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Dollars and good sense: costing the environment

Values for the environment: a guide to economic appraisal, by J.T. Winpenny, Overseas Development Institute/ HMSO, London, 1991, 277 pp.

This is one of the first attempts in years, perhaps since William Ramsay and Claude Anderson published their more popularly-oriented Managing the environment two decades ago, to seriously address the issue of environmental accounting.

Serious is the operative word. Winpenny's work is far from light, Sunday morning reading. Oriented toward those who are already well-versed in the basics of cost/benefit analysis, as well as the key environmental issues, its purpose is to advise economists in applying economic values to the environmental effects of development projects.

In a period when the term sustainability is fast becoming what sociologists call a "god-word" almost devoid of meaning, such a book is bound to be of use in cutting through the bafflegab of public relations statements and bringing discussion back to hard dollars and cents.

Although it is marred slightly by minor faults-Chapter three, for example, features such a welter of acronyms and names for different types of analysis that it makes the discussion hard to follow - the book is must reading for development economists and environmentalists alike.

The first two chapters plunge straight into the jargon of sustainability, providing a rapid run-through of the planet's most critical environmental problems, from the aquatic to the urban industrial. Chapter three then provides the mainstage that launches the reader into economic analysis, describing in detail the various modes by which values can be attached to the resources around us. These include Effect on Production (EOP), Preventive Expenditure (PE), Replacement Cost (RC), Human Capital (HC), Hedonic Methods (HM), Travel Cost Method (TCM), and Contingent Valuation (CV). EOP, PE and RC have received relatively little attention and lack a fixed methodology. The last four approaches (HC, HM, TCM and CV), however, have had more coverage and have an identified, though incomplete, methodology. All of the approaches suffer the same drawback of requiring a large database on which to quantify findings. Existing methodologies are also frequently irrelevant to developing countries.

There is quite a bit of overlap between Chapters four (economic valuation in practice) and five (appraising projects). The former uses the concepts of Chapter three to present practical ways to value potential environmental impacts, while the latter provides examples of many different kinds of projects - agricultural, forestry, fisheries, energy, urban, road and railway. The potential impacts of each type are discussed, along with how to place values on those impacts. Chapter six (policy appraisal and adjustment) looks at political, economic and fiscal policy options which, codified in legislation, could ameliorate environmental damage.

The book goes far beyond mere environmental impact assessment (EIA), where the main effects of a project are analysed. An impact assessment identifies areas where a proposed project would present serious risks, and assesses whether a redesign or some alternative solution would render the project more sustainable. Winpenny extends this, proposing that once a project has been approved it should also be appraised globally, using techniques that quantify environmental costs and benefits. He uses standard cost-benefit analysis (CBA), in which information relating to the environment is incorporated, as a model. An example:

The impact of an agricultural project on the environment is influenced by the type of habitat, cropping pattern and corresponding input, and the system of ownership and management. The possible changes a project could introduce are endless....To focus specifically on a project to introduce irrigation: the project is likely to change the natural water systems, which would seriously affect the life-style of the downstream users....The value of the losses of the downstream inhabitants both in terms of production, human health and the effects on the animal population, changes in biodiversity and changes to the natural wildlife should be assigned a value and incorporated into the calculation of the CBA.

Unfortunately, the point at which an EIA exercise ends and a project appraiser should start to conduct an environmental CBA is not defined by the author, nor are ways of including such costs in a project at development stage.

This kind of analysis is still in its infancy, and relies heavily on data from developed countries which are not always relevant in the Third World.

An aspect of development mentioned briefly in Chapter six, but not elaborated upon, is the role of people in the environment. Winpenny's entire argument is based on the assumption that project development happens in a top-down manner, and that an affected community must passively suffer the consequences of any intervention. If so, donor agencies have learned nothing from the abandoned irrigation schemes and rusting farm machinery that litter the terrain of too many countries. Not to suggest that people should take an integral part in the process of their own development is a rather glaring oversight.

Whatever its weaknesses, however, Winpenny's book is a useful contribution to a discussion that has for too long lain dormant.

Jane Wilson