chapter has benefited from comments on an earlier draft by two reviewers from the journal Transport Reviews, which is publishing a slightly shorter version of the chapter. I am grateful to Taylor and Francis, publishers of Transport Reviews, for agreeing to the publication of this chapter. Much of the work reported in the case-study on Kenyan forests was developed initially by Lucy Emerton (economist with Kenya Indigenous Forestry Conservation project) and refined by Michael Flint (economist with the ODA Kenyan forestry review missions). This chapter has also benefited from in-house ODA comments. The case-study on soil conservation in Bolivia was developed and written jointly with Penny Davies, who worked for several years with the British Tropical Agricultural Mission (BT AM) in Santa Cruz. This chapter draws heavily on Penny's accumulated research and experience of local conditions. I am most grateful to John Wilkins (then director of BT AM) for organising my visit to Santa Cruz. Both Penny and I are grateful to Jim Johnston and Graham Thiele for comments on an early draft of the chapter. Needless to say, this project was made possible by the generous leave granted to me by Macquarie University. When I returned to Macquarie, I received skilled and unstinted support from Jane Oldroyd in manuscript preparation. Last, but certainly not least, I am most grateful to my family, Jeanne, David, Julian and Antonia, who put up with my frequent absences overseas and arrived at Heathrow and Gatwick airports at forsaken hours in the early morning and London mist to greet me on my return. It should be stressed that, notwithstanding these many and varied contributions to the production of the book, the work published below is entirely my responsibility. In particular, the discussions of the case-studies represent my views and not necessarily those of the ODA or ODI. The casestudies are employed to illustrate technical approaches to valuation questions and not to evaluate the overall merits or otherwise of the projects discussed. xiii PETER ABELSON