Environmental Economy

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By Mary Shenousa, August 2003.

Nature Talking Money - short intro

(a series of emails sent by Mary Shenouda explaining Environmental Economy in 2003. Reserved here until fine-tuned and expanded on by other editors of SaharaSafaris club)

Dear Safarists,

The following is done in a chain of emails sent to SaharaSafaris in VERY short messages that are less than one screen of reading for each. I hope that you'll find the time to read what I think is important to know for every educated Egyptian.

On SaharaSafaris there were many emails going back and forth with certain opinions. To give you two clear examples:

  • Trees were pulled out in Marghany street to make way for the new underground tunnel. This is (bad/essential for development ) were the two main arguments.
  • Construction of a club in Wadi Degla (I know this turned out to be outside of the Wadi, but just for the sake of the argument imagine it will actually be built in the protected area) so is this again (bad/ not too bad/ essential).

How can we best judge if building a tunnel in merghany is the right decision or not? How can we think about this? These types of questions seem to come all the time.

Next email, I'll be writing about value of resources.

Value

The science of environmental economics could be one way of judging which is the right decision that is balanced and that considers ALL interests of all sides.

Economics in general is the science of scarce resources allocation to the unlimited needs. There is only so much each country has in terms of resources: land, water, environment, fossils etc. Economics tries to understand how people make decisions on allocating these fixed resources to their needs: e.g. water for drinking vs. water for agriculture vs. water for land reclamation vs. water for navigation ... etc.

Environmental economics goes further in assessing resources, to value things like natural common goods, e.g. The Nile, the Wadi, the clean air, biodiversity ... etc. When we have a VALUE for something, we can then think of how best to use it.

Yes environmental economics can give value in Egyptian Pounds for a nice mountain or wild leopard. And it's not as naive as you might think it is as you will see in later emails on SaharaSafaris.

For example, suppose the water in the tap is charged at 10 LE / m3 (which is more expensive compared to what we have now). If this is the case, people will directly stop using it for unnecessary things, such as watering the streets. If the value of a tree is established and well known, everyone will think again before planting a tree or removing a tree from its place. And so on.

Of course you'll think that Egypt nothing has been evaluated for a value in money. Well, this is not true as you'll see next email on SaharaSafaris.

Value examples in Egypt

As I have mentioned last time, we already have some established values in Egypt. For example, the value of the coral reefs in South Sinai protected areas. If you dared to take a piece of coral out with you, you could be fined as much as 130USD for each piece (each m3 if I can remember correctly).

Before a new hotel is constructed now in Sharm, the extent of expected damage to the corals is assessed (because there will be a damage anyways by building and using the facility), and the hotel is asked to pay them. If the hotel cannot pay: then he has to look for another area away from the shore to build: he cannot afford to repay the damage he’s doing to society.

This way the Protectorates can be sure no one will overuse the facility to cause great damage they cannot pay to fix.

WARNING: the cost we're talking about here doesn't include any other governmental fees and taxes of course.. just the 'value' of the environmental resources

The size of the project affects the way it affects the resources we're trying to protect. So how does economics respond to that? That's what we're going to see next email. :)

Size does matter

 

Lets assume that Wadi Degla has a cost to try to build there (I’m personally not sure if they have a valuation or not, but maybe we can check). If your building will cost the Wadi x-land, and will destroy the habitat of x-species and will damage x-trees and greenery (usually include every living thing and value them separately, or just add it all up to the value per each meter of land). Then you will pay x-LE for each meter used. Of course if you will build a tiny facility, the cost is not too high (for example a stand for drinks or sandwiches). But if you want to build a hotel, the cost grows up TREMENDOUSLY. In this case, the cost does not just double (using 1-meter = using 10x1 meters), it actually triples or even quadruples per meter. For example, the juice stand will pay 1,000 LE per mete, but the hotel will pay 10,000 LE per meter. This is because as you go larger, the damage grows much faster than the benefit.

Now, what if somebody comes and says ‘I have a very large project, which will solve all Egypt’s problems: will provide sufficient food for everyone, will bring industrialization to the country, jobs for all, enough taxes to build schools and no one will ever suffer again. But the cost of this project is the complete and total destruction of Wadi Degla. What would you say? How can society assess this idea? This is where environmental economics plays an important role and why I am writing all this to make Egyptians see its importance for their benefit. Now, read this carefully: If we have a value for the Wadi that is very low compared to the return from its destruction, it should be destroyed!!

Next email I'll be talking to Safarists about how Egyptians have been treating Nature in the last 7000 years.

Ancient development

 

Some of you might think: there’s no reason on earth why such natural beauty of Wadi Degla has to be damaged, but in fact there is!! Egypt, over the course of 7000 years of history, has destroyed everything natural around the Nile valley. EVERYTHING now is man-made. Whether to be proud of this or not, that's another thing. One environmentalist I was talking with a few months ago concerning an environmental phenomenon in one of the Egyptian Governorates said ‘a rat dying in the middle of the desert is probably the only natural phenomenon you’ll see around Egypt’. Of course, as people develop, they overtake nature. In a stage of Development similar to Egypt’s at the moment, perception of preserving the environment is far from realistic (unfortunately!). If you think of thousands of children dying every year of preventable diseases just because of lack of enough water supply, suddenly you think: if our beloved nature is the price we have to pay to preserve their lives, it will be paid. This is how most of society thinks today.

Harsh isn't it, but that's what economics here is trying to do: considering ALL sides of the story!

Next time we'll be talking about benefits for this way of thinking.

Why environmental economics?

 

Why was Hurghada destroyed so quickly? There were no regulations back then!! Fishing was far more important to feed people than the fragile international tourism sector. Thus, fishermen’s villages took the priority, and soon Hurghada was a dead corals area (they anchor on reefs without paying for very expensive buoys and maybe fish by explosives). Today, Sharm is harshly protected because of international tourism, but suppose there was no tourism????

Ok, maybe this sounds a little pessimistic, but there are actually a lot of benefits to this system in spite of all its apparent disadvantages:

1) We have an established and agreed SOCIAL value to everything. This value enables us to justify what we are doing 

2) We have society’s preferences included in our model (y3ni the way of thinking), such that when society develops, we can incorporate more sophisticated material in. For example, imagine speaking to your grandparents about preserving Wadi Degla! Rubbish! In the middle of the housing crises this country had, are you telling me we need to preserve a piece of land because a bunch of gazelles live in it?! But today, my father is eagerly looking forward to his first trip to Wadi Degla. If my grandchildren will go visit Degla for rock climbing every week, there’s no project on earth that can justify its damage, and so on. 

3) Yes there are losses, but the good of the whole is more important than the preferences of a few. This is very important to grasp in today’s world. And the way to incorporate the goods vs. bads is through economics.

I hope I haven't lost you yet, but also I hope that you're seeing that its not easy to take ALL sides of the story into account before making decisions. :) Next time we'll be talking on SaharaSafaris about what people should be doing.

To Do List

Environmental economics helps shedding light on what each of us should be doing, and even more what the whole society should be doing:

  1. Environment means very little to people who can hardly secure their daily bread. Unless we can eliminate poverty, environment per se, will remain very low in the agenda (this concept is called Kuzenets curve if any of you is interested to know more about it)
  2. Literacy and awareness are KEY issues. How many Egyptians have been to Ras Mohammed? How many Egyptians that went to Sharm have been to Ras Mohammed? Well, don’t be intimidated, but less than 10% do!! Not to mention Wadi Rayan or Wadi Degla that are probably less famous. This is mainly due to complete ignorance on the side of the most, as well as illiteracy, which does not enable even those who go there to learn about it.
  3. There’s a large task and money involved in maintenance of these facilities. From where are we paying this? Every contribution here counts. Clean-ups and tree planting through volunteers is a brilliant idea. More and more of this is required. Unless there’s enough care to actually KEEP the place, there is far less funding through formal sources to maintain it.

Sounds tough? Well it isn't easy. Next time we'll be discussing why SaharaSafaris might have an important role in all that.

SSC (SaharaSafaris club) importance

 

I see a huge advancement happening over the past few years, which made the job of all economists in this field harder and far more complicated, and the decisions really tough.

We can all help to make our beloved places more valuable and to preserve them. I mentioned what needs to be done from an environmental economist point of view, and I believe that the No.2 issue in my last email about awareness is a big task, which I think directly relates to SS.

SaharaSafaris is probably the best to do it all over. It now involves people from the protected areas as well as from outside, including all professions and various backgrounds. We can together work towards these goals to maintain what we believe is worth maintaining.

The thing to do is to understand how we value these goods, and that’s an even more interesting topic.

We'll see next email how one can give value in LE for some of the environmental resources.

Valuation

Now, if I asked anyone what is the value of a m3 of water, what would be the answer? Most people will say: I pay 5 LE for water monthly in my apartment and we probably consume 5m3, so the value is 1LE for each m3. But in fact, this is the price of water in the tap, and not the real value of the water in the Nile. By definition, the water in the Nile is far more valuable than this.

If I asked the same question: what is the value of the tree in Marghany street? One person will come and tell me: this tree is of type n, and they usually cost 20 LE to buy. Some of you (hopefully all of you!!) will start to argue: of course this is too low! Did society loose only 20 LE when the tree was pulled down? Is this all?

A third question: how much is the value of Wadi Degla? Someone might answer quickly: we earn only 10,000 LE from tickets sold at the gate in Wadi Degla!! That’s all that it’s worth!! If I were you, I would be furious: our beloved Degla is far more precious.

So how's that considered in environmental economics? See you next time. ;)

Value vs price

It appears that the VALUE of anything is different from its PRICE or different from the money benefit we get from it. Value here implies the SOCIAL BENEFIT. Meaning, how much society is benefiting from this place (or resource as we should get used on calling all nice things in economics). From this point on, you can replace the word VALUE for BENEFIT without problems.

Next time we'll be discussing the types of benefits and examples on each of them.

Value type 1

Benefits of environmental resources can come from various sources. They're three sources: Direct, indirect and option values/benefits.

Direct benefit: you are a worker in Degla, and you earn your money from visitors. This is a direct monetary benefit. But usually it is not very large. Direct benefits could also be oxygen generation or ecosystem balance .. etc. But all these benefits are direct in the sense that you know WHY EXACTLY and HOW MUCH is the benefit.

Next will be about the Indirect Benefits/Values

Value type 2

Here's the second of benefits/values of environmental resources.

Indirect benefit – existence value: existence of a place ALONE can be viewed as a value from some people’s perspectives. For example, the pyramids. I dare say there must be at least 50 million Egyptians who never visited the pyramids. However, if they were asked if they want to keep them, they will say yes. Their simple existence means a lot to everyone: we are deriving a social benefit from their existence. Same for the Amazon forest. If they asked people around the world if they would like to keep them, a lot of people will say yes. Again, they derive value from their existence. And so on for a lot of human assets. Others may want to keep them even if they’ve never actually gained any direct benefit from them

Next email will discuss the last of benefits/values: indirect benefits -- option value.

Value type 3

This is the last of the three types of values/benefits of environmental resources.

Indirect benefit – option value: I have never been to the Cedar Forest in Lebanon and I don’t know much about it. However, if they asked me if I’d like to keep it there, I would say yes because I am HOPING to go see it in the future. This means, I want to keep my OPTIONS open to see it or not to see it. Unlike the previous existence benefit, this benefit is drawn from the concept that people want to go visit the place.

As you can see, the last 2 benefits are so closely linked and very hard to try and estimate separately. However, there are some ways in which we try to CAPTURE some of these values from society’s viewpoint, in order to be able to assess its benefits.

That's what we'll discuss next section.

Valuation 1

There are 6 main approaches to valuing any environment asset we have. Out of these, there are various methods and branches, but the main idea is the same usually. The first of the six valuing techniques is effect on production.

Effect on production: what are the production effects of some asset? For example, Sharm produces money from diver tourists. So we see how much of this income generated will be lost if we destroyed the corals. Suppose we find that Sharm produces annual income of 100 million LE, then this will be lost if we lose our corals. Now, we know how much our corals are generating in income, and if one person takes out a piece that requires 100 years to regenerate, we charge them based on the potential tourism loss due to this piece. (a complicated calculation, but not impossible).

Next will discuss the effect on health.

Valuation 2

Second of the techniques of valuing environmental resources is:

Effect on health: some of our assets have a direct impact on health, for example greenery (e.g. a tree). So, we check how much the impact of one tree in generating oxygen and absorbing dust and pollutions for example, and establish a value for destruction of that tree. If a tree provides daily the equivalent of 10m3 of oxygen, which is worth some value in the market, this could be used as value of the tree (of course this is a vigor generalization, but it’s easy to explain). Other assets have direct effect on health, such as clean air. We quantify effects on health using complicated formulas, which tell on average how many people die or get sick per pollution loads. 

Next will discuss effect on wages and prices of related goods.

Valuation 3

Third of techniques of valuing environmental resources is:

Effect on wages and prices of related goods (Hedonic Wages or Prices): for example, it is common in Egypt to see that the flat overlooking the North (Bahary) are a little more expensive than those overlooking the south (Kebly). The main drive behind that is the air freshness. We use this marginal difference, and given the vast number of property available in Cairo for example, we can calculate the loss in value for apartments not overlooking the north, and part of this value loss will be attributed to clean air. Wages are a bit more complicated, so will discuss them on personal level if anyone’s interested.

Valuation 4

This is the fourth of the methods of finding a value for some resource of our environment.

Travel cost method: for places like Saint Katherine, this could be a nice method. Here we calculate how much people actually incur, in terms of money and time, in order to get to this place, For example, assume you want to go to StK over a period of 3 days. You will have to take 3 days off work, then use some kind of transportation (bus or car), then go to the place, pay entrance fee, and get in. All this money every tourist paid is considered the total value of StK. If, over the course of a year, some 1 million tourists make such a trip, each costing around 100 LE, then the value of this place is at least 100 million LE. We use such method when we need to value some remote area which may sound of no real interest unless we’re able to figure such values for them. As a practical example, suppose we take the journey a few people went on  few weeks ago to photograph crabs on the shore of the lake. The whole trip was intended only for this purpose. If we want to destroy the habitat of these creatures, we have to compare the value of the new construction vs. the value of the place as it is now, so we see how many trips were done over the course of the year, and how much each trip has cost these people, and thus have a value for this place. If the new construction is, for example, a plant, then the whole value is lost. If it is on the other hand an eco-tourism facility, then most of the place will remain unchanged. 

Next is the simplest of all methods which is to go ask people for the value. :) But of course we'll give it the scientific name (makes you look sophisticated and highly educated) which is Contingent Valuation method.

Valuation 5

This is the fifth and last of methods about finding the value for environmental resources.

Contingent valuation: I insisted on presenting the scientific term here since this is a very important and significant means of valuing our environment. This method is based on creating an understanding of how much people are happy to pay in order to maintain the facility. For example, we put a poll in SS group asking people how much of their monthly salary are they happy to contribute in order to maintain Wadi Degla. Then we use this information to value the resource. So why don't you think about it sometimes? How much in LE are you willing to pay from your monthly salary to keep Wadi Degla intact?

Next email is the last. I'll make it even shorter. :)

Conclusion

This is the last of all emails about environmental economics that I enjoyed sharing with you tremendously. It was so exciting that I had the chance to discuss and share what some think is very technical and should be kept away from the public. I think this group is very special.

Of course the models used, assumptions, calculations and theory behind all this is huge and would require more than emails to explain, but these are the broad concepts most used in the environmental economics literature and work.

I hope this is enough to give you a taste of what economists are trying to do to keep the environment in the agenda and to do their part in preserving it. If you have any questions, clarifications, corrections, comments, suggestions, anything, feel free to email me, on or off-list if you wish.

I’m eagerly waiting for your questions and comments.