Environmental Capital Takes on Environmental Valuation

Update:  Apparently John and I were writing at the same time.  He just writes faster--or has more time to waste--or something.  So I am shortening my post and just giving you my opinion.

From the WSJ Environmental Capital blog:

At the heart of the debate is whether the same tools that can determine the economic wisdom of a building a new factory serve to protect the environment generations into the future. It got fresh legs this month with a back-and-forth at Grist by two eminent law professors and self-professed environmentalists.

I know I am biased in my opinion here, but to me the question is not "Is it moral to put dollar values on the environment?" but rather "Is it not immoral to fail to put dollar values on the environment?"  That's a lot of nots.

Protect the environment at all costs is not a feasible, practical or reasonable policy stance.  Common ground can only be found through common comparison.  That almost sounds profound.

Comments

[Lou Grinzo]

This is an issue I find myself discussing with non-economists from time to time, and it's almost never a satisfying experience for anyone.

I take Tim's approach, and point out that we need some way of comparing alternative allocations of scarce resources. Unless we convert them to some common unit, we're at an impasse. Even acknowledging the seeming crassness of the process doesn't help. Some people just react viscerally to putting a dollar value on some things, and there's no way to change their minds.

[justakim]

Agreed. 'It's invaluable...' o rly.

[justakim]

Oh hey, sorry for the double post. Here's PJ O'Rourke on it:

http://www.latimes.com/news/opinion/la-op-orourke4-2008may04,0,6539887.story

"Don't chain yourself to a redwood tree. Instead, be a corporate lawyer and make $500,000 a year. No matter how much you cheat the IRS, you'll still end up paying $100,000 in property, sales and excise taxes. That's $100,000 to schools, sewers, roads, firefighters and police. You'll be doing good for society. Does chaining yourself to a redwood tree do society $100,000 worth of good?"

"So make your contribution by getting rich."

I love that guy.

[tidal]

I realize that this current "debate" is about the efficacy/applicability of cost-benefit analysis to a wide range of potential "environmental" issues.

But I think that the discussion on CBA and climate change in particular needs to consider Martin Weitzman's recent paper, On Modeling and Interpreting the Economics of Catastrophic Climate Change, discussing the unique "fat-tail" problems w.r.t. low-probability high-cost catastrophic outcomes, and how that dilemma leads to conclusions that include: At least potentially, the influence on cost-benefit analysis of fat-tailed structural uncertainty about climate change, coupled with great unsureness about high-temperature damages, can outweigh the influence of discounting or anything else..... (3) all of this translates into placing severe limitations on the reliability of policy advice coming from standard cost-benefit analysis (CBA) of climate change; (4) the conventional economic advice of spending modestly on abatement now but gradually ramping up expenditures over time is an extreme lower bound on what is reasonable rather than a best estimate of what is reasonable; (5) removing the artificial limitations on conventional CBAs that comes from excluding very-high-impact disasters is capable of shifting a more inclusive economic-welfare analysis strongly away from the gradualism of a climate-change policy ramp.

As New Scientist magazine summed it up: The analysis shows that traditional cost-benefit calculations are getting it wrong, but it does so only by proving that extreme events dominate the costs when included in the calculations. It cannot put a figure on how much should be spent now, unlike the old techniques. "The big picture is not as clear as economists had thought," says Weitzman. "This probably means we should spend more money now, but it doesn't tell us how much."

Considering where/who that is coming from, I would hope to see some discussion on this. I do know that you covered it a bit earlier.

[Wy]

I'd argue that there are uncounted for valuations frequently, and that sane advice should err on the cautionary side as far as future preservation.

[eep]

The whole discount rate debate si built around the assumption that, in order to reduce carbon emissions for future generations, significant economic losses or sarifices must be endured in the present. The notion of a discount factor entails a Green Premium that directly adds to the cost of doing business.

This is not necessarily true. In fact many energy conservation measures, when properly designed and implemented, can reduce carbon dioxide emissions while also cut firms' operating costs at the same time. It is entirely possible to save the environment without hurting the company's bottomline.