The value in environmental valuation

[August 2011]  This article makes the case for valuing the environment as part of a better approach to informing policy decisions for environmental protection, reflecting the pervasive role the environment has to play in economic and social activity.

Mallika Ishwaran, Jonathan Portes and Richard Price

The UK has been at the forefront in using new techniques to shape policy decisions which affect the environment. As former and existing advisers in government, we have all felt the pressure from inside and outside government to make sure decisions are based on the best possible science and economics.  That includes understanding how changes in the environment affect people’s lives – both today, and for future generations.

The latest development pioneered by the UK is the remarkable National Ecosystem Assessment (NEA)2.  We think it is a unique and powerful study which assesses the state of the UK’s natural capital; shows how it has changed over the past few decades, and helps to assess how different policy choices might shape it for the future.  Others have a different view. George Monbiot described it as
total nonsense, pure reductionist gobbledegook, dressed up in the language of objectivity and reason.”3
So what is the problem? The objective of the NEA is to assess the quantity and quality of natural capital and the services we derive from it; and to quantify the value we place on having those services available in the future.   Monbiot, and other critics, have two broad objections – one principled and one practical.

First, the principled objection, that it is impossible to put a value on the services and satisfaction we derive from nature. This ignores the fact that decisions are made daily which affect the environment and which require trade-offs to be made between different objectives. It is critical that we provide the best assessment of environmental impacts of alternatives, alongside the value of other kinds of benefits such as employment, economic growth and reliable infrastructure.  In fact, our work suggests that looking after the environment can also help to support these objectives – so it is not always ‘either/or’, But in many cases trade-offs need to be  made, either implicitly or explicitly, to allocate limited resources towards achieving these various objectives. “To govern is to choose”, and valuation has proved a helpful way of making choices better informed and transparent.

For example, in deciding whether to provide planning consent a local authority has to make a judgement about the overall value to the community from a development, balancing factors such as additional jobs and income with the value to the community from keeping the green space.  As economists, we could wash our hands and say it was impossible to assess that value; but the local authority still has to say yes or no to the planning consent.   And either way, it is implicitly making a judgement about how large that value really is.

More generally, many of the benefits we derive from the natural environment don’t have market prices, so they are not reflected in standard measures of economic activity. Environmental valuation puts environmental objectives on a more equal footing in policy decisions with things which do have a price.  That doesn’t mean that  valuations always capture everything there is to know about the benefits we get from nature.  But together with other considerations, they allow us to make the comparisons and tradeoffs that are a critical element of informed and balanced decision-making.

The second objection is more practical; the perception that placing an explicit value on nature is a precursor for anti-environment policies. Monbiot again:

…it delivers the natural world into the hands of those who would destroy it.

…cost benefit analysis is rigged in favour of business.”

This is just not true. In fact, Defra’s guidance on how to assess the value of ecosystem services in cost-benefit analysis of policies requires departments systematically to factor in environmental impacts and risks in a way which markets generally don’t.4  It gives a systematic and consistent way of taking account of environmental impacts in policy development and appraisal – not just in the context of environmental policies but in all government policies which affect the natural world.  Its value lies as much in helping to assess and mitigate potential environmental harm in policy decisions as in supporting policies which enhance the state of the environment.  Far from rigging the process in favour of business, it ensures that cost-benefit analysis goes beyond financial costs and benefits to reflect non-market environmental impacts.

It’s worth looking at a few examples of how this sort of cost-benefit analysis is applied in practice, both inside and outside government; not just in making environmental choices but in other policy areas too:

  • the number of cataract surgeries performed has risen nearly four-fold over the last two decades, to about 300,000 a year.  At a cost of several thousand pounds, is this expansion justified given other pressures on the NHS?  Research by Martin Weale at the National Institute of Economic and Social Research found that for almost (but not quite) all patients, the value to them from the improved quality of life resulting from better eyesight was well in excess of the cost;
  • Costs and benefits are used to assess impacts on environmental value in the design of infrastructure. For example the Department for Transport’s approach on road location and design systematically gives weight to environmental amenity, pollution and noise to identify the best options for addressing them. Looking at options in this way makes a real difference to the way projects are configured – for example the recently-opened A3 Hindhead Improvement project was carefully designed to achieve a reduction in noise pollution and harm to the landscape.  And beyond local impacts, transport policy plays a big part in tackling carbon emissions and air quality, and valuation of environmental impacts is at the heart of decision-making.
  • the move away from old-style farm subsidies towards agri-environmental schemes and a ‘payment for ecosystem services’ approach is justified on the basis of the social value of uplands landscapes. For example, in 2010 a new scheme was launched to pay hill farmers to support better environmental management. Valuation studies for Defra identified the potential to get much bigger benefits from agri-environmental schemes compared to equivalent subsidies with weak or no links to environmental outcomes. Crucially, it also helped establish that agri-environmental schemes were more socially valuable than simply stopping farm payments, which would have led to land abandonment in the uplands, with significant environmental damage.

Of course cost-benefit analysis isn’t the answer to everything.  No sensible economist would pretend otherwise.  But it is a valuable tool – and it is absurd for either economists or commentators to bury their heads in the sand and pretend that government doesn’t need it to make these sorts of decisions in an informed way.  The publication of the NEA puts the underlying data and assumptions out in the public domain, to be criticised, debated and improved. That is good for transparency, good for policymaking, and good for the environment.
Footnotes and references

1  Mallika Ishwaran is Acting Chief Economist, Defra;
Jonathan Portes is Director, National Institute of Social and Economic Research;
Richard Price is Chief Executive, Office of Rail Regulation and author of the Government Economic Service’s reviews of sustainable development and social impacts

2  The UK National Ecosystems Assessment can be found here:

George Monbiot: “The true value of nature is not a number with a pound sign in front” The Guardian, 6 June 2011. 

4 This is published as a supplement to the Treasury’s Green Book,which sets out the framework for assessing policies, programmes and projects across central government.



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