The hazards of synthetic valuations of environmental services

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.

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19 Responses to The hazards of synthetic valuations of environmental services

  1. Entropy

    As I recall the Hawke Government (Richardson might have been the relevant minister) found that Coronation Hill had an infinite environmental value based on a survey and alignment to similar valuations of the GBR.

    Humpty Dumpty economic valuation I call contingent analysis. The value can mean whatever they want it to mean.

  2. As more land is converted to national parks, the more of Victoria that will burn come the usual Australian summer.

    I’ve travelled what were once state forests and now national parks for over 40 years and national parks have rarely done any good for the environment.

    Most of it is now out of sight, out of mind, until the next bushfire.

  3. yarpos

    This reminds me of a report I once read ” The intangibles if they could be quantified would be valued in the order of $2,000,000″ I had to read that a couple of times.

  4. John Constantine

    This is simply a pause in monetising the resource.

    Once Big Australia delivers a voteherd that transforms the electorate and makes us truly part of Asia, australia will revert to the statistical Asian mean as regards locking up valuable resoiurces and not touching them.

    Every other bankrupt pacific island that signs up for one belt one road loanshark finance fully understands that clearfelling and strip mining is in the deal, just after the politicals that signed up have retired.

    Who had the smarter and more motivated men in the room when the victorians signed one belt one road?

    Was daniel andrews the one world leader smart enough to outwit the peoples liberation army contract lawyers?.

    Siberia in the southern ocean.

  5. DaveR

    Even without the dodgy lefty valuation, the concept of locking up a significant part of one of the world’s greatest gold provinces defies logic. Do the Andrews socialists and their fellow travelers even understand the latent potential of the area?

    We hear only today that the Fosterville gold mine, on the edge of this area, is performing well above expectation, has a long life ahead of it, and is now a major tax contributor to the state and wages contributor to the local region. Only 20 years ago it was virtually unknown, and thought to be just a small show left over from the days of the gold rush.

    With the significant potential of onshore gas reserves already prohibited by the Andrews soviet, why not add gold to the mix, and further damage the economy of the state?

  6. John Constantine

    The concept of the offset, where a formula calculated how much new area had to be bought by a miner and converted to park in return for access to a resource within the park has worked, although complicated and expensive.

    Know people that have put time into developing this as an investment class, but it isn’t liquid and utterly depends on regulations that can change rapidly.

    The big money is in assessing and compliance stamping and signing off and monitoring.

  7. John Constantine

    As to enviromental value, i know a bloke that had developed an area of native vegetation for offsets, which was burnt to the ground by a fire started by a vehicle on a public road. Vikpol got the names and registration of the firestarter, but refused to disclose them as burning the offsets to the ground wasn’t considered by vikpol to be a loss that triggered handing over contact details of the offender.

  8. Nob

    How many private air passenger opt into pay “carbon offset” when they book a flight?
    That’s the nearest you’ll get to an indicator of who really would pay.

  9. Gerard

    Coronation Hill?
    Justification for a decision already made.

  10. Up The Workers!

    Hot off the Press!

    Dodgy Dan has just announced that he, his Misgovernment and the C.F.M.M.E.U. will be constructing a new Victoriastan Sewage Treatment Works – to treat every single thing his Misgovernment touches.

  11. Forest Stylist

    Royalties (revenue to the forest owner) for logs are typically 10 to 30% of the delivered log value – depends on log quality, markets etc. ie they are only a small percentage of log value.
    In addition to royalties are many other economic benefits of native forest management:

    1, payments to harvest and haul contractors, and their suppliers eg tyre, fuel, mechanical services etc
    2, value adding by sawmillers and other timber processors
    3, significant employment multipliers in the milling and processing sector
    4, regeneration/forestry management services
    5, road tolls and maintenance of harvest roads used for fire control, public access

    Periodic harvesting facilitates regeneration and fire management.

    Native forest logging is a great way to help manage these forests in perpetuity.
    The Green/Left has deliberately misled the populace for 40 years on this issue to the detriment of our forests and society.

  12. Nob

    For every deliberate misleader there are a hundred followers who think the leftigreens are soft and cuddly and their hearts are in the right place. So supporting them or their policies can’t do any harm and hey, maybe it’ll do some good.

    That’s your average punter.

  13. hzhousewife

    With the significant potential of onshore gas reserves already prohibited by the Andrews soviet, why not add gold to the mix, and further damage the economy of the state?

    Talking to Victorians, they all seem to believe that their state is booming! Just look at the infrastructure making a mess of Melbourne, it’s all going to be marvellous!

  14. Pyrmonter


    Make some conventional assumptions that there are no unemployed resources, and that their opportunity cost is the market price. If you do that, ‘Gross State Product’-like revenue measures are clearly not the ‘value’ of the WA mining industry: that is the stuff of fatuous ‘economic impact’ statements associated usually with government infrastructure spending.

    Leaving aside the need to deduct some user cost of the resource, the ‘net’ value of the industry is the increment of value (if any) to the labour input and any super-normal return on capital invested.

    I think you’re right that the Midas analysis is wrong, but a revenue-based measure wouldn’t be the right approach either – it smacks of the sort of material output accounting that used to be used behind the iron curtain, disregarding the value of capital and of environmental ‘bads’.

  15. Talking to Victorians, they all seem to believe that their state is booming!

    Pigs arse they do! That might be a few inner-city Lefties, but go a bit further out and you won’t find that view. Go outside the metropolitan boundaries and you’ll find even fewer.

  16. Dr Fred Lenin

    Bemused. I had an old mate who loved the bush ,worked in it all his life ,worked for forestry before the pollies stuffed it up . He ended up teaching “indigenius” kids about the bush !on a property the pollies gave them they were clueless and hated the bush,so much for “our historic ties to the land “ .
    He was absolutely disgusted at what the environmentalists had done to his beloved bush “ ,city boys who know bugger all “ was hus summing up of the new department .
    Another point ,when he went in to the bush now he carried a rifle ,the mixedbred wild dogs were a menace , ,fearless of humans unlike purebred dingoes ,he said one day a pack would attack and kill a human ,all due to neglect of the bush by gangrene loons .

  17. Another point ,when he went in to the bush now he carried a rifle ,the mixedbred wild dogs were a menace , ,fearless of humans unlike purebred dingoes ,he said one day a pack would attack and kill a human ,all due to neglect of the bush by gangrene loons .

    That may not be as far fetched as some may think, bushwalkers beware. We were camped a few year ago at place called Nunniong Plains, which we visit quite regularly and usually see deer and wild horses every time. But this time, not long after we’d gone to bed, there started this very loud and disturbing howling that was taken up by more howls and which went on for around half an hour. We’d never come across this before.

    It took a bit longer than usual to fall asleep that night as thoughts of wild dogs scouring the camp went through my head. Next morning apparently he same thoughts had gone through the other’s heads, except for the one sleeping in their rooftop tent. We don’t carry guns, but sure felt like having one that night.

  18. Dr Fred Lenin

    Bemused ,Baz , my mate is not prone to exageration ,he doesnt like the way they eye people off without fear , as if the people were prey ,the gangrenes should see what they do to a flock of hepless sheep then tell me theyy wouldnt attack humans .

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