Valuing the Protection of Ecological Systems and Services Report

U.S. National Oceanic and Atmospheric
Administration. Coastal Service Center Web site.
Habitat Equivalency Analysis. http://www.darrp.
noaa.gov/library/pdf/heaoverv.pdf
The price of tradable emissions permits under
cap-and-trade systems will almost never meet the
requirements for using cost as a proxy for value. The
price of an emission permit in a well-functioning
market will reflect the incremental cost of pollution
abatement. This price does not reflect the value of
pollution reduction unless one of two conditions is met:
a) the number of permits is set optimally, so that the
incremental cost of pollution equals the incremental
benefit of pollution reduction; or b) there are significant
purchases of permits for purposes of retiring rather than
using the permit, which indicates the willingness-to-pay
for pollution reduction by the purchaser. Absent these
exceptions, the price of tradable emissions permits
should not be used as a proxy for value.
4.3 Transferring value information
This section examines the transfer of value
information from one policy context to another. For
example, values assessed for a change in ecosystem
services in one setting (reflecting a combination of
biophysical and socio-economic conditions) might
be used to estimate values in a different setting, as
illustrated by the CAFO example described in section
2.2.3. Value transfers, especially in the form of benefits
transfer, have been important to EPA valuation efforts,
but there are a number of concerns and conditions that
have important implications for the validity of such
transfers and that have typically not been consistently
or adequately addressed. The following discussion
identifies and addresses concepts and methods that are
important for achieving valid transfer of any measures
or data about ecological values, with specific attention
to the transfer of economic benefits. Parallel conceptual
and methodological issues apply to all values transfers,
and very similar issues are involved in the transfer of
ecological data and information between different policy
contexts (see the discussion in chapter 3.5.1).
4.3.1 Transfer of information about economic
benefits
Economists often use information about economic
benefits derived from a previous valuation study to
assign values to changes in another context. This
process or method is known as benefits transfer. As an
example, suppose that a hedonic property value study
used data from the sales of residential homes in Chicago
(the study site) to estimate the incremental change in
housing prices associated with variations in the air
quality conditions near these homes. Given a variety of
theoretical and statistical assumptions, measures adapted
from the estimates of these price equations can be used
to estimate the marginal value of small improvements
in air quality in another city, such as New York or Los
Angeles (the policy site). The adjustments necessary
to use benefit information from a previous study in a
new context depend on a number of factors, including
the needs of proposed policy application, the available
information about the policy site, and the comparability
of preferences and supply conditions at the study and
policy sites.
In light of the time and money needed to generate
original value estimates, EPA relies heavily on benefits
transfer. In fact, benefits transfer is the primary method
EPA uses to develop the measures of economic trade-offs
used in its policy evaluations. Most regulatory impact
assessments and policy evaluations rely on adaptation
of information from the existing literature. Recent
examples of policy evaluations that used benefits transfer
methods include EPA’s Economic and Benefits Analysis
for the Final Section 316(b) Phase III Existing Facilities
Rule, June 1, 2006 (EPA, 2006b), EPA’s Final Report
to Congress on Benefits and Costs of the Clean Air Act,
1990 to 2010. (EPA, 1999), and the economic benefitcost
analysis of the CAFO regulations.
EPA’s heavy reliance on benefits transfer raises
a significant issue regarding its validity: under what
conditions can the findings derived from existing
studies be used to estimate values in new contexts?
Inappropriate benefits transfer often is a weak link
in valuation studies. A number of environmental
economists and other policy analysts have devoted
considerable attention to benefits transfer (e.g., Wilson
and Hoehn 2006).
The evaluations of benefits transfer in the literature
have been mixed. For example, Brouwer (2000)
concludes that “no study has yet been able to show
under which conditions environmental value transfer is
valid” (p. 140). Similarly, Muthke and Holm-Mueller
(2004) urge analysts to “forego the international benefit
transfer” and remark that “national benefit transfer
seems to be possible if margins of error around 50% are
deemed to be acceptable” (p. 334). On the other hand,
Shrestha and Loomis (2003) conclude that, “Overall, the
results suggest that national BTF can be a potentially
useful benefit transfer function for recreation benefit
estimation at a new policy site” (pp. 94-95).
Because benefits transfer constitutes a wide collection
of methods that arise from the specific needs of each
policy application, broad conclusions regarding validity
are not meaningful. Rather, assessment of the validity
of the approach requires case-by-case evaluation of the
assumptions used in the specific application of interest
and must consider the similarities and dissimilarities
between the study site and the policy site(s). For this
reason, overall the committee believes that general
conclusions regarding the validity of the application
of these methods are not possible. However, some
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