Wednesday 17 June 2015

Look beyond market value in preserving green spaces

Cost-benefit analyses are just one method. Consider other ways to measure how people prioritise and value green areas.
By Euston Quah And Nicolas Neo, Published The Straits Times, 16 Jun 2015

SINGAPORE'S founding fathers took a pragmatic approach that focused on economic growth to improve employment and raise income levels, in order to survive. However, with economic success and increased industrialisation, the living environment is inevitably affected, with a decline in green spaces.

Yet, economic growth and the environment are equally important to any society.

To this end, environmental groups in Singapore should be applauded for their efforts in preserving our green landscape. However, their approach in dealing with environmental degradation leaves room for improvement. The Bukit Brown cemetery issue is a prime example.

Despite being armed with a petition of 100,000 signatures, they failed to prevent the Government from redeveloping the land for road and housing. Indeed, the petition may not represent the feelings of the majority of Singaporeans on the issue.

Bukit Brown cemetery is on its way to being a new section of an expressway. The flora and fauna, and the historical heritage site that once occupied the area will soon be gone. In many such situations, land redevelopment is often irreversible. However, other solutions are possible.

Sustainability and market principles

THE Government has stepped up its contributions towards environmental sustainability. Its land use plan includes expansion of regional park infrastructure and improving accessibility with park connectors. But Singapore's population growth suggests that more green spaces will have to be sacrificed to residential areas.

According to Singapore's Master Plan, the land supply for park and nature reserves is projected to increase from 5,700ha in 2010 to 7,250ha in 2030. However, on closer inspection, the projected land use increase in housing, commerce and industry combined far outstrips that of park and nature reserves. This means that in 2030, there will be proportionally less space devoted to park and nature reserves than now.

Land use planning should abide by some market principles. The problem, however, is that land for residential, commercial or industrial purposes can be easily valued based on people's willingness to pay for such use, whereas green spaces are hard to quantify in monetary terms.

Unlike private property, where one buyer can pay to exert the right to use the space, green spaces are public goods - non-rival and non-excludable. This means anyone can use the space and one person's use of it does not deny another enjoyment of it. A public park can't exclude anyone, and can be enjoyed by many at the same time.

The lack of monetary value on green spaces in no way diminishes their worth to people. It simply suggests that the market mechanism and reliance on price is not adequate to help establish if land should be kept as a nature area, or redeveloped.

Alternatives to market-based valuation

ONE of the pillars of social progress is to improve standards of living. The key to this is the use of valuation to compare competing land uses by incorporating society's preferences. Therefore, government monitoring and intervention are required and this could come in four forms.

First, the government could engage in more cost-benefit analysis (CBA) on proposed projects.

Second, a formal environment impact assessment (EIA) could be introduced with inputs from green experts. The EIA and CBA can be merged, since many methodologies have become standards of assessments and valuation.

Third, there is another complementary approach which requires valuation. To put a value on green spaces and other green goods, the government should establish mechanisms and a coordinating agency to collect and solicit monetary values based on the intensity of people's preferences.

As preferences reflect demand, such demand will determine use-value. Eliciting people's willingness to pay for green goods either by charging a user or admission fee - or in the case of destruction of one use in preference of another use, soliciting people's compensation for the loss - could be undertaken.

Then, there are non-use values, including people who reserve the option to use such goods in future, as well as people who believe the existence of such goods is essential for a society.

Non-market valuation techniques are now better refined and widely used in public policy in many advanced Western countries. Adapting these methodologies for the Singapore context could be explored.

Fourth, the use of damage schedules to prioritise different types of non-material and material goods can help rank different choices in land usage.

Such damage schedules allow people to prioritise by ranking their preferences for government- provided goods which include green goods, educational services, health goods and transport. This lets people signal how much they value one over another, and allows governments to allocate their budgets accordingly.

These solutions are not without limitations. Formal valuation studies may delay projects and raise costs. Smaller firms may have insufficient funds to engage in EIA. Also, there is the issue of whether EIA and CBA can be manipulated.

The dichotomy of economic growth and the environment has been a growing concern to Singapore. Cost-benefit analysis would be incomplete and erroneous if no attempt is made to measure the quantity and value of green goods. It is appropriate to include such non-market valuation in assessing public goods, so that better informed choices can be made.

Professor Euston Quah is president of the Economic Society of Singapore and head of economics at Nanyang Technological University, where Nicolas Neo is a research assistant.

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