I have a Spectator article ($) addressing new bans on rural, mining and recreational activities proposed in 77,000 hectares of the Victorian Goldfields region north of Melbourne. The agenda involves converting the targeted area, which has no remarkable features, from State Forest to National Park.
This would prevent activities include grazing, logging, horse riding, hunting, 4-wheel driving, prospecting and mining. The more intrusive activities – logging and grazing – have already been progressively reduced as forest management has been refocussed onto environmental conservation rather than production.
The review is being undertaken by the Victorian Environmental Assessment Council (VEAC), an agency stacked with environmental activists. VEAC has courted the local aboriginal representatives, who are understandably solidly behind a change that grants them advisory rights and may vest them with paid duties lead to some form of native title.
VEAC also has to prove the change is worthwhile in benefits to the community as a whole.
Some 18 per cent of Victoria is National Park (plus about 13 per cent State Forest). As environmental services are public goods, that cannot easily be charged for, policy changes need to be informed about what the public would pay for redefining land from State Forest and increasing National Park land – in this case by two per cent.
To do this VEAC hire some reliable economists, well versed in the black art of “contingent valuation” that asks people what they would be prepared to pay for some environmental goods; the consultants are also practiced in the magic of estimating what recreational and productive value might be lost from the reclassification.
By looking at a selection of contingent valuation assessments in other studies, the consultants estimate that Victorians would be willing to pay $270 million to reclassify 58,000 hectares of the land, or $4615 per hectare. That value is actually similar to the value of commercial agricultural land in the area. The consuiltants’ valuation is not established in terms of marginal excisions from the state forest and there is already a great deal of National Park in the area. Hence, logically the consultants’ estimate puts the worth of converting all Victoria’s State Forest to National Park at over $14 billion. This means they think the average adult would be $2,216 better off with the restrictive usages the reclassification entails.
This does not pass the “pub test”.
Nor does the consultants’ valuation of income and utility prevented by the proposals, they put at $24 million in net present value (NPV) terms. This estimate is made without any information about visitors to the area or the value those that would not be able to pursue their favoured recreations place on it compared to alternative places.
The valuations of the to-be-banned logging and mining activities is based on the royalties to the government. That is not the value that is commonly used – applied in Western Australian it would put the state’s iron ore industry as being worth $4.8 billion and not the $70 billion normally counted in Gross State Product!
Among the estimated lost value from forbidding gold mining is a number that is not counted but put speculatively, using various probabilities, at $4 million in NPV terms. Yet, close to the area we have a relatively new mine at Fosterville producing gold worth $1.2 billion per year at a grade (30 grams per tonne) that makes it the world’s second richest mine.
Using contingent valuation to estimate what people will pay is hazardous for reasons that include: people are not truthful, notional payment is very different from actually forking out and seeking to value a single public good in isolation delivers excessive stated valuations.
In the hands of consultants looking for repeat business from an agency with a mission accentuates all these jeopardies of contingent valuation and is likely to result in a bias towards locking up more land for “unproductive” uses.
In this res;pect, environmental agencies might pay lip service to the notion of seeking out “willingness-to-pay” for locking up additional land for the environmentalist cause, but they would never ask people what they would be prepared to receive for a diminution of areas preserved from mammon and from recreations deemed intrusive.