Page 123 - Materials Chemistry, Second Edition

L1644_C03.fm Page 98 Tuesday, October 21, 2003 3:11 PM

today is comparable to 121 U.S.$ in 2 years’ time. Different stakeholders have
broadly discussed the question of the most adequate discount rate.

Xt = X · (1 + r) t (3.4)
0
The accurate economic evaluation of environmental damages depends not only
on the monetization method chosen and the discount rate used, but also on the
question of how far economic damage values can be transferred from one place to
another once they have been determined. For example, it is difficult to decide which
modifications should be done in order to use results of U.S. studies in the EU.
In the case study in this book, monetization is done by the following methods
for economic valuation of damages used by the European Commission (1995):
• The direct estimation of damage costs is the most evident evaluation
method. Here the external damage costs that are measurable in the market
are taken into consideration, which facilitates the valuation of an important
part of the impacts. It allows obtaining an under-borderline of the total
environmental cost, although other types of costs exist.
• The WTP method tries to answer the question of how much one is prepared
to pay to reduce emissions. This method is considered an adequate mea-
sure of preference. For example, with certain decisions, such as buying a
car with or without an airbag, individuals give a price to their lives.
• Discounting corresponds to weighting on the level of intergenerational
equity, which means that the interests of future generations must be taken
into account. However, because in practice it is not possible to measure
the values of future generations, the discount rates applied can be under-
stood as the true social discount rate minus the rate of appreciation of the
value. This consideration justifies the use of a discount rate below rates
observed in capital markets.

With these methods, the types of monetary values obtained are, for instance:

• Mediation costs, i.e., costs of illness
• Productivity loss/company’s accounting data, i.e., wage loss
• Economic valuation of a VSL on the basis of:

VSL = Σ WTP/∆p (3.5)

where VSL = value of statistical life, WTP = willingness to pay, and ∆p = change
in probability of death.
The conventional approach for valuing mortality is based on the estimation of
the WTP for a change in the risk of death (∆p), allowing calculation of VSL by
dividing the WTP by the change in risk. A meta-analysis of valuation studies from
Europe and North America undertaken in ExternE suggests a mean VSL of 3.1 Mio
Euro at a 3% discount rate, derived from accident studies according to the ExternE
project (Mayerhofer et al., 1997).

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