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Practical tools for value transfer in Denmark – guidelines and an example Summary and conclusionsPractical guidelines for value transfer in Denmark Based on the current state-of-the-art in validity of value transfer, simple unit value transfer is recommended instead of the theoretically more appealing value function transfer from a single primary valuation study (benefit function) or multiple studies (meta-analysis). A seven-step practical guideline is recommended for future value transfers. These guidelines should lead to more consistent, reliable and acceptable treatment of use and non-use values of environmental goods in economic analyses, e.g. cost-benefit studies. Background and aim This report is written on behalf of the Danish Environmental Protection Agency. The main aim is to develop simple and user-friendly, practical guidelines for transfer of economic estimates of changes in environmental goods from previous studies to current cases that are also scientifically defensible. Since value transfers most often occur in both time and space, the guidelines address both these dimensions. The study This report is written by Ståle Navrud with assistance from Jan Atle Liodden at Sweco-Grøner. The project manager Robert Heidemann and the project reference group have provided very valuable comments and input especially in terms of making the list and description of Danish valuation studies (see appendices A and B) as complete as possible. Main conclusions The main output from this project is the practical guidelines for value transfer, and an example illustrating how these guidelines can be applied both to use as well as non-use values of environmental goods. As a good basis for national value transfer, appendices A and B describe the primary Danish valuation studies on the priority environmental impacts for this report, which are: surface water quality, groundwater quality, marine and coastal areas, soil quality, landscape (aesthetics, cultural heritage and recreation aspects of e.g. forests and moorland), ecosystem functions and biodiversity. Due to the limited number of primary Danish valuation studies for most of these goods, and the diversity in valuation methodologies and site–specificity of forest areas (for which many studies exist), it is not justifiable to construct general unit values for transfers. However, reviews and data bases of Danish and European primary valuation studies can be used together with the suggested step-by-step guidelines to perform value transfer, as illustrated by the transfer of use and non-use values for the Skjern River restoration project. This case study shows that the suggested step-by-step practical guidelines simplify the value transfer exercise, avoid arbitrary assumptions (which are easy to criticise), and use assumptions that rather underestimate rather than overestimate the environmental values. This is expected to improve the reliability and acceptability of cost-benefit analyses involving the priority environmental goods. Results Unit value transfer is recommended as the simplest and most transparent way of transfer both within and between countries. This transfer method has generally also been found to be just as reliable as the more complex procedures of value function transfers and meta-analysis. This is mainly due to the low explanatory power of willingness-to-pay (WTP) functions of Stated Preference studies and the fact that methodological choice, rather than the characteristics of the site and affected population, has a large explanatory power in meta-analyses. When making unit transfers of values from a Danish primary study over time, the Danish Consumer Price Index (CPI) should be used as an approximation to convert values for environmental goods into 2005-DKK (see appendix I for CPI for Denmark). For transfer from primary valuation studies from other countries, countries with a similar cultural, legal and institutional structure should be chosen; which in practice would mean to look for Nordic studies first, then studies from other European countries and finally the US. For unit transfers between countries, the differences in currency, income and cost of living between countries should be taken into account by using exchange rates adjusted for Purchase Power Parity (PPP); see http://www.oecd.org/dataoecd/61/56/1876133.xls . Values from the primary study should be converted to DKK at the time of the collection of data, and then converted to 2005-DKK using the Danish CPI. The recommended units of transfer for use and non-use values are: i) use value: Consumer surplus per activity day of recreation. Consumer surplus per year (or per visit) per visitor could also be used, but then the average number of activity days per year (or per visit) should be the same at the study and policy sites. ii) non-use value: WTP/household/year, and not converted to a “per hectare” basis, as WTP does not vary proportionally with the area of e.g. an ecosystem. Rather, WTP/household-values should be transferred from a site of about the same size with similar type environmental goods of the same level of uniqueness (in terms of being a site of local, regional, national or global importance). The proposed practical guidelines have the following seven steps: 1) Identify the change in the environmental good to be valued at the policy site (i) Type of environmental good (ii) Describe baseline, magnitude and direction of change in environmental quality 2) Identify the affected population at the policy site 3) Conduct a literature review to identify relevant primary studies 4) Assess the relevance and quality of study site values for transfer (i) Scientific soundness; the transfer estimates are only as good as the methodology and assumptions employed in the original studies (ii) Relevance; primary studies should be similar and applicable to the “new” context (iii) Richness in detail; primary studies should provide a detailed dataset and accompanying information 5) Select and summarise the data available from the study site(s) 6) Transfer value estimate from study site(s) to policy site (i) Determine the transfer unit (ii) Determine the transfer method for spatial transfer (iii) Determine the transfer method for temporal transfer 7) Calculate total benefits or costs The use of these guidelines is illustrated by applying them to the Skjern River nature restoration project. Other sources of information For further reading, we would recommend the in-depth treatment of value transfer, with an application to health and environmental effects from air pollution: Desvousges, W.H, F. R. Johnson and H.S. Banzhaf 1998: Environmental Policy Analysis with Limited Information. Principles and Applications of the Transfer Method. New Horizons in Environmental Economics. Edward Elgar, Cheltenham, UK and Northampton, MA, USA. For a review of applications of value transfer to use and non-use values of the priority environmental goods of this report and detailed descriptions of selected validity tests see: Navrud, S. and R. Ready (eds.) 2007: Environmental Value Transfer: Issues and Methods. Springer , Dordrect, The Netherlands.
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