Measuring the Unmeasurable – The Value of a Clean Environment

World Environment Day took place on 5 June. This year’s theme was “Connecting People to Nature”. Critics of environmental protection policies such as US President Donald Trump, who recently announced the US’s withdrawal from the Paris Climate Agreement, are often sceptical as to whether the benefits we receive from a clean environment can outweigh the costs of environmentally friendly policies on the economy. Nature’s gifts are often hard to value in monetary terms. What we can, however, measure is how much we appreciate and value a clean environment and efforts to do so have already produced some surprising results.

A “clean environment” includes the natural world’s many potential uses and amenities. On the one hand, we use the environment to absorb our emissions such as carbon dioxide, but it also serves as a rich source of natural resources. Using forests as recreational areas, natural flood plains as flood defences, rainforests as a treasure trove of unresearched medicinal plants are just further ways we benefit from nature. The direct use of a resource is usually easy to evaluate; when it comes to other elements of nature we use both directly and indirectly, however, we also use the terms option value and existence value. As individuals we support the preservation of a forest, even if we have never been there, either because we profit from the mere knowledge that the forest exists, or because we would like to have the option to use the forest in the future.

Economists use a number of different methods to measure our appreciation of natural amenities such as clean air, clean water or biodiversity. One of these methods is the use of indirect data. Together with the University of Copenhagen, ZEW recently investigated the value of urban green spaces within the housing market in the Danish capital. Housing prices were higher in areas close to green spaces. In the example of one specific park, households situated in the surrounding area would be prepared to spend a total of two million euros a year for the upkeep of the park.

The value of the environment as a measurable quantity

Another approach to assessing people’s willingness to pay for natural amenities is to conduct surveys. The oil spill caused by the explosion of the BP oil rig Deep Water Horizon in 2010 offers a recent example. With the equivalent of 3.2 million barrels of oil leaking into the ocean, the spill was the largest of its kind recorded in US history. The spill did severe damage to the local ecosystem as well as tourism and the fishing industry. According to the results of a survey conducted by economists, the average US household would be willing to pay $153 to prevent such a disaster from happening again. If we project this amount for the entire US population, this comes to an impressive total of $17.2 billion that US Americans would be willing to pay.

Finally, economists also observed direct payments made by consumers to compensate for their carbon footprint. Through cooperation with a German long-distance bus company, ZEW researchers have been gathering data on how customers decide whether to offset their individual CO2 emissions from the bus journey through an additional fee. A third of customers were willing to fully offset the emissions produced by their journey, even if this meant paying an additional fee. Many customers were also in favour of the bus company showing greater commitment to environmental protection.

The value of the environment is not something we can only imagine in our heads, but rather a measurable quantity. We can weigh up the costs of implementing environmental protection policies against concrete, quantifiable valuations of the benefits of a clean environment. As humans, we are always connected to nature and now it is also possible for us to determine the value of this connection.