What is the economic benefit of preserving and protecting environmental health in the United States? That is the question being asked of the Environmental Protection Agency (EPA) by the Office of Management and Budget (OMB), the branch of the White House that oversees the federal budgeting process. OMB mandates that each regulation or action proposed by federal agencies, including EPA, be justified by cost-benefit analysis in order to be approved for funding. But according to scientists and agency officials, nonmarket goods, such as ecological benefits resulting from EPA decisions, are difficult to quantify and "monetize" (price). Comprehensive, practical methodologies for assessing them are not fully developed. Consequently, economists generally agree, ecological benefits have regularly been undervalued in cost-benefit analyses.
Efforts to quantify benefits accrued from EPA regulations have focused principally on human health effects, ignoring the numerous services and goods provided by functioning ecosystems, according to Louise Wise, of EPA's Office of Policy Economics and Innovation. In the past, EPA focused on addressing urgent and high-profile environmental problems, such as ozone depletion, that have an obvious impact on human health and a clear solution (in the case of ozone depletion, phasing out chlorofluorocarbons). Because the health benefits were sufficient to justify the regulatory action, the ecological benefits did not need to be quantified. Now that most of these "low-hanging fruit" problems have been addressed through EPA-led regulation, the agency has turned to environmental problems that require complex, potentially expensive solutions with benefits that are primarily ecological rather than human-health related, such as the restoration of riparian and wetland communities.
In response to the OMB mandate, EPA is working to develop methodologies for quantifying and pricing ecological benefits. The agency published A Framework for the Economic Assessment of Ecological Benefits in 2002 to provide initial guidance for this work. The framework recommended that EPA formally consult with external economists and ecologists through a Committee on Valuing the Protection of Ecological Systems and Services under EPA's Science Advisory Board (SAB). That committee convened for the first time in October 2003 to define its goals and tasks. The committee will guide the development of the agency's "Ecological Benefits Assessment Strategic Plan," currently in draft form, by providing technical advice on content and assessment methodologies. The strategic plan will focus on quantitative and, where appropriate, monetary valuation of the numerous services and goods provided by functioning ecosystems, including market-regulated benefits, such as clean drinking water and commercially harvested fish, as well as nonmarket-regulated benefits, such as providing opportunities for recreation, crop pollination, and protection of biodiversity.
Meanwhile, EPA has begun to develop and apply ecosystem benefits assessments through a joint effort with the National Research Council (NRC) to evaluate methods of valuing aquatic and related terrestrial ecosystems. The NRC will define ecosystem services for these systems, review past attempts to measure them, and recommend research that will most rapidly allow resource managers and decisionmakers to apply the methodologies. The final project report will be released in early spring 2004. Geoffrey Heal, professor of finance and economics at Columbia Business School and chair of the committee that wrote the report, says the findings of the study were supported unanimously by the committee members. The hope is that SAB will be able to learn from and build on this foundational report.
According to agency documents, both the EPA SAB committee and the NRC committee will specifically address "existing limitations, error and bias" in current benefits valuation methods and whether their application to cost-benefit analysis at EPA will lead to improved decisionmaking with respect to the environment. Some scientists are concerned, however, that benefits from ecosystem service flows that are hard to measure with conventional economic methods might be left out of the analysis if pricing is overemphasized. According to SAB workshop participant Richard Norgaard, professor of agriculture and resource economics at the University of California-Berkeley, assigning monetary values requires scientists and economists to make numerous assumptions about the current and future state of economic and ecological systems. Those assumptions, Norgaard says, may mask complexities that are not understood or agreed upon by researchers.
The committee's greatest challenge, therefore, may be to "open up the decision- making approach," Norgaard advises, to increase its capacity and acceptance of nonmonetary valuation and thereby provide more comprehensive and accurate overall analyses. Cooperation between scientists and economists is key to guiding how and when it is appropriate for EPA to monetize ecological benefits in cost-benefit analyses. After all, Norgaard says, even though "there is a political mandate to put monetary values on everything, responding to political mandates and doing good science do not always go together."
Sasha Gennet () is a doctoral student in the Department of Environmental Science, Policy, and Management at the University of California-Berkeley and a former member of the AIBS Office of Public Policy.