Costing the Environment

The contentious Port Phillip Bay channel deepening project will receive further economic analysis by accounting firm PriceWaterhouseCoopers (PWC). The PoMC's Stakeholder Advisory committee (PSAC) was recently addressed by Mr. James Kelly Associate Director Economics of PriceWaterhouseCoopers. Mr. Kelly outlined the Terms of Reference for the study, which PWC and Department of Treasury and Finance will undertake on direct brief from Premier Bracks and Treasurer Brumby. Blue Wedges President, Jenny Warfe outlines her ongoing concerns about the inadequacy of that economic analysis to Mr. Kelly

Dear James,

 

Re: Valuing environmental services

 

During questions to you at our recent meeting, the issue of how to place a cost on the various services provided by the environment was raised. There was some opinion in the room that there was no methodology for undertaking such a task, and that even if the methodology was available the task would be enormous. You confirmed that such a concept was outside the scope of the analysis you are presently undertaking.

 

Although I agree that the task is enormous, there is considerable (and growing) academic opinion that services provided by the environment must be valued and represented in cost benefit analyses of public projects in order for them to have any face validity, let alone rigour, credibility and thence public acceptance.

 

That the task of costing environmental services is enormous is testament to the fact that the services are complex, intricate and irreplaceable. To dismiss these assets as “too difficult” to cost or “something not done in a traditional cost benefit analysis” risks rendering the analysis that is done of little value in the real world – a waste of your time and taxpayers funds. Perhaps the continued subscription to traditional C/B analysis of infrastructure projects contributes to why budgets for these large projects invariably seem to ‘blow out’, as the un-costed environmental consequences kick in – as they tend to.

 

Your opinion that the economic value of environmental services would be dealt with via the S-EES process is not borne out by how the first EES into the project dealt with environmental services, assets and compensation to businesses, nor is it adequately reflected in the Assessment Guidelines (Terms of Reference) for the forthcoming S-EES. I might add any EES I have had anything to do with has been woefully inadequate in its valuing of environmental assets. This inadequacy perhaps reflects the fact that our Environmental legislation, the Environmental Effects Act 1978 is outmoded, having been written when we were all last wearing caftans and cheesecloth – and our awareness of environmental impacts was minimal compared to current thinking. Recent moves to update the Act moved extremely slowly through government, and resulted in minimal changes to the operation of the Act, in spite of enormous community efforts to influence useful and significant change for the benefit of society and the environment– and one wonders why.   

 

I am extremely disappointed, as an environmentalist and taxpayer that the economic analysis you are embarking upon, commissioned directly you say by the Premier and Treasurer, still seems to entirely ignore the value of the Bay, and its contribution to the economy (Tourism, recreational and commercial fishing, diving, property values, open space and sense of wellbeing, etc.), not to mention the essential environmental services the Bay provides ‘for free’ (and which are reliant on a delicate balance of ecosystems directly threatened by the channel deepening process) – such as dealing with 50% of Melbourne’s sewerage waste every day, turning various noxious Nitrogen based compounds into the Nitrogen -the very air - that we breathe, whilst providing habitat for the 5,000 species other than ourselves which occupy the Bay. What I have just described is irreplaceable - Priceless.

 

In his article in Nature (Vol 387, pp 253-260 15 May 1997)* Costanza et al. goes some way to costing these services – Note that the values are $US 1996, so 10 years hence, and with an oil and water crisis looming, clearly those $ amounts would now be considerably higher. It is also noteworthy that Costanza rates the most valuable ecosystems on earth as wetlands, seagrass beds, mangroves etc., rather than open oceans and forests. The Bay has extensive areas of wetlands, seagrass beds and mangroves, in fact because in geological terms it is so young, being a product of the Yarra flood plain only 10,000 years ago, it acts more as a lake or lagoon, being remarkably shallow for most of its area, with an extremely slow rate of exchange of water with Bass Strait, and an extremely high bio-diversity of plants and animals reliant on the high levels of light that penetrate the shallow water. There were some informal calculations some years ago that the Bay is worth at least $30,000 per hectare per year – (it has an area of 1950 square kilometres)

 

The most optimistic industry predictions I have seen regarding the channel deepening project’s contribution to the economy is $15 billion over the life of the project (to 2035) – and that is based on present cost estimates which do not include, for example:

 

- costs of relocating the Melbourne Wholesale Markets and Footscray Rd. so that Swanson Dock precinct can expand to accommodate larger vessels

- cost estimates for amelioration of any adverse environmental impacts including proper management of perhaps millions of tonnes of toxic sediments from the Yarra and Port Melbourne channels 

 

- estimates of compensation for Bay related business; eg: Port Phillip Bay commercial and recreational fishing activities and their support industries alone generate approximately $1 billion in economic activity annually. Reduced fish stocks as a result of channel deepening impacts would severely impact this sector of the economy. Tourism, Diving, Ecotourism, sightseeing are additional significant and sustainable economic contributors.

 

 

These are only a few of the glaring omissions from the present cost estimates for the project, and apparently from your study. If cost blowouts for other recent infrastructure projects are anything to go by, (e.g. the ten-fold increase in the fast train project announced yesterday, 3rd August 2006) we should expect significant increases in the cost of the channel deepening project if it were ever to go ahead, and thence further significant reductions in any purported benefits.  All of this makes the claims in support of channel deepening look rather flimsy. 

I trust that you will give some further consideration to these issues, and if not able to include these values in the study you are undertaking, I hope it may inform some other aspects of your future work.

 

I would appreciate your comments.

 

Jenny Warfe

President

Blue Wedges

*A copy of the Costanza article is available in the documents section of the Blue Wedges website under documents>current>Costanza et al 1997.pdf

 

Click to download the 1.8mb PDF Costanza et al 1997.pdf

 

 

 



Next page: Media Releases