What Is the Economic Value of Environmental Goods - And How Can This Value Be Incorporated in Public Decision-Making?

Abstract

Nature’s ecosystem and its services create the foundation of our society’s existence. Yet, services such as fresh air and water, fertile soil and flow regulation have upon recent been treated as unlimited resources. The consequences can be seen in the rapid loss of biodiversity and issues related to climate change. Although environmental issues have got more attention recently, it can be challenging for decision-makers to assess what measures to choose, when and where to implement these, and how to distribute financial responsibility among stakeholders. One reason for this is suggested being that many environmental assets lack a direct monetary value. In order to study the significance of including the economic value of environmental goods in public decision-making, Marika Karras and Kari Ella Read have in their master’s thesis estimated the economic value of ecosystem services and incorporated these values in a cost-benefit analysis (CBA). The CBA was performed on measures preventing floods in urban areas through a solution called Sustainable Drainage System (SuDS), which is a solution based on mimicking the flow control found in nature. The cost aspect of the CBA was based on the investment and operational cost of these solutions, while the benefits constituted of the economic value of the ecosystem services that the system provides. These services include flood risk reduction, water and air purification properties, noise reduction, local climate regulation and an increase in recreational values. The result of the study indicates that the suggested sustainable drainage system could be justified economically, but only by including both the monetary value of the ecosystem services in the CBA and using a discount rate of 1,4% recommended by the Stern-report (Stern 2006).