by Malik Ranasinghe
Environmental Economic Series
The study develops a framework to analyse a unique natural, environmental or cultural asset that is threatened by a proposal infrastructure development project. The framework consists of the theoretical basis and, a methodology to estimate a decision bound of the “economic value of the asset” and to describe the uncertainty associated with that valuation. To develop the methodology and to analyse impacts on policy objectives of electrical power generation, the decision bound of the “economic value of waterfalls”, the threatened natural assets due to the proposed Upper Kotmale Hydropower Project (UKHP), and a quantification of the risk of that estimation are utilised as the case study.
The basic concepts of economic value and the extended benefit cost rule for accepting a project are derived as theoretical bases. The economic value of an environmental resource/ asset is described in terms of its total economic value, and it is demonstrated how the concept of total economic value relates to the waterfalls threatened by UKHP. The contingent valuation method, its use as the only valuation technique to value unique natural environmental or cultural assets, and the theoretical and practical difficulties of contingent valuation in real life applications are highlighted.
The cost and benefits of the main non-waterfall environmental impacts are valued using valuation techniques based on the principles of environmental economics. Using the extended benefit cost rule for accepting a project and reverse analyses of valued environmental impacts, decision bound on the “economic value of waterfalls” is estimated from without project and with project scenarios. The decision bound on the “economic value of waterfalls” threatened by UKHP facilitates prudent decision-making.
There is considerable risk and uncertainty associated with this decision as it is based on a proxy value for the actual economic value society places on these waterfalls. A methodology to describe the uncertainty associated with that decision is developed using the principles of risk analysis. The objective of uncertainty analysis is defined with a description of the proxy risk simulations that were carried out to describe the associated uncertainty. The interpretation of the results from the risk simulation and their use to estimate the level of confidence in the decision is described.
The impacts on the current policy objectives for electrical power generation when faced with a unique natural, environmental or cultural asset that is threatened by a proposed infrastructure project are analysed and discussed.