PlusMinus – Economic Assessment for the Environment. Research project between 2007 and 2012.
The researchers addressed the following thematic areas (discussed in more detail below):
Picture: Ola Borin, Sveriges lantbruksuniversitet
The research programme PlusMinus focused on how to assess benefits and costs in the area of environmental decision-making. It aimed at developing theory and methods for applying cost-benefit analysis (CBA) to problems involving environmental policies and management. PlusMinus included an outreach programme that delivered a concise and easy to use handbook and training.
· distributional issues
· risk, uncertainty and resource dynamics
· valuation and benefit transfer
· goal conflicts (e.g. when two environmental goals seem to oppose each other)
The programme was financially sponsored by the Swedish Environment Protection Agency and administered by the Department of Forest Economics at the Swedish University of Agricultural Sciences.
This part of the programme provided a detailed analysis of how to deal with distributional issues when applying CBA. First, it is not obvious how the different costs and benefits of an environmental project are distributed between different income groups, different generations and certain sensitive sub-populations, such as people living in sparsely populated areas. Second, it is not obvious exactly what should be distributed; there are a number of possibilities such as income, environmental quality and wealth.
We used case studies on environmental projects to develop tools to deal with distribution of income and environmental quality between different groups. In addition to our empirical studies of the distributional effects of environmental policies the project aimed to investigate, from the viewpoint of normative welfare economics and political philosophy, the extent to which distributional effects of valuation studies may be said to deviate from the ideal and how this can be corrected. The research also contributed with empirical results and tools for evaluating the distributional effects (in both physical and monetary terms) of Sweden’s environmental objectives and the EU:s Water Framework Directive (WFD). By shedding light on how environmental policy maps into consequences for different groups in society, we obtain a richer basis for making decisions.
Risk, uncertainty and dynamics
This part of the programme will reviewed and developed practical cost benefit rules to help evaluate environmental projects that involve risk and uncertainty, e.g., uncertain climatic changes in temperature, rainfall, and sea level rise; the potential risks of catastrophic biodiversity loss, and the risks to human and environmental health due to increased spreading of diseases and invasive species. We provided pragmatic guidance into how to define and use cost-benefit rules for large projects under risk and uncertainty. The purpose is to provide rigorous guidelines for empirical CBA.
As a case study we developed a model to determine the value of genetic progress in forestry assuming both timber prices and growth rates in the future are uncertain at the time of investment, i.e., future prices and price shocks are unknown today, and growth rates are uncertain due to climate change-induced temperate changes.
Furthermore, we illustrated how conventional sensitivity analysis can be applied to different items/parameters in a CBA. Both one-way analysis and multiple-way analysis will be used.
We will also applied probabilistic sensitivity analysis. This approach has recently been applied to cost-effectiveness analysis of health investments but to the best of our knowledge there are no applications in CBA. The central feature of a probabilistic sensitivity analysis is that the parameter means are assumed to be unknown. We only have an assumption about the distribution function for the parameter. For example, some researchers assume costs follow a log-normal or a Gamma distribution while benefits follow a Beta or a Gamma distribution. The practical approach then (typically) draws on Monte Carlo simulations. We also explored the possibility of employing simulation techniques to estimate quasi-option values and other similar risk concepts.
Valuations and benefit transfer
This part of the programme aimed at developing valuation methods used in cost-benefit analyses. The valuation step is a crucial and controversial part of a CBA. The work included both ecological and economic research topics targeting weak spots in the valuation of environmental assets. Valuation methods, transfer methods and tools for comparing different ecosystem sites was explored and developed. Valuation studies was carried out that fed into the theoretical and practical parts of the programme. The objectives included development of quantitative production relationships for selected ecosystem services, benefit transfer functions for some ecosystem services, assessment and development of a non-monetary valuation approach known as Resource Equivalency Methods (REM), and production of new valuation data. The results from other parts of the programme, in particular the handling of non-linear systems, was be taken into account in this work.
Goal conflicts and side gains
Actions taken to reach a specific social objective can affect other objectives – positive or negative. In a social impact assessment analysis that proposes the attainment of certain environmental objectives, these types of goal conflicts should be taken into account. This part of the programme aimed to develop tools to examine behavioural changes among people within the agricultural sector, forestry sector, and the consumer population caused by exogenous changes in the world around them. The goal was to link these behavioural changes to changes in pollution and other environmental effects. These tools was used to develop quantitative sector models to explore social consequences of policy measures, with a special focus on conflicts between environmental objectives.
The primary purpose was to ensure an accurate economic analysis of these interactions, but also to examine the consequences for the choice of policy instruments and to consider the potential fallacies of the partial equilibrium perspective inherent in CBA. For the agricultural sector, we studied the interaction between production of crops for bioenergy versus cereals, and how this interaction affects the opportunity costs of certain environmental objectives (e.g. ‘a varied agricultural landscape’ and ‘a rich diversity of plant and animal life’). In the analysis of the forestry sector the environmental objective of relevance is ‘sustainable forests’.
Picture: Ola Borin, Sveriges lantbruksuniversitet