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.
Second, valuation can tell us the relative importance of an environmental improvement or insult and how the impacts are distributed across the affected population. This is impractical if environmental impacts are measured only in physical terms. In the case of Indonesia's forest fires, for example, knowing that 5 million hectares of vegetation were burned by fire and 70 million people affected by haze cannot tell us which effect was more important. That judgement is possible only when the two effects have been put into the same unit of measurement (e.g. dollars).
Third, valuation can draw attention to environmental problems and make their importance more palpable. Even if monetary values are not used in formal CBA, they can make it easier for policy makers and the general public to appreciate the scale of a problem, since they can more readily be compared with other damages or alternative uses of resources.
In this study, the second and third uses of valuation predominate. Our aims were mainly to draw attention to the magnitude of the disaster; put it in perspective relative to other disasters and other uses of resources; identify which components of the damage were largest; and see which countries suffered most.