The misleading allure of environmental economics

Calls for a careful evaluation of the costs and benefits associated with environmental policy proposals originated in the business community some years ago. They were taken up by the deregulation lobby and transmuted into official guidance on compliance cost assessments which put the emphasis on costs - to business. Many environmentalists have reacted by emphasising the need for a counter-balancing evaluation of potential benefits - and, burying whatever qualms they may have about the methodologies involved, have argued in favour of the monetary evaluation of environmental assets with no price in the market. The underlying presumption is that the numbers generated by such exercises will be so compellingly large that no government could ignore them.

Governments' practices, however, are not so easily changed. Take the question of emergency salvage tugs, which have a potentially vital role to play in preventing a repetition of the Sea Empress disaster. Both this Government and its predecessor have received cost-benefit analyses which made an economic case for better tug provision than the winter-only cover which currently exists in three areas off the UK coast. Both studies stressed that the case was strong even though they understated the environmental benefits of additional tugs. In February, the Government announced its decision - no change, with not a single word of explanation (see pp 24-27 ).

If cost-benefit analyses do not readily shift governments' habits, neither do they always generate the "right" numbers. For example, a study for the Drinking Water Inspectorate of the costs and benefits of reducing lead levels in drinking water has valued the improvements in children's IQ as a result of reduced intakes of lead at up to £1.5 billion over the next 30 years or so (see pp 6-7 ). A big number - but, even when added to other benefits, not big enough to outweigh the costs.

The lead study, in any event, illustrates the limitations of the monetary valuation approach. The benefits of higher IQ were calculated by working out the connections between IQ, years of schooling and earnings. A high-quality piece of work on its own terms, the study alludes timorously in a single paragraph to the possibility that a better education may have other benefits which are not susceptible to monetary valuation. Some might argue that a better education makes citizens better able to participate in and enjoy the fruits of civilisation - and that one mark of a civilised society should be to avoid an undue preoccupation with money in seeking to overcome obstacles to children's effective participation in schooling such as excessive exposures to toxic metals.

Still, the desire to generate the "right" numbers occasionally seems overwhelming. One environmental economist recently prepared a report which concluded that the cost of death and illness caused by air pollution in the UK amounts to £11 billion per year (see p 7 ). The cost of premature deaths was obtained by multiplying them by the £2 million "value of a statistical life" now in common currency in the profession - even though most of those deaths are of old people on their last legs. The figure has certainly hit the headlines - but it has as much worth as a valuation of the celestial traffic congestion caused by the annual smog-induced flush of grannies on their way to meet their Maker.

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