Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

TOTAL ECONOMIC VALUEThe monetary measure of a change in an individual’s well being due to a change in environmental quality is called the total economic value ofthe change. The total economic value of a resource can be divided into use values and non-use values:Total economic value = use values + non-use values.Use values include benefits from the physical use of environmental resources, such as a recreational activity (sport fishing) or productiveactivities (agriculture and forestry). In this context stems from a combination of the individual’s uncertainty about future demand for theresource and uncertainty about its future availability. Non-use values refer to the benefits individuals may obtain from environmental resourceswithout directly using them. For example, many people value tropical ecological systems without directly consuming or visiting them. Thecomponents of non-use values are existence value and bequest value. Existence value measures willingness-to-pay for a resource for some‘moral’, altruistic or other reason and is unrelated to current or future uses. Bequest value is the value that the current generation obtains frompreserving the environment for future generations.Non-use values are less tangible than use values since they often do not refer to a physical consumption of goods and services.Values are directly linked to the ecological services produced by the ecosystems, which support them. For example, fishery depends on theecological productivity of the water ecosystem as wetlands. Water availability is linked to the entire hydro-geological cycle and groundwaterquality depends on the filtering capacity of soils. A reduction in the provision of ecological services (by a pollution for example) is be likely todepreciate the values expressed by people on environmental quality with, as a final result, a decrease in social benefits associated with it.It is important to understand that economic value does not measure environmental quality per se; rather it reflects people’s preferences for thatquality. Evaluation is ‘anthropocentric’ in that it relates to preferences held by people.Total economic value(TEV)UseNon-UseActual Options Others ExistenceAltruismBequestFoodWood and biomassRecreationHealthEducationSportMaintenance of ecologicalfunctionsProduction of biodiversityMaintenance of landscapeFamous species and ecosystemsIrreversible changesMaintenance of life support functionHow to measure environmental benefitsSince the environmental impacts may represent an important outcome of the projects it is necessary to include themin the economic appraisal framework.221