WHY VALUATION?
The valuation of environmental damages can be useful in several ways.
First, valuation can allow more complete and more accurate cost-benefit analysis (CBA) of projects or policy measures.
At one time, projects were typically subject to analysis of only those costs and benefits to which the market attaches monetary value.
Environmental damages were neglected because environmental goods and services are generally not bought or sold in markets and thus have no obvious price.
Such neglect led—and often still leads—to bad decisions.
More recently, it has become common to add an environmental impact assessment (EIA); the EIA can assess the benefits or damages left out of the CBA.
But the decision maker is then left with two non-comparable assessments: a CBA in monetary terms and an EIA in physical terms (e.g., tonnes of pollution emitted or hectares of trees lost).
If the CBA and the EIA come to opposite conclusions, the decision maker is left without guidance as to how to proceed.
By estimating monetary values for environmental impacts, the results of the EIA can be integrated into an "extended CBA" that provides an unambiguous conclusion.