Monetarization of Environmental Assets - Essay Example

Analysis of The Debate on The Monetarization of Environmental Assets Analysis of The Debate on The Monetarization of Environmental Assets Introduction Most environmental economists today argue that the current global environmental degradation that is being experienced has primarily resulted from the market system’s inability to place the appropriate amount of value on the environment (Ernst, 2009). It is as a result of this factor that most environmental assets today are generally underpriced or free. In addition to this, these assets are also frequently abused, and overused and this has had the effect of causing a significant degree of environmental damage. In an attempt to try and resolve this emerging crisis, it has been proposed that a monetary value should be placed on all the various environmental assets via the aid of some form of cost-benefit analysis (CBA) (Hanley and Barbier, 2009). This approach is seen to make the assumption that the current environmental problems that are being faced globally can successfully be solved via the extension of the market. However, there are those that oppose this proposition and argue that the monetarization of environmental assets is simply a ploy by those in power to try and avoid the need for the implementation of fundamental changes in social institutions and power relationships. This paper will provide a review of some of the social, political and economic arguments that have been presented in respect to the establishment of environmental monetary values. In the traditional economic framework, output is generally regarded to be a function of the factors of production, these are labor, land and capital. Land in this sense assumes the broad definition of all space including the space that is used for cultivation in the fields, for building, as well as for natural resources such as water bodies and forests (Hall and Liberman, 2008). Humanity has always treated the various land-related natural resources as a given, to be wantonly used for overall human benefit with very little regard to the general sustainability of that use. In addition to this, economic growth is regarded by most government to be of most importance and little to no attention is usually give to the impact that this growth will have on the environment or the overall sustainability of the resource base (Andre et al., 2004). While this approach was reasonable in the past, the industrial revolution and its associated effects such as increased rate of population growth started to cause a substantial degree of human impact on the environment. Over the past two centuries, it has become increasingly clear to most environmentalists that human impacts on the environment are irreversible and this might eventually limit the ability of humans to continue thriving on the planet (Khalil, 1999). Over a period spanning through the last three decades, there has been a global concern over this problem and the search is currently underway for the establishment of strategies that will aid in the minimization of human impacts on the environment while at the same time improving the quality of life of the billions of people that are currently living in abject poverty across the globe. It is in a bid to try and effect a possible resolution to this crisis that the monetization of environmental assets via some form of CBA has been proposed. What is Cost Benefit Analysis? Cost-benefit analysis is generally a comparison of the various increases in human wellbeing (benefits) and the reductions that humanity experiences in social welfare (costs) as applied to a given policy or action. In this regard, for a given policy or project to be able to qualify as being viable as based on cost-benefit grounds, its total social benefits must be found to exceed its total social costs. Whereas cost-benefit analysis is usually conducted for specific project, the scope of this analysis can easily be extended to wider limits such as the assessment of the polices that have been designed to aid in the combating of climate change (OECD, 2007). The growing concerns over the environmental have caused several governments to now require that all new environmental measures or regulations should be subjected to a cost-benefit analysis. An example of this is that in the United States, all the new regulations that affect the environment and have an annual cost that is found to be in excess of $100 million must be subjected to a CBA. Canada has also adopted the use of similar measures as all new environmental regulatory proposals that have an estimated total present value that is greater than $50 million are require to have a CBA. The same measures are seen to have been adopted by the European Union as all EU-financed projects are required to be accompanied by a CBA (OECD, 2007). Arguments in Support of Monetarizing the Environment using CBA One of the arguments that is often presented in support of the monetarization of environmental assets using CBA is that the field of economics is primarily focused on increasing efficiency by obtaining the most desirable results from the fewest resources. A cost-benefit analysis is able to successfully increase efficiency by ensuring that regulations affecting the environment are only adopted in the event that their benefits happen to exceed costs (Ahmed & Gotoh). In addition to this, proponents argue that a cost benefit analysis can aid in directing the attention of regulators to those problems for which intervention by these regulators will yield the greatest level of net benefit. Most governments often tend to issue environmental rules and regulations that are insanely expensive and completely out of proportion to their innate benefits (Fisher et al., 2013). By using a cost-benefit analysis, it will be possible to screen all the proposed regulations and in the process successfully tackle this problem. The massive estimates of regulatory costs and benefits have grown to become rather ubiquitous in most political debates affecting environmental law and it is important to implement the use of CBA’s to correctly analyze the impact of these laws (Ackerman and Heinzerling, 2002). Another argument that is used by supporters of the use of CBA in the placing of monetary value on environmental assets is that the use of CBA can aid in the production of a better regulatory process that is found to be more objective, transparent and accountable to the public. The use of a cost-benefit analysis demands that that the decision-makers are transparent and that they reveal all the uncertainties and assumptions that are reflected in their final decisions (Hanley, 2013). Arguments in Opposition to the monetarization of Environmental Assets using CBA One of the oppositions to the use of CBA in the monetarization of environmental assets is that while a cost-benefit analysis might be thought to be a progressive and enlightened development that attempts to take into account some benefits and costs that might be altogether be otherwise disregarded, it is nevertheless a procedure by which the priceless is given a price and the higher is reduced to the level of the lower. As such by using a monetarized CBA to assess the environment, it is not possible to correctly estimate the actual value of an environmental asset and use these values to formulate enlightened policies (Olsson and sjötedt, 2004). In the same vein, opponents of the monetarization of environmental assets point out that it is nearly impossible to determine the value of a particular species or habitat in the environment (Bower, 1990). The results of a cost-benefit analysis can never be able to justify the making of a decision that will allow for the extinction or survival for a given species or eco-system (Beder, 1997). Another argument that has been presented criticizing the use of CBA methods in the valuation of the environment is that these methods are completely centered on humans and never take into account the preferences of the other living creatures that share the concerned eco-system (Beder, 2013). Economists attempting to value the environment can only define their findings in respect to the value of the exchange that will occur between humans. This is not acceptable to environmentalists as it considered to be deeply arrogant in that it actually denies other living organisms any intrinsic value that might happen to lie outside of their value to the humans conducting the assessment. The use of CBA in the valuation of the environment has been criticized as unsuitable based on the argument that actions affecting the environment should not be regarded as acceptable just because the political and social benefits of these actions are calculated to outweigh its cost. An example of this is that slavery and child labor are still immoral even if the economic advantages of these practices to the whole society significantly outweigh the cost of the practices to some individuals. Attempting to put a price on nature is considered to be quite abhorrent by most individuals and has been likened to attempting to put a price on aspects such as friendship, freedom and family (Hogl, 2012). It is seen to represent a gradual creeping of economics and the market into a unique area of life that has traditionally been considered to be well above material concerns. The assigning of values to environmental assets is perceived by those opposed to this practice to be a legitimization of processes that will wipe out these resources. Opponents of the monetization of environmental assets observe that environmental questions have traditionally been determined by the political process and that the government has always levied taxes that go towards the provision of public goods and environmental protection. Tasking the government with the responsibility of protecting the environment makes it possible for everyone to share in the cost of protecting the environment based on individual income. Conclusion While some environmentalists support the move towards the monetarization of environmental assets in the hope that this will aid in the shifting of priorities back to that emerging environmental concerns, others remain opposed to this move and argue that the pricing of the environment is simply a means via which environmental issues can be incorporated into economic concerns and that the priority will still remain with the eventual economic bottom line. Of note however is that despite the raging debate, economists have now woken up to the importance of environmental assets and resources and are keen to try and aid in the maintenance of this resource in a similar manner to that which other resources such as capital and labor are maintained. As highlighted in this paper, although the debate on the monetarization of environmental resources is still ongoing, environmental protection has now become an integral part of public policies at the local, national and global levels (Pearce et al., 2006). It is imperative for all countries to work together at reaching a final decision as to whether environmental assets should be monetarized, and if not, they should formulate an effective global environmental protection plan as this will have a lasting impact on all environmental assets. Failure to do this will endorse the current global environmental degradation that will ultimately result in the earth’s inability to support life. References Top of Form Ackerman, F., and Heinzerling, L. (2002). Pricing the priceless: Cost-benefit analysis of environmental protection. University of Pennsylvania Law Review, 1553-1584. Ahmed, S. U., & Gotoh, K. (2006). 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