A REVIEW OF ENVIRONMENTAL VALUATION METHODS USING THE MANDAI PARKS DEVELOPMENT PROJECT

Abstract

Traditionally, all useful goods and services are bought and sold on the markets. Markets allocate the prices for these good and services through market equilibrium prices. It is the price that reflects the scarcity of the goods and services in the market. The scarcity allows for the goods and services to be used efficiently. The use, price and scarcity determine the value of the goods and service (Thampapillai & Sinden, 2012). Through this it is possible to determine the value for all goods and services traded in the market, many environmental goods and services are not traded in the market (Thampapillai & Sinden, 2012).

Environmental goods and services are core life supporting services that contribute to human wellbeing. For example, ecosystem services like the pollination services of natural pollinators or the water purification and natural flood barrier services provided by mangrove wetlands (Tuner et al., 2004). However, there are no prices attached to these ecosystem services as they are rarely accounted for in market transactions. These services are also public goods and exude benefits when conserved. However, these ecosystem services do offer utility and are valuable thus it can be described as environmental capital (Thampapillai & Sinden, 2012). Environmental capital also refers to resources that we extract from nature, for example, wood from forest and fish from the sea. While there is a market for the transaction of wood and fishes, the transaction does not account for the damage done to the environment through over extraction or pollution (Tuner et al., 2004).

Since there is an absence of a market for trading environmental capital or the loss of environmental capital, it is difficult to determine the value of the environmental capital. Economist have developed tools and methods for valuing the cost of environmental capital. The benefits of valuing environmental capital is that it provides information that can be used for, i. Designing sustainable development policies, ii. making decisions while considering the environmental impacts or risks of a development project, iii. and accurately measuring a country’s Gross Domestic Product/Net National Product after accounting for the contribution of natural resources (Haque, 2011).

The tools and methods used for valuing environmental capital are categorized as revealed preference methods or stated preference methods (Haque et al., 2011). These methods will be discussed later in the paper. However, none of the valuation methods are perfectly capable of valuing environmental capital. This is because environmental capital is complex and have both use and non-use values attached to them. Understanding ecosystem valuation methods, first requires an understanding of the values placed on the environmental capital.

Therefore, the first objective of this paper will be to describe the various values of ecosystems services or environmental capital. The second objective of this paper is to provide a literate review describing four valuation methods that are used for valuing environmental capital in a micro economic scale.