In 1990, the Acid Rain Program introduced market-based environmental policy on the largest scale ever attempted. The program capped the total level of acid rain–causing sulfur dioxide emissions from the US electricity sector and allowed utilities to trade under that fixed cap—a so-called cap-and-trade system. Ironically, though much of the original motivation for that program was, as indicated by the name, to reduce acid precipitation, economic assessments of the program have largely focused on health benefits, rather than the ecosystem services stemming from a reduction in acidification. That trend has continued with evaluations of more recent EPA regulations.

In a new RFF discussion paper, “Valuation of Ecosystem Services in the Southern Appalachian Mountains,” RFF colleagues Dallas Burtraw, Alan Krupnick, and Juha Siikamäki and I, along with Susie Chung Criscimagna of Eden Housing, Bernard Cosby of the University of Virginia, and David Evans of EPA, estimate the monetary value of reducing acidity in the southern Appalachian region. Our estimates were based on the stated preference method, which allowed us to survey households about their willingness to pay (WTP) for the restoration of ecosystem services in the region. Based on their answers, we determined that households across the region would be willing to pay $15.67 per year each—or about $208 million in total—to restore the environment of the southern Appalachians to a healthy state. Aggregated and discounted into the future, and allowing for a 50-year delay for the ecosystems to recover, these annual values come to a present value of $3.7 billion. Yet it’s worth noting that these ecosystem service benefits still pale in comparison to the total economic benefits of reducing air pollution, which stem overwhelmingly from public health.

Using two versions of the stated preference method to survey participants allowed us to discern and rank relative household interest in potential policies, resulting in an approach that valued wholesale ecosystem changes as well as the individual values of ecological policy attributes. This was achieved by combining a dichotomous choice contingent valuation (in which respondents vote for or against policies) and a choice experiment (in which preferred programs are selected from a group of options), both of which were linked to detailed ecosystem models that incorporated regional aquatic, terrestrial, and animal characteristics. By gathering information on both individual and holistic policy preferences, our results better support the benefit-cost analysis of multidimensional environmental policies that require some regulations to be traded off or prioritized over others.

Employing a model that gauges the public’s WTP for environmental goods can also bolster conservation fundraising efforts, as marketing that targets public payments often benefits from information on how much potential donors are willing to contributed for the restoration of individual services. Our approach ultimately offers social scientists and economists the opportunity to use the estimates we generated to evaluate other policy scenarios; although high costs prevent economic studies from being performed for every option, benefit transfers offer a systematic way to reuse information in different situational contexts. This potential for data recycling is a valuable tool for policymakers evaluating strategies for multidimensional ecosystems—especially those that require informed regulations tailored to their individual needs.

About H. Spencer Banzhaf

H. Spencer Banzhaf is a professor in the Department of Economics at Georgia State University's Andrew Young School of Policy Studies. He is also a research associate at the National Bureau of Economic Research (NBER, and a senior research fellow at the Property and Environment Research Center (PERC).

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