Volume 21, Issue 3, 1996 November/December 1996

Measuring Economic Benefits of a Healthy Great Lakes Ecosystem

by Allegra Cangelosi

Cost-benefit analysis, despite its shortcomings, is becoming an increasingly common environmental policy decision tool. Legislators and the public are calling for more careful evaluation of the costs and benefits of government actions to improve the environment. Government budget cutbacks, rising costs for environmental gains (as easy targets, or "low hanging fruit" are depleted), a long agenda of environmental improvement needs and a growing base of experience and information with past investments easily account for this interest. If ecosystems throughout the Great Lakes are to be protected, therefore, researchers need to identify -- and citizens need to be more aware of -- the benefits of a healthy Great Lakes system.

Inreasingly, cost-benefit analysis is required to measure the cost-efficiency of environmental protection regulations. Cost-benefit comparisons also are being applied in cleanup projects to select among competing environmental restoration scenarios. However, while numerous researchers have evaluated pollution impacts, little has been done to estimate the economic benefits that would result from environmental improvements.

The movement toward cost-benefit analysis holds the potential to improve the precision of environmental protection and restoration actions in the Great Lakes region and elsewhere. Yet the tool far from guarantees such an outcome. Several shortcomings in the art and science of cost-benefit analysis make the procedure problematic and controversial. First, the cost side of the equation -- usually added costs to the resource user that may be generated by a proposed environmental protection measure -- can be manipulated by the resource user. The more users invest in activities that may require controls, the more the proposed environmental restriction will cost.

In addition, little is known about ways to assess the costs of not acting to protect the environment, or the benefits of action. Many costs of pollution and most benefits of a clean environment are intangible or difficult to track. For example, the value of a healthy eagle population to basin residents may not be quantifiable. Similarly, we lack the technical know-how to assess the improvements in public health (and therefore savings) that could accrue from increased pollution controls or a cleanup. Finally, how do we assess the value to future generations of preserving environmental amenities?

Perhaps it is because of these complexities that most cost-benefit analyses look mainly at the cost side of the issue. The environmental implications are sometimes acknowledged in these analyses, but hold little weight since methods for assessing them do not stand up to conventional economic scrutiny nearly as well as a manufacturer's estimates of direct and operating costs.

Regardless of these concerns, cost-benefit analysis as a public policy decision-tool remains a common-sense response to limited financial resources, and it is here to stay. What is needed in the Great Lakes region, where there is a strong emotional attachment between the residents of the basin and their shared resource, is an exploration leading toward a usable approach to assess the benefits of a healthy system and the costs of harming it. The approach should be one that basin stakeholders agree on, or if such agreement is not possible, at least debated and well understood by them.

A project by the Northeast-Midwest Institute, the State of Michigan and the National Oceanic and Atmospheric Administration's (NOAA) Office of the Chief Economist will explore methods for estimating economic benefits of Great Lakes environmental protection. The effort will build on existing efforts in benefits assessment.

The Northeast-Midwest Institute project also would supply information to assist emerging environmental-protection policy initiatives in the region. The State of Michigan, for instance, is seeking assistance in quantifying the potential benefits of wetlands conservation to support conservation and restoration efforts.

The two-year Northeast-Midwest Institute project will produce vital information that will help resource decisionmakers and nonprofit environmental organizations anticipate more fully the consequences of proposals to increase or diminish environmental protectiveness. It also will help them to identify research projects that would contribute to sounder estimates of environmental benefits. Moreover, it will create a broader understanding among the region's residents and stakeholders of the cost-benefit tool, including its strengths and weaknesses.

Over the next two years, the Northeast-Midwest Institute, the State of Michigan, and NOAA's Office of the Chief Economist specifically plan to:

• Convene a panel of economists who have experience in natural resource accounting and cost-benefit estimation to advise project staff on the state of the art in benefits assessment and the ways that Great Lakes benefits could be valued.
• Work with a task force of Great Lakes stakeholders and citizens to identify the range of benefits that should be included in cost-benefit assessments, gather ideas for and reactions to proposed approaches to assessing benefits, and discuss how such a tool can be used and its limitations.
• Conduct sample valuation analyses for each of three case studies in the Great Lakes region, including studies of wetlands conservation, sediment remediation and water quality protection.Develop proposed research and analytic requirements for the NOAA/National Science Foundation Coastal Ocean Program to support the environmental valuation component.
• Write and distribute a guidebook on economic valuation for Great Lakes resource policy makers, resource managers and the public. The guidebook will provide background on cost-benefit techniques, describe the case studies, list benefits of the Great Lakes basinwide environment that should be considered in such analyses, describe an approach to assessing these benefits and identify additional research needs. Provide training on benefit assessments to nonprofit environmental organizations.

A complete and accurate understanding of the costs of pollution and the benefits of protecting and restoring the environment is necessary for resource managers. It will enable them to make sound decisions on the region's greatest economic asset: the Great Lakes. This project will advance that understanding and strengthen the network of nonprofit environmental organizations throughout the region.

For more information, contact Allegra Cangelosi, Senior Policy Analyst, Northeast-Midwest Institute, 218 D Street S.E., Washington, DC 20003. Telephone (202)544-5200; fax (202)544-0043.

Sommaire

L'analyse coûts-avantages, malgré ses lacunes, devient un outil de décision de plus en plus utilisé dans les politiques en matière d'environnement. Les législateurs et le public exigent une évaluation plus approfondie des coûts et des avantages liés aux mesures gouvernementales visant à restaurer l'environnement. Un projet piloté par le Northeast-Midwest Institute, l'État du Michigan et le bureau de l'économiste en chef de la National Oceanic and Atmospheric Administration (NOAA) examinera les méthodes d'estimation des avantages économiques découlant de la protection de l'environnement des Grands Lacs. Cette initiative s'appuiera sur les efforts déployés à l'heure actuelle dans l'évaluation de ces avantages.

Revised: 14 January 1997
Maintained by Kevin McGunagle, mcgunaglek@ijc.wincom.net

URL: www.ijc.org/rel/focus/v21i3/feat03.html