Workshop Summary:

Increased use of cost-benefit analysis (CBA) in the environment, transport and energy sectors have increased the demand for information on the economic value of environmental goods from the decision-makers. Due to limited time and resources when decisions have to be made, new environmental valuation studies often cannot be performed, and decision-makers try to transfer economic estimates from previous studies (often termed study sites) of similar changes in environmental quality to value the environmental change at the policy site. This procedure is most often termed benefit transfer, but could also be transfer of damage estimates. Thus, a more general term could be value transfer.

There are two main approaches to benefit transfer:

1. Unit Value Transfer
   1. Simple unit transfer
   2. Unit transfer with income adjustments
2. Function Transfer
   1. Benefit function transfer
   2. Meta analysis

Papers using and comparing all these techniques were presented at the workshop along with critiques of the general approach and specific problems it raises.

The policy response to the main challenges in benefit transfer has been the development of: (i) improved techniques and a protocol including guidelines (as suggested for contingent valuation by NOAA) on how to determine the size of the market and correct for interdependencies among components of an environmental good, and (ii) a database of environmental valuation studies, e.g. the web-based database EVRI (Environmental Valuation Reference Inventory) which contains about 700 valuation studies, of which the majority are from North America.
www.evri.ec.gc.ca/EVRI/

Benefit transfer increases the uncertainty of the environmental value, and a crucial question becomes: What level of accuracy is acceptable, and how does the need for accuracy vary with the policy use of the value estimates. Policy uses of environmental values include: CBA of projects and policies, environmental costing to calculate the level of pollution (e.g. via green taxes), green accounting at the national, community and firm level; and calculating compensation payments after pollution accidents, e.g. Natural Resource Damage Assessment (NRDA). CBAs are often based on a damage function approach where the uncertainty in value transfer not only originated from the environmental valuation methods and transfer techniques, but also transfers of scientific information in terms of atmospheric and marine dispersion models, dose-response functions or expert assessments of ecological and health impacts etc. The workshop acknowledged that several disciplines can provide insights into environmental values with implications for the possibility for and limitations on transfer: environmental economics, statistics/econometrics, decision theory, ecology, geography, sociology, cognitive psychology and philosophy.

Results from validity tests of benefit transfer show that the uncertainty in benefit transfers both spatially and temporally could be quite large. Thus, benefit transfer might be applied to uses of environmental valuation where the demand for accuracy is low. This means if benefit transfer is used more care is required to recognise the inherent variability of the results.

Benefit transfer is less than ideal, but so are most valuation efforts in the sense that better estimates could be obtained if more time and money were available. Analysts must constantly judge how to provide policy advice quickly, subject to the resource constraints they face. Benefit transfer methods may be particularly useful in policy contexts where rough or crude economic estimates may be sufficient to make a judgement regarding the advisability of a policy or project. Therefore analysts should compare the increased accuracy of the benefit estimates (when going from a benefit transfer exercise to a new, original valuation study) with the costs of making the wrong decision based on the crude estimate.

The workshop identified five main difficulties or challenges in benefit transfer:

1. Availability and quality of existing studies
2. Valuation of new policies or projects are difficult in respect of:
   • Expected change resulting from a policy is outside the range of previous experience.
   • Most previous studies valued a discrete change in environmental quality; how can that be converted into marginal values to value the new policy?
   • Most previous studies value an increase in environmental quality; how can that be converted to value decrements in environmental quality?
3. Differences in the study site(s) and policy site that are not accounted for in the specification of the valuation model or in the procedure used to adjust the unit value.
4. Determination of the extent of the market. To calculate aggregated benefits the mean benefit estimate has to be multiplied by the total number of affected households (i.e. households that find their well-being affected by the change in the quality of the environmental good). There is a need for guidelines on how to determine the size of the affected population.
5. While original valuation studies can be constructed to value many benefit (or cost) components simultaneously, benefit transfer studies would often involve transfer and aggregation of individual components. Simply adding them assumes independence in value between the components. If components are substitutes or complements, this simple adding-up procedure would over- and under-estimate the total benefits (or costs), respectively. Thus, correction factors to take these interdependencies into account have to be applied. It still remains to see whether it is possible to construct general sets of correction factors for groups of environmental goods.

On the basis that original studies themselves lack comparability and produce numbers surrounded by large uncertainties the usefulness of transfer techniques must be questioned. Benefit transfer which tries to produce robust estimates with high validity may prove expensive because new studies which are comparable may be required. Thus, a need for new, original valuation studies, which use state-of-the-art valuation techniques and are constructed with benefit transfer in mind.

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