1 Introduction

Practical tools for value transfer in Denmark – guidelines and an example

1.1 Value transfer
1.2 Aim

1.1 Value transfer

Due to limited time and resources when decisions have to be made, new environmental valuation studies often cannot be performed, and decision makers try to transfer economic estimates from previous studies (often termed study sites) of similar changes in environmental quality to value the environmental change at the policy site. This procedure is most often termed benefit transfer, but could also be transfer of damage estimates. Thus, a more general term is value transfer, which will be used throughout this report to cover transfer of both benefits and costs/damages.

The practice of value transfer can be traced back to be the calculation of lost recreational value from the Hell´s Canyon hydroelectric project 30 years ago (see Krutilla and Fisher 1975; chapters 5 and 6). The first large-scale user of value transfer, however, was the USDA Forest Service. In preparation for the 1980 Resource Planning Assessment (RPA) the Forest Service launched a large-scale effort to collect data on the economic values associated with recreational use of forestlands, in order to balance these against timber production and other uses. These early examples of value transfer were, however, conducted in an uncritical manner, often lacking sound theoretical, statistical and empirical basis, and did not question the validity of the transferred values. The validity of value transfer was placed firmly on the agenda more than ten years ago in a set of papers in a special section of a 1992- issue of Water Resources Research (vol. 28, no. 3). Since then there has been a steady growth in the literature on testing validity of benefit transfer, the development of transfer methods and statistical techniques, and applications of these to environment and health. A general review of these development can be found in Desvousges et al. (1998) and Navrud and Ready (2007).

1.2 Aim

The main aim of this project is to develop simple and user friendly, practical guidelines for value transfer, which are also scientifically defensible. Since value transfers most often occur both in time and space, the guidelines will address both these dimensions. A list of methodological issues and criteria for acceptable value transfer will be developed into a practical value transfer guide. The use of the guide will be illustrated by a “how to do it” – example for a selected policy case.

We will examine whether it is defensible to construct general unit prices for use values and non use values, based on existing valuation studies (and meta-analyses of these primary studies) of the environmental goods that Miljøstyrelsen gives priority to (excluding noise, and health and ecosystem impacts from air pollution, which will be covered in other projects). The environmental goods considered here include:

- Surface water quality (recreational (use) value, suitability for drinking water, and non-use value)

- Groundwater quality (suitability for drinking water and non-use value)

- Marine and coastal areas (recreational value and non-use value)

- Soil quality (use and non-use value)

- Landscape, e.g. woodland, moorland (aesthetics, cultural heritage and recreation)

- Ecosystem functions and biodiversity

Since we expect smaller transfer errors within a country we will first review the Danish valuation studies of these priority environmental goods. However, since the number of primary valuation studies in Denmark is rather limited, we will look into the possibilities and validity of international value transfer from studies from all Nordic countries and other countries available in databases and bibliographies of valuation studies.

The main focus of the guidelines for value transfer will be Contingent Valuation (CV) studies and other Stated Preferences (SP) surveys, but also the Revealed Preference (RP) approaches of Travel Cost (TC) and Hedonic Price (HP) studies (especially for national transfers as housing markets vary widely internationally) will be considered. Avertive costs, replacement costs and direct impacts on marketed goods (e.g. commercial fisheries and agricultural production) are regarded as outside the scope of this report, as these methods can often be based on site specific evidence of the magnitude of the impacts and the market prices at the policy site.

There are four basic requirements for performing effective and reliable value transfers:

A complete, searchable database of primary environmental valuation studies; with access to the primary reports/ journal papers including the grey (unpublished) literature
A list of “best practice” criteria for assessing the quality of primary valuation studies
Guidelines for value transfer
Decision rules for definition of acceptable transfer errors for different policy uses of the estimates

Each of these four basic requirements will be discussed in terms of the trade-off between what is theoretically correct and what can be used in practical decision-making. The report is organized as follows: Chapter 2 describes the value transfer methods, methodological issues and validity tests of transfers. Since the number of Danish studies is limited, chapter 2 also discusses international value transfer. Moving from national to international transfers could improve our basis for transfer in terms of the number of valuation studies we can transfer values from, but it also raises some additional methodological issues. Chapter 3 describes the different policy uses of environmental valuation estimates; databases for valuation studies, current guidelines and practices in value transfer, and ways towards determining the level of acceptable transfer errors in cost-benefit analyses. Chapter 4 describes the main steps of a practical value transfer guide, and chapter 5 illustrates the use of the guide.

Appendices A and B list and review the Danish valuation studies for the selected environmental goods based on best practice criteria for assessing the quality of primary valuation studies. Appendix H provides the Consumer Price Index for Denmark, used to adjust values in Appendix A into 2005-DKK. Appendices C and D review the databases and bibliographies of valuation studies, and evaluates their use for Miljøstyrelsen in Denmark. Appendix E lists all the Danish studies in the database EVRI, while appendix F reviews relevant Swedish studies from the database VALUEBASE^SWE, and provides a link to OECD’s Purchase Power Parity (PPP) corrected exchange rates. Appendix G reviews results from several spatial value transfer validity tests.