1. ECONOMIC VALUATION OF ENVIRONMENTAL IMPACTS
ECONOMIC valuation of the environment (EVE) is growing up. No longer is it asked, why do it? Its theoretical rationale has been
rehearsed at length. We need no longer ask how to do it, since considerable practical guidance is now available. We are now at
the stage where a variety of applications of EVE are being explored. However, EVE's higher public profile has stoked even greater
controversy about this subject.
EVE is proving useful in a number of areas: Project appraisal and environmental impact assessment, the planning of nature
conservation programmes, assessment of the seriousness of global climatic effects, as basic data for national resource accounting,
for the appraisal of environmental policies, in the regulation of public utilities and in litigation.
EVE's most common application is still probably in the appraisal of individual projects, especially where formal appraisal of
environmental impact is required. In the latter case, EVE can complement the use of environmental impact assessment (EIA). A
number of international aid agencies, to take one example, support the use of EVE on their own programmes (though it should be
added that practice lags well behind the theory in almost all cases). Sometimes, EVE is incorporated into ex post evaluation, to
indicate how projects would have fared if they had been subjected to EVE at the time of appraisal.
Much of the literature of contingent valuation (CV) and the travel-cost method is devoted to the appraisal of individual natural sites
and conservation features, especially in North America and Western Europe. This application is rapidly gaining ground in the
developing countries, too, because of the availability of international funds for nature conservation through the Global Environment
Facility and environment non-governmental organisations (NGOs) such as the WWF and the IUCN. The sponsors of such projects
have grasped that economic arguments provide cogent justification for the use of scarce national resources on conservation,
compared to orthodox `bricks and mortar' investments.
A number of studies purport to measure the costs of global warming and chlorofluorocarbon (CFC) emissions, using an eclectic
variety of methods, with a wide range of resulting values. As regards global warming, economic valuation is hampered by scientific
uncertainty about the existence, the force, and even the direction of the trend. The phenomenon of ozone depletion is better
established and its impact on human receptors somewhat clearer.
Estimates have been made of the costs of increased ultraviolet radiation on human health (malignant melanoma, suppression of
immunity and damage to eyes) materials damage (faster deterioration of paint, plastic and rubber), damage to biological food
chains (reduced crop growth and yields, decreased ocean plankton and fish production) and photochemical smog (damage to
humans, plants and animals).
In a related mode, there are several estimates of the value of storing atmospheric carbon in trees, either in terms of the avoided
damage costs or the costs of alternative policies.
In India, the NCAER has produced a study playing down the probable adverse effects of global warming. A few countries _ France
and Norway _ regularly produce environmental indicators to complement their conventional national accounts (`satellite' accounts).
Studies have been done of other countries _ Indonesia, the Philippines, Mexico and Costa Rica _ illustrating the impact on
conventional estimates of national income of the inclusion of environmental `depreciation', such as mineral depletion, reduced soil
fertility or deforestation. Some of these studies make adjustments for a particular sector, such as agriculture. EVE provides the
building blocks for these accounting exercises.
There is no reason why EVE should not apply to policies and programmes, just as to individual projects, provided their
environmental costs and benefits can be clearly identified and valued. Cost-benefit studies have been produced for the US air and
water quality legislation, the benefits of which are based on EVE methods. Indeed, in the US, cost-benefit analysis must now be
carried out for all major regulations, including environmental ones.
Britain's Department of the Environment has produced guidance on the environmental appraisal of public policies. Nevertheless,
many environmental policies have been adopted without close analysis of their benefits, at the major cost of industry, utilities and,
ultimately, consumers. Examples include measures to counter acid rain emissions by large power stations and standards for river
water. Other measures, on the contrary, are not implemented as fully as they might be if decisions were based on cost-benefit
analysis.
In India, comprehensive studies on the above topics are rarely, if ever, carried out despite the plethora of institution to manage the
environment _ government departments, pollution control boards and the like.
It is widely acknowledged, even by the champions of that survey results are often anomalous and internally inconsistent. Answers
to willingness-to-pay (WTP) questions are shown to depend on the order in which the questions are asked. WTP for specific
individual goods is frequently greater than that for the whole generic environmental good which includes that individual. WTP for a
specific environmental action or good is often practically the same as for an action or good of the same kind, but which is very
much smaller. When individuals are asked simultaneously about many projects, WTP is usually well below the sum of WTP from
asking about the projects separately. WTP for a good is heavily influenced by the context of `theatre' in which it is presented to the
respondent.

2. Some of these anomalies are related to the `embedding problem' or `part-whole bias', where WTP responses are very similar
across different surveys, whereas we would expect them to be very different, because a specific good is `embedded' in a more
inclusive good. To some extent, WTP responses can be made more consistent by more careful survey design. But one of the most
damming criticisms of CV is that the embedding problem merely illustrates the fact that people lack preferences for the
environmental goods, sites or measures that they are questioned about.
If valid, this is a fundamental flaw of CV, when no amount of tinkering with methodology will change. In a similar vein, comparisons
of hypothetical WTP and actual offers for private goods and charitable donations indicate large discrepancies. This is an
uncomfortable reminder that CV measures what people say, rather than what they do.
It is no defence against these criticisms to say that ``some number is better than no number'' (if the `real' value is five, taking zero
will be less misleading than taking a figure of 20). Likewise, the argument that CV is the only methodology available for estimating
existence values is a hollow defence if it contains deep and irremediable flaws. Or again, to defend CV by adducing weaknesses in
other methods such as revealed preference approaches hardly amounts to a ringing endorsement.
In the last few years, there has been much discussion of benefit transfers (BTs). BTs apply a data set developed for one particular
use to a quite distinct alternative situation. In a very general sense, where data on environmental values in a specific project and/or
locality are absent, it is common to borrow unit values developed elsewhere to illustrate orders of magnitude.
The non-timber values of tropical rain forest, estimated from detailed surveys in a few parts of the Amazon, West Africa and South-
East Asia, have been widely quoted to illustrate the potential values of other tracts of forest. A number of studies use empirical
relationships on afforestation an soil fertility, or soil erosion and crop yield, developed in specific areas, more widely to `slot into'
exercise where local empirical data are not available.
However, BT has come to mean something more specific. It usually applies to non-market values (for example, of air and water
quality, or recreation), since these are not so easy to obtain as market values. The location where the data was generated is known
as the study site, and the project or area that the benefits are transferred to is the policy site. In some cases, the methodology
developed at the study site can be transferred to the policy site, using empirical data at the latter. In other cases, the methodology,
data and values are transferred wholesale.
BT is appropriate when certain conditions are present: There are insufficient funds, time, or personnel to undertake a satisfactory
new study; the study is similar to the policy site; the issues (for example, proposed policy change, or nature of project) are similar in
the two cases; and the original valuation procedures were sound and the exercise was done conscientiously.
In the typical situation, a policy-maker or analyst is confronted with poor local data, and inadequate time and resources to carry out
a fully satisfactory study. The choice is often between using BT, on the one hand, and carrying out a short-cut, rapid appraisal
using whatever local information is available at the time, on the other. The conscientious environmental economist may, in these
circumstances, feel trapped between the devil and the deep blue sea. However, such are the problems attending BT, especially
internationally, that recourse to local data, even of a rough and ready kind, is not automatically an inferior option. The ideal is, of
course, to generate more relevant local data, which is starting to happen in, for example, the health impact of urban air pollution.
How can EVE be made more credible and acceptable? The first obvious route is to increase the penetration of EVE into relatively
uncontroversial cases where its use would clearly improve the quality of decisions. The exploitation of underground water would be
one such example. This example would involve using the simpler and more robust techniques based on the market valuation of
physical effects (MVPE). This leads to the second suggestion that practitioners of EVE do not lose sight of the usefulness of such
methods as MVPE, which are often more immediately appealing and comprehensible to the decision-maker.
Third, the credibility of CV might be improved through the use of more fully detailed and realistic scenarios. Thus, instead of
enquiring about WTP for preserving a forest about to be destroyed in the construction of a road by-pass, the exercise would consist
of describing alternative options with and without the proposed development, each of which would have its financial, economic and
environmental implications fully spelled out. If the respondent voted `yes' to the by-pass, it would be in full awareness of its
environmental and financial costs, as well as the presumed economic benefits of the road. If the vote was `no', this would also be
taken full possession of the facts, including the economic costs of not proceeding. In this case, the CV exercise would be
tantamount to a pilot local referendum on the issue.
Finally, it is vital to take account of the distribution of the costs and benefits of environmental chance. At a deeper level, this
invokes the question, whose environment is it? Just as market-based economic values and prices reflect the distribution of power
and property in society, so EVE is influenced by our assumptions about rights and ownership of the environment, for example, the
well-known discrepancy between WTP and willingness to accept compensation (WTA). Every environmental appraisal should
probe who gains, who loses, and by how much.
EIA (Environmental Impact Assessment) practice in India
The Ministry of Environment and Forests (MoEF), Government of India has under the Environmental (protection) Act 1986
promulgated a notification on 27 January 1994 making environmental clearance mandatory for expansion or modernization of any
activity or for setting up new projects listed in schedule I of the notification. Till 1994, EIA clearance was the administrative
requirement for big projects undertaken by the Government or public sector undertakings. EIA clearance is required for 29

3. categories of industries from the central government which can be broadly categorized under sectors of industries, mining, thermal
power plants, river valley, ports, harbours and airports, communication, atomic energy, transport (rail, road, highway), tourism
(including hotels, beach resorts). For some projects, EIA is not needed. The notification states that the requirement of EIA can be
dispensed with by the IAA (Impact Assessment Agency which presently is the MoEF, Government of India). Environmental
appraisal committees constituted by the MoEF for various types of developmental projects include river valley, multipurpose
irrigation and hydroelectric projects; atomic power and nuclear fuel projects; mining projects, industrial projects, thermal power
projects, tourism/transport and miscellaneous projects; port and harbour projects. MoEF has developed guidelines for the
preparation of EIA reports along with questionnaires and check lists for the following sectors namely industry and mining projects,
thermal power projects, river valley projects, rail, road, highway projects, port and harbours, airports, communications projects, new
towns, parameters for determining ecological fragility.
MoEF amended the EIA notification (S.O.No. 60E) on 10 April 1997, making public hearing mandatory for environmental
clearance. The public hearing will be conducted by the State Pollution Control Boards before the proposals are sent to MoEF for
obtaining environmental clearance and, for site specific projects, it is even before the site clearance applications are forwarded to
MoEF. MoEF is also in a process of decentralizing the responsibilities of conducting EIA. In a move, Central Government has
notified (dated 10 April 1997, No. S .O.319. E) that certain category of thermal power plants namely all capacity cogeneration
plants, captive coal and gas/naphtha based power plants up to 250 MW, coal based power plants up to 250 MW using
conventional technologies, coal based plants up to 500 MW using fluidized bed technology and gas/naphtha based plants up to
500 MW requiring environmental clearance from the state government. In case of pit head thermal power plants, the applicant shall
intimate the location of the project site to the state government while initiating any investigation and surveys. Proposals where
forest land is a part of the project site, need prior forestry clearance before forwarding to MoEF for environmental clearance. In the
environmental clearance process, the documents to be submitted to MoEF are project report, public hearing report, site clearance
for site specific projects, no objection certificate from State Pollution Control Board (SPCB), environmental appraisal questionnaire,
EIA/EMP report, risk analysis for projects involving hazardous substance and rehabilitation plans, if more than 1000 people are
likely to be displaced.
ENVIRONMENTAL IMPACT ASSESSMENT DIVISION
INTRODUCTION
Environmental Impact Assessment (EIA) is an important management tool for ensuring optimal use of natural resources for
sustainable development. A beginning in this direction was made in our country with the impact assessment of river valley projects
in 1978-79 and the scope has subsequently been enhanced to cover other developmental sectors such as industries, thermal
power projects, mining schemes etc. To facilitate collection of environmental data and preparation of management plans,
guidelines have been evolved and circulated to the concerned Central and State Government Departments. EIA has now been
made mandatory under the Environmental (Protection Act, 1986 for 29 categories of developmental activities involving investments
of Rs. 50 crores and above.
ENVIRONMENTAL APPRAISAL COMMITTEES
With a view to ensure multi-disciplinary input required for environmental appraisal of development projects, Expert Committees
have been constituted for the following sectors:
• Mining Projects
• Industrial Projects
• Thermal Power Projects
• River Valley, Multipurpose, Irrigation and H.E. Projects
• Infrastructure Development and Miscellaneous Projects
• Nuclear Power Projects
ENVIRONMENTAL APPRAISAL PROCEDURE
Once an application has been submitted by a project authority alongwith all the requisite documents specified in the EIA
Notification, it is scrutinised by the technical staff of the Ministry prior to placing it before the Environmental Appraisal Committees.
The Appraisal Committees evaluate the impact of the project based on the data furnished by the project authorities and if
necessary, site visits or on-the-spot assessment of various environmental aspects are also undertaken. Based on such
examination, the Committees make recommendations for approval or rejection of the project, which are then processed in the
Ministry for approval or rejection.
In case of site specific projects such as Mining, River Valley, Ports and Harbours etc., a two stage clearance procedure has been
adopted whereby the project authorities have to obtain site clearance before applying for environmental clearance of their projects.
This is to ensure avoiding areas which are ecologically fragile and environmentally sensitive. In case of projects where complete
information has been submitted by the project proponents, a decision is taken within 90 days.
MONITORING

4. After considering all the facets of a project, environmental clearance is accorded subject to implementation of the stipulated
environmental safeguards. Monitoring of cleared projects is undertaken by the six regional offices of the Ministry functioning at
Shillong, Bhubaneshwar, Chandigarh, Bangalore, Lucknow and Bhopal. The primary objective of such a procedure is to ensure
adequacy of the suggested safeguards and also to undertake mid-course corrections required, if any. The procedure adopted for
monitoring is as follows:
• Project authorities are required to report every six months on the progress of implementation of the conditions/safeguards
stipulated, while according clearance to the project.
• Field visits of officers and expert teams from the Ministry and/ or its Regional Offices are undertaken to collect and
analyse performance data of development projects, so that difficulties encountered are discussed with the proponents
with a view to finding solutions.
• In case of substantial deviations and poor or no response, the matter is taken up with the concerned State Government.
• Changes in scope of project are identified to check whether review of earlier decision is called for or not.
COASTAL AREA MANAGEMENT
Coastal States/UTs are required to prepare Coastal Zone Management Plans (CZMPs) as per the provisions of the Coastal
Regulation Zone (CRZ) Notification 1991, identifying and categorising the coastal areas for different activities and submit it to the
Ministry for approval.
The Ministry has constituted a Task Force for examination of these plans submitted by Maharashtra and Gujarat States have been
discussed in the meetings of the Task Force and these need to be modified. The Government of Orissa has submitted a partial
plan covering only a part of their coastal area. In respect of West Bengal, a preliminary concept document of the CZMP has been
submitted. Revised CZMP/clarifications have been received from the State of Goa and UTs of Daman & Diu, Lakshadweep and
Andaman & Nicobar Islands.
During the year, the Task Force had seven meetings and two site visits for consideration of the plans. Once the plans of the
different States/UTs are finalised, the development activities in the coastal belt would be more forcefully regulated to ensure non-
violation of CRZ Notification.
ISLAND DEVELOPMENT AUTHORITY (IDA)
The 9th meeting of IDA was held on 22.1.96 under the Chairmanship of the Prime Minister to decide on various policies and
programmes aimed at integrated development of the islands, keeping in view the relevent aspects of environmental protection, and
also to review the progress of implementation and impact of the programmes of development.
STUDIES ON CARRYING CAPACITY
Natural resources are finite and are dwindling at a fast pace. Optimization of natural resources for achieving the objective of
sustainable development is therefore, self evidents, this can be done only when environmental considerations are internalized in
the development process. It has often been observed that one or more natural resource(s) becomes a limiting resource in a given
region thereby restricting the scope of development portfolios. The Ministry of Environment & Forests has been sponsoring
Carrying Capacity Studies for different regions. The studies involve:
• Inventorisation of the natural resources available;
• Preparation of the existing environmental settings;
• Perspective plans and their impact on natural resources through creation of "Business As Usual Scenario";
• Identification of "Hot Spots" requiring immediate remedial action to overcome air, water or land pollution;
• Formulation of alternative development scenarios including a Preferred Scenarios. A comparison between "Business As
Usual" and the "Preferred Scenario" would indicate the future course of action to be adopted for development of the
region after the package has been discussed with the local people as well as the planners.
A few problem areas such as the Doon Valley - an ecologically sensitive area, the National Capital Region (NCR) which is suffering
from air and water pollution as well as congestion, Damodar River Basin which is very rich in natural resources and yet has
extensive environmental degradation and Tapi estuary which represents the problems in the coastal region both for water and land
development, have been selected for carrying out such studies.
A multi-disciplinary and multi-institutional approach has been adopted for conducting these studies. Draft reports are ready for
Doon Valley and the NCR and are being discussed with the NGOs and the local people for finalising the same. Work relating to
Damodar Basin and Tapi Estuary is continuing with respect to secondary data collection and analysis so as to identify the
requirements of primary data collection and modification in the development scenarios.
Government of India
Ministry of Environment & Forests
Environmental Impact Assessment Division
Paryawaran Bhawan, CGO Complex
Lodi Road, NEW DELHI - 110 003 INDIA