- Given the number of external costs categories, of cost components and impact types in each category to be valuated, can we afford a complete valuation study or should we –at least partly- rely on literature case studies?
- Which studies should be considered as a reference? Which selection criteria should be applied?
- Provided that average damage values or damage functions may be taken out from case studies, which are the methods and main assumptions behind these results?
- Which are the main correction criteria to apply in cost /benefit transfer? Which are the main context parameters that influence the transfer of damage values?
These are only some of the questions which should be answered to in the last phase of external costs valuation (economic valuation of impacts).
In an ideal situation, where all the necessary information for the valuation of the external costs of a certain activity is available, external costs are measured by the sum of the economic values of variations in utility of all the actors exposed to the final effects of the impact pathways generated by the activity. This calculation passes through the following main steps:
- Framework of the analysis;
- Selection and modelling of the various impact pathways in the environmental and time context in which the activity is carried out;
- Economic valuation of utility losses due to environmental impacts
In theory, this procedure implies a very complex modelling (integration of different models) in a framework of uncertainty and, in the phase of economic appraisal, the undergoing of many “willingness to pay” surveys, one for each impact category. This means very high valuation costs, that can be reduced by using damage values taken from literature case studies. In some cases, also the reconstruction of the chemical and physical impact pathways may be simplified through an adequate benefit transfer process (for example this happens when the damage values are expressed as functions of the impact factors and of the main context parameters).
In order to prevent valuation failures, cost transfer from literature (an operation which is unavoidable to a certain extent) should be based on sound environmental and economic criteria. This is the main reason why an environmental economist should be always part of the external costs valuation team. .