This blog is part one of a two-part blog series on the relationship between ecologists and economists in regards to Natural Resource Damages (NRD). Dr. Domanski, the author of part one, is an Environmental Economist with over 14 years of experience applying economic tools to aid in environmental policy, business, and legal decisions. You can learn more about Dr. Domanski on his website here and on our website here.
Natural resource damages are a functional combination of two distinct disciplines. When oil or chemical spills interact with the natural environment, ecologists play a critical role in identifying and measuring the degree of harm to habitats and resources. The resulting injury is calculated through a combination of field work and laboratory toxicological studies that define the baseline ecological services along with the magnitude, duration, and extent of the decline caused by the spill.
Economists, in turn, take this critical information and help answer the question: “Now what?” Through a variety of different methods, economists determine the lost value to society as a result of the environmental harm and more critically, how much compensation is necessary to make up for the harm. Environmental economics is grounded in the concept that while individuals rarely have an opportunity to ‘purchase’ a level of environmental quality in an open market, society nevertheless can derive value from its direct use and existence. Well-established econometric tools are capable of measuring this value either by observing human behavior or identifying the costs of restoration necessary to provide equivalent ecological services.
Fundamentally, the economic value of anything is what you are willing to give up to get it. This applies to classic market goods as well as public environmental goods. The key distinction between the two lies in your ability to choose how much you are going to get. While you can go to a store and decide how many apples you want to buy at a given price, environmental quality is something that everybody in society consumes at the level that it is provided to them. But just because you can’t go to a store and buy the amount of clean air or clean water that you want, doesn’t mean that environmental quality can’t be measured in economic terms. In fact, there are myriad ways in which individuals give up money to enjoy better environmental quality – families drive further to visit cleaner beaches, houses near nice parks cost more, and people spend money on water filters and indoor air purifiers to limit exposure to harmful contaminants. It’s through these market purchases of goods that are complemented by some measure of environmental quality that economists can tease out true economic value for non-market goods.
Numerous other economic concepts pervade into the measurement of environmental quality, particularly understanding values across time. Restoration sooner is better than restoration delayed. This means that environmental quality delivers value not just through acres of habitat or numbers of birds, but on when it occurs. If we’d be willing to delay a restoration project a few years in exchange for a few more acres, that means that timing of restoration actions matter. This extends across very long time horizons as well – how much should society spend now to prevent the increasing harms of climate change that will occur in the future? Or conversely, what does it take to compensate society for ecological harms that took place far in the past? An extensive amount of economic literature has focused on disentangling this exact question, and it has implications for environmental liability and restoration planning.
Compensating the public for environmental harm is the ultimate goal of any natural resource damage assessment. True compensation occurs when the public is indifferent to the environmental harm. This concept can feel a little grody because it, in essence, requires individuals to feel okay about taking a payoff to make up for environmental injury. But individuals and society exchange market goods and public goods all the time, and econometric tools can identify a dollar amount necessary to make the public whole.
But compensation does not have to show up in the form of a direct payment (i.e., an allowance to go consume additional market goods). In fact, for most environmental harm, compensation is provided by replacing and restoring exactly what was lost. As the public has lost a public environmental good, they are now made whole through its replacement. While the concept may seem simple, a careful analysis is necessary to ensure that the restoration being provided as compensation is of equivalent type and value to what was lost – that’s where ecologists come in (more about that in a future article!).
Successful and defensible measurement of environmental damages requires close coordination between ecologists and economists along with a strong common appreciation for empirical measurement approaches and the scientific method. While the concept of “putting a price on the environment” may seem dubious to some, it is regularly done in policy, business, and legal settings. The right application of sampling techniques and statistical methods can ensure that calculated natural resource damages are unassailable.