The method provides a tool for sustainable development by using measures usually applied to health economics.
A Danish study outlines a new way of placing a monetary value on damage to ecosystems which uses a 'budgetary constraint' - which equates to the maximum that an average person can pay for an additional life year. The method provides a tool for sustainable development by using measures usually applied to health economics.
Life cycle impact assessment (LCIA) is part of a process that analyses the damage caused by different events or processes to humans, ecosystems and resources. Using the Eco-indicator 99 1 method, damage to each of these three 'subjects' can be scored in order to help rank events or processes, such as climate change or road accidents, in terms of their overall impact and acceptability. In general, impacts on humans are ranked higher than impacts on ecosystems or resources.
This new research suggests it would be useful to replace the scores in LCIA analyses with monetary values - an estimate of what we would be willing to pay to avoid a specific type of damage. This would indicate the importance of the impact. The approach has been attempted previously, but inconsistencies arise because different approaches are used to cost different types of damage.
The new method uses just one system of costing based on Quality Adjusted Life Years (QALYs). This is the same system used in health economics to determine whether a particular medical intervention, such as a drug, is worthwhile. In other words, all impacts, whether on humans, ecosystems or resources, can be measured in the same terms.
The study gives QALYs a monetary value by estimating the annual economic productivity per capita at full well being. The authors argue that the value of the QALY is therefore equivalent to the average annual income at full well-being, which they calculate as EUR74,000 (but potentially between EUR62,000 to 84,000, due to uncertainties).
In this study, 'ecosystem impacts' are understood in terms of potential loss of biodiversity. The accepted measure of biodiversity loss is known as Biodiversity Adjusted Hectare Years (BAHYs). The study arrived at a cost/BAHY by considering different possible BAHY/QALY 'exchange rates'. The average value of these exchange rates is in the range of the current spending on environmental protection in developed countries (estimated at 2 per cent of GDP). This equates to EUR1500 per person per year or EUR1400/BAHY (with an uncertainty range of EUR350 to 3500 /BAHY). For the category 'resources', the study considers resource productivity. This is measured in terms of future economic output.
Source: Weidema, B.P. (2009). Using the budget constraint to monetarise impact assessment results. Ecological Economics. (68): 1591-1598.