Burning fossil fuels has been a primary contributor to climate change. Now, considerable effort is being made to find an alternative to fossil fuels. This work, as well as projected future disruptions to our economies and livelihoods, has prompted intense research into the nature of the problem with a particular focus on how ambitious carbon reduction targets can be achieved at the lowest possible cost. Economists have a role to play in assessing the true costs of environmental destruction; they need to be closely involved in developing potential policy solutions in response to this argues Dr James Benhin.
Searching for an answer
Humans the world over are looking for ways to wean themselves off fossil fuels and find other renewable alternatives to power industry, fuel the transport sector and provide heat and light to households. My work has explored the costs and benefits of our transition to renewables.
It is important to identify and assess what the most appropriate alternatives to fossil fuels are. There are currently a number of options including marine sources of renewable energy such as floating offshore wind or wave energy and, on land, solar and wind farms. We explore what kind of energy is suitable for different types of communities and stakeholders, investigating the whole cost profile rather than simply considering market costs and benefits.
The challenge is to find a way to quantify the value of non-market costs and benefits and to propose ways in which we can place a value on the environment and estimate the real cost of environmental degradation.
Tools of the trade
One tool we could use is the contingent valuation method (CVM) to estimate the economic values of ‘services’ provided by the environment and ecosystem. Whilst it can be used to estimate use values, this method is frequently applied for estimating non-use values. This involves directly asking people how much they would be willing to pay for specific environmental services or how much compensation they would be willing to accept to give up specific environmental services such as the use of a river for wild swimming or kayaking. It is called a “contingent” valuation, because people are asked to state their willingness to pay contingent on a specific hypothetical scenario – in this case – access to a river. In essence we are creating a hypothetical market for using that river, much the same way as there is a market for public swimming pools. We can easily estimate how much people are prepared to pay to swim in a pool of heated, chlorinated water, but how much are they prepared to pay to swim in an unheated river? Whilst this valuation is contingent on the hypothetical circumstances presented, it encourages people to consider how they use the environment, take it for granted and how restricting access to nature affects our quality of life and wellbeing.
Another approach is the travel cost method (TCM). This can be applied to different types of environmental resources. Take a place like Plymouth’s Central Park, for instance. How can we define the value of that park? Many Plymothians walk and exercise there. Children use the play and recreational facilities. Taxpayers pay the City Council for the park’s upkeep. The area could be used for another purpose however. Houses could be built on that land. One way to estimate the value of the park would be to survey the people who use it. We could argue that the Park’s value is an amalgamation of the park users’ transportation costs to and from the park: bus and train tickets, fuel costs and car parking charges for instance.
It is also possible to apply one or a combination of different methods to value. Look at coastal erosion. We can work out the financial costs of erecting a barrier to protect the coast, much as they have done along the sea wall at Dawlish to protect the train line.
Value judgement
Economists are searching for ways to measure the value of environmental resources. Take wind energy; it leaves a smaller environmental footprint but it has a social impact. People do not want the prominent structures of wind turbines ‘spoiling’ the countryside. Economists look at ways to incorporate costs such as the negative impact on the visual landscape into their assessment of wind energy. We do not just focus on the costs of creating, transporting and installing the turbines and their ongoing maintenance, but consider the cost of them ‘blotting’ the landscape too. Presenting a comprehensive picture of these different costs is very important in policy making. It is easy to assume that environmental resources are ‘free’ but they are not. They should be measured alongside human resources. We need to preserve and protect these environmental resources. Unfortunately, people only seem to appreciate the urgency and importance of protecting them once they have been ascribed a value or have been destroyed forever.
Natural capital is key to human existence. We need to identify different types of natural capital and how we it enriches our lives now. We also need to consider its value to future generations. This is where sustainability comes in. It is possible to identify the size, quantity and different types of natural capital but one of the challenges is to maintain the total value of natural capital over the long term. Look at Dartmoor as an example of a natural asset. Over time it can depreciate. As a society, we must explore how its value can be maintained over time. This is why it is protected now with leisure and industrial activity on the moor being closely monitored. The value of a natural asset can depreciate when resources are overused or tourist traffic is too great. This is why visitors were asked to walk around (rather than through) Wistman’s Wood in summer 2021 because of the damage that had been caused to the ancient wood’s fragile habitat.
Know the price of everything
We are seeing the environment depreciating before our eyes. Places are getting hotter. Some are suffering excessive drought. Rainfall has become less predictable. Maybe if we are able to understand the value the ecosystem provides it will compel us to change behaviour. Imagine the impact on the food system if insects stopped pollinating flowers?
Policy making should tackle the current erosion of environmental value. Pollution depreciates the quality of the river water. Fines are issued as a deterrent; but they rarely reflect more than the short-term costs of cleaning up pollution. What would be the value of maintaining the river with clean water over the long-term? Many of us would argue that the fines levied on polluters are too low. By quantifying value in monetary terms, we know we can change behaviour. Look at how UK consumers have changed their plastic bag usage. People understand and can relate to the money in their pocket. Environmental destruction needs to be quantified into something relatable.
Better late than never?
This is one of the positive impacts of the pandemic. Successive lockdowns, when millions of people were confined to their homes, have helped to change attitudes to the natural world. People searched for green spaces, looked for clean air to breathe. We are slowly beginning to understand its importance and role in nurturing our physical wellbeing and mental health. I am encouraged by this, but hope it has not come too late. We are beginning to appreciate something that has been taken for granted for a long time and realising that places such as parks, woodland and moorland can have enormous value, even if they are not captured in financial terms on a share index.
The Amazonian people see the forest as their eco system. They approach resource use by considering not only how they can work with the forest to live, but also to preserve it for future generations. Western culture has seen resources like forests and peat bogs as a resource to be exploited, a separate entity to our being. We do not relate to it as part of a balanced, interrelated wider system in which we are an integral part.
