Open-ended Working Group – 3
[pic] |BC
UNEP/CHW.9/INF/33 | |
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| |Distr.: General |
| |3 June 2008 |
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| |English only |
Conference of the Parties to the Basel Convention
on the Control of Transboundary Movements of
Hazardous Wastes and Their Disposal
Ninth meeting
Bali, 23–27 June 2008
Item 7 (l) of the provisional agenda(
Implementation of the decisions adopted by the
Conference of the Parties at its eighth meeting:
resource mobilization and sustainable financing
Framework for economic analysis
Note by the Secretariat
1. The following document presents an annotated Table of Contents for developing a framework on the costs and benefits of implementing the Basel Convention. This is the first time such analysis will be made and, thus, is ground-breaking work.
2. The overall value of this study is to provide concrete evidence of the costs of inaction, or the avoided costs to governments and society through the implementation of the Basel Convention. The framework can also be viewed as an important instrument for providing concrete information on the value of the Convention and its implementation, thus providing support for financial requests or needs.
3. Within the context of the annotated Table of Contents, questions for further research and analysis are posed. This document is the first step in creating the framework for cost benefit analysis. UNEP's Division of Trade and Economics has also been involved in the development of this work.
4. The next step in this process is to begin work on the costs of inaction. Data and information applicable to the costs of inaction available in Member countries is sought to enhance the analysis on the costs of inaction.
5. As Parties have signed the Convention, it is assumed that there is a perceived value or benefit to the Convention. In this connection, there is a strong need for data and involvement of statistical offices in specific countries to help standardise the classification of environmental expenditures on hazardous and other wastes management pursuant to the Convention. Given the challenge in quantifying and monetising the health effects from exposure to hazardous and other wastes, avoided costs of inaction, is proposed as a key focus of this cost benefit analysis. In this context, it is proposed that Parties consider the value of the development of this cost benefit framework, as part of the global review of the Convention, which will be discussed at the ninth meeting of the Conference of the Parties. The Framework for Cost-Benefit Analysis could be used as a tool to help clarify the effectiveness of the Convention as described in document, UNEP/CHW.9/38, Organisation of the eleventh meeting of the Conference of the Parties (2012) and paragraph 7 of article 15 of the Convention. Carrying out regional case studies, as described under section VII Methodolgoy, section C, could provide ex post data and information that could substantively contribute to this evaluation.
6. Parties are requested to review the annotated table of contents and the questions posed in the document and to provide comments at the ninth meeting of the Conference of the Parties. The underlying purpose in presenting this annotated table of contents is to obtain input from Parties and Signatories on the proposed method and information and data needs. Due to nature of this proposed annotated table of contents, and the time that may be needed to coordinate with other offices and Ministries at the national level, written comments are requested by Monday, 15 September, 2008.
Annotated Table of Contents
The Basel Convention: A Cost-Benefit Analysis of Implementation
Table of Contents
I. Objectives 4
II. Background 4
III. Context of study 4
IV. Cost Benefit Analysis and the Basel Convention 5
V. The CBA Framework 5
A. Implementation: What’s Involved? 5
B. Measurement of Welfare Improvement and Cost -Benefit Categories 7
C. Nonmarket Valuation 10
D. Discounting and Other Distributional Issues 10
E. Other Important Concepts in CBA 10
VI. Cost Analysis 11
A. Regulatory/Operations Costs 11
B. Compliance Costs 12
C. Transaction and Transport Costs 13
D. Costs to Competition and Productivity 13
E. Environmental Costs 14
VII. Benefit Analysis 15
A. Costs of Inaction 15
1. Avoided Monetary Costs 15
2. Direct Pollution Reduction 16
3. Savings on Human Mortality and Health 17
4. Property Value Impacts 18
B. Reputation Impacts 19
C. Enhanced Ecosystem Operation 19
D. Increased Employment and Improved Working Conditions 21
E. Disaster Risk Reduction 21
VIII. Methodology 22
A. CBA Design 22
B. Survey 22
C. Regional Case Studies 23
D. Other Considerations 24
1. Opportunity Costs 24
IX. Limitations 24
X. References 25
Organised by Section 28
I. Objectives
1. This document sets out a draft annotated table of contents for a framework for a Cost-Benefit Analysis (CBA) of the implementation of the Basel Convention to determine its effectiveness since its inception in 1992. The initial work carried out in developing the annotated table of contents demonstrates the need for further economic analysis of generation, transboundary movement and management of hazardous and other wastes worldwide. It outlines the potential costs and benefits of adhering to the Convention using literature reviews and sets out the primary research questions to be answered in the development of a CBA framework for the Convention.
II. Background
2. In the late 1980s, industrialized countries worldwide experienced a tightening of environmental regulation generally, including hazardous waste management. As a result, the cost of hazardous waste treatment and disposal rose dramatically. According to one study, in the early 1990s approximately 400 million tonnes of hazardous waste were generated annually. Of these, 200 million tonnes were produced in OECD countries, largely in chemical production processes, energy generation, pulp and paper factories, mining and leather production industries.[1] Searching for cheaper ways to dispose of these wastes, “toxic traders” began exporting hazardous waste – often illegally –to developing countries. Ships sailed from port to port, indiscriminately unloading tonnes of waste where the lowest possible price was to be found. Thus, despite their accounting for less than 25% of production, less developed countries have borne a disproportionate burden of hazardous waste impacts.
3. Large-scale waste disposal incidents such as the Khian Sea, the Karin B and the Pelicano soon drew international attention to this practice however. When evidence of this negligent activity was revealed to the public, international outrage sparked a call for negotiation of a multilateral environmental agreement (MEA) that could deal specifically with hazardous waste exports, imports and treatment. The Basel Convention on the Control of the Transboundary Movements of Hazardous Waste and their Disposal was signed in March 1989 with the intention of reducing risks to human health and environmental quality posed by the production, trade and disposal of hazardous and other wastes.
4. Since the Convention entered into force in 1992, the Parties have worked towards minimising these risks through promoting environmentally sound management (ESM) of hazardous waste. The Convention has 170 member countries (Parties) and aims to protect human health and the environment against the adverse effects resulting from the generation, management, transboundary movements and disposal of hazardous and other wastes.
III. Context of study
5. The Basel Convention provides an international framework for a global system for transboundary movement of hazardous and other wastes and technical guidelines for sound waste management policy. The ultimate authority for policy decisions at the national level rests with each individual Party. As such, the study will establish a framework to guide national or regional activities that aim to generate better information for both existing and potential signatories on the advantages and disadvantages of implementing the Convention in their jurisdictions. It will also provide information on the costs and the benefits to Parties and how to analyse the impact of the Convention.
6. One limitation of this initial framework proposal is that documentation and literature searches were of English written or English translated documents. Further information in countries that could help answer questions and provide substantive data and insights would be sought during the next stage of this work.
IV. Cost Benefit Analysis and the Basel Convention
7. The underlying supposition of Cost-Benefit Analysis (CBA) is that what counts as a benefit or loss to one part of society, does not necessarily count as a benefit or loss to the economy as a whole.[2] Cost-Benefit Analysis weighs all costs and benefits of a particular action, project or policy – often versus the costs and benefits of the status quo – on a single monetary scale. This process determines the efficacy of a project or programme, not only in terms of its direct monetary costs and benefits, but also its wider nonmarket environmental and social impacts (externalities) not taken into account in standard financial accounting analyses.
8. This analysis framework is particularly relevant to the Basel Convention. The burden of long-term effects of mismanagement of hazardous waste is not borne solely by the producers of that waste. Third parties – often the general public living in areas where hazardous waste is produced, transported through or treated in – must live with the consequences of these actions without having control over accumulation or treatment. Many of these impacts, including human health effects and ecosystem depletion, are not normally considered in monetary terms and thus are often omitted from financial analyses. Furthermore, positive spillover effects – such as reduced risk of disasters or improved reputation - often remain unpriced and therefore not taken into account. Through CBA however, external consequences are weighed with the initial internal incentives explicitly showing that the market for hazardous waste is efficient only if the marginal benefits generated at least equal the marginal damages incurred by all affected parties. Essentially, this amounts to considering a project or policy feasible only if it is capable of producing excess benefits such that everyone in society could be made better off by a costless redistribution of these gains.[3]
9. While other analysis tools such as cost-effectiveness analysis and multi-criteria analysis are limited to simply determining which available policy is most effective, CBA allows for determination of the optimal scale of implementation for each policy strategy. Furthermore, through its “do nothing” or status-quo analysis through determination of a counterfactual, CBA allows analysts to investigate if any action should be taken at all.[4] This is particularly useful given the need to compare effects of ‘doing nothing’ to the potential impact of implementation of Basel’s standards and guidelines.
10. One of the more important challenges for both existing and potential Parties to the Basel Convention is the question of resource mobilization. Many donors request information upfront on the costs and benefits of implementing the Convention as a basis on which to decide how best to assign limited resources. However, there is limited availability of this information. Development of a framework can help guide Parties in obtaining the national data and information needed to support requests for capacity building, technology transfer and other project and funding needs.
V. The Cost-Benefit Analysis Framework
11. In order to ascertain the Convention’s effectiveness of promoting ESM of hazardous waste, it is necessary to develop the counterfactual against which any progress can be compared. In the context of this framework, the counterfactual would be considered as ‘inaction’, or non-implementation of the Convention. As such, the framework will attempt to establish what implementation involves and how non-implementation can be described. It will continue to set out the key concepts – categorizing the ‘types’ of costs and benefits, nonmarket valuation, discounting – that must be addressed in a cost-benefit analysis (CBA) of Convention implementation.
A. Implementation: What’s Involved?
12. The Convention obliges its Parties to ensure that hazardous and other wastes are managed and disposed of in an environmentally sound manner. To this end, Parties are expected to minimize the quantities that are moved across borders, to treat and dispose of wastes as close as possible to their place of generation and to prevent or minimize the generation of wastes at source. Strong controls have to be applied from the moment of generation of a hazardous waste to its storage, transport, treatment, reuse, recycling, recovery and final disposal.
13. Classification of waste as “Basel hazardous” leads to specific waste management requirements. Detailed technical guidelines set out the best practices for environmentally sound management of all wastes relevant to the Convention, including wastes consisting of, containing or contaminated with: Persistent Organic Pollutants (POPs), 1,1,1-trichloro-2,2-bis(4-chlorophenyl)ethane (DDT); polychlorinated biphenyls (PCBs), polychlorinated terphenyls (PCTs) or polybrominated biphenyls (PBBs); Hexachlorobenzene (HCB); Pesticides; Metals and Metal Compounds; Metals and Plastics; Mercury. Of special interest include ship breaking, electronic waste, used tyres and the production of Dioxins and Furans through the combustion of waste.
14. The Convention regulates the transboundary movements of hazardous and other wastes through notification, “Prior Informed Consent” (PIC) procedure (without which shipments are illegal) and waste tracking. It is of note that the Convention places a general prohibition on the exportation or importation of wastes between Parties and non-Parties. The exception to this rule is where the waste is subject to another treaty that does not take away from the Basel Convention.[5] Parties to the Convention must honour import bans of other Parties.
15. For Enforcement is an important aspect of implementationEach Party is required to introduce appropriate national or domestic legislation to prevent and reprimand illegal traffic in hazardous and other wastes and act to uphold the legislation. Definition of enforcement will need to be explored with consultation of Parties.
16. Pursuant to Article 13, paragraph 3, Parties have a reporting obligation whereby information on: amounts of waste generated, treated, exported, imported, accidents involving hazardous waste and national regulation and enforcement of the Convention are detailed for the previous calendar year.
17. The ultimate authority for policy decisions at the national level rests with each individual Party. As such, the scale of interest for developing the CBA is the national scale. Moreover, a particular Party’s strategy must be regarded as one of a set of possible solutions to the hazardous waste issue. For the purposes of this project, the CBA framework will consider: 1. Non-implementation, and 2. Full implementation. There is the case of partial implementation, whereby Parties adhere to certain elements of the Convention and not others, (e.g.. export/import controls but no completion of annual reports). However, until the study is underway it will be difficult to determine if such a scenario can be addressed. At this time, the main focus will be on comparing the full implementation scenario with non-implementation.
18. In summary, a properly integrated national enforcement programme would include: a regulatory infrastructure and enforcement that ensures compliance; tracking of hazardous waste shipments; visits to waste treatment, transfer and disposal sites; transport control/checks/inspections; sampling and testing; and an international information exchange mechanism. Enforcement personnel (competent authorities, police, customs officers, port or airport authorities and coast guards) must be trained in identification of hazardous wastes; knowledge of the United Nations Recommendations on the Transport of Dangerous Goods (all modes of transport); understanding of laboratory results on sampling and testing; familiarities with Basel Convention’s Notification and Movement Document, tracking documents, permits, contracts and financial guarantees.[6]
19. Individual firms also must meet a number of essential criteria required for full implementation of the Basel Convention. These are: sites or facilities (including storage) of an adequate standard of technology and pollution control; trained operators of sites or facilities at which hazardous wastes are disposed; adequate monitoring and environmental impact assessment systems; trained personnel for managing the transport, treatment and disposal of hazardous wastes; an action plan for emergencies or accidents covering the disposal operations. [7]
B. Measurement of Welfare Improvement and Cost -Benefit Categories
20. CBA requires that the economist asks if society as a whole will become better off by implementing the policy or project in question rather than undertaking an alternative project or not implementing it at all. But how to measure this potential improvement in a meaningful way is the challenge for cost-benefit analysis?
21. The term ‘value’ can mean many different things.[8] From an economic standpoint it tends to infer a monetary amount to be paid for the instrumental value – the value derived from the use – of a good or service.[9]
22. The change in national total economic value (TEV) from the implementation of the Basel Convention is the combined ‘use’ and ‘non-use’ values – positive and negative – associated with the administrative and technical ‘upgrading’ required to meet the reduction, export/import, notification, PIC and tracking, enforcement and reporting requirements set out in the Convention.
23. Use values can be disaggregated into: (i) direct use value – which tends to be privately captured – include the market value of waste imports, the cost of new infrastructure; and (ii) indirect use values reflecting the impact of externalities – positive and negative – such as improvements in water quality or likely air pollution levels without Basel standards in place.
24. Non-use values are more intangible; these are more difficult to address and clarify. For example, the CBA framework allows for values such as an existence value and bequest values to be incorporated. Therefore, a change in individual welfare resulting from just the knowledge that inadequate controls are in place for hazardous waste management is recognized– even though this has no direct impact on that person (Existence Value).[10] Furthermore, and an important aspect in this kind of analysis is that the loss of environmental quality ‘now’ can have consequences for future generations. Impacts of poor hazardous waste management are either significant enough to be felt over a long period of time or so marginal as to not have any immediate impact, but are known to have severe cumulative consequences. This too may be important for some individuals in society (Bequest Value). These non-use values are likely to be minor in comparison to the direct and indirect use values. However, a thorough cost-benefit appraisal should attempt to take them into account.
25. A third type of value is that of an Option Value. This is the value which individuals place options for the future use. For example, a hazardous waste incident will perhaps limit the future options for the use of the land on which this accident occurs. Some individuals will value having some measures in place to reduce the risk of this happening, so as to protect this land for future use, even though perhaps they do not presently ‘use’ this land.
26. Table 1 lists the categorisation of costs and benefits likely to be relevant for a CBA of Basel Convention implementation. The social benefit of the implementation of the Basel Convention can be described as the sum of both the private and external benefit to individual citizens summed over all members of society, that the safe transport, treatment and disposal of hazardous waste represents. This includes, for example, components such as private revenue, employment and improved environmental quality as illustrated in equation 1:
Social Benefit (SB) = Private Benefit + External Benefit (1)
27. The social costs of implementation include the private costs – related to the establishment of administrative structures, or the capital and operational costs of waste transport and treatment infrastructure – and pollution, as illustrated in equation 2:
Social Cost (SC) = Private Cost + External Cost (2)
28. Thus for implementation of the Basel Convention to be considered feasible, it must produce excess social benefits – either private or external – over the private and external costs of putting the Convention into practice.
Table 1 Total Economic Value Analysis for Implementation of the Basel Convention[11]
| |Use Values |Non Use Value |Option Value |
Direct Use ValueIndirect Use ValueExistence ValueBequest ValueCostsRegulatory/operations costs
Compliance costs
Transaction and transport costs
Opportunity costs – alternative uses for resources required to implement the ConventionEnvironmental impacts of illegal waste transport and dumping.
Costs to competition
The risk of hazardous waste accidents at a location removed from the individual Limitations on future land use where new hazardous waste management infrastructure have been constructedBenefitsAvoided monetary costs from:
Environmental fines
Clean-up and remediation costs from poorly managed hazardous waste
Reduced number of hazardous waste transport and treatment incidents
Compensation payments to individuals affected by hazardous waste mismanagement
Increased employment
Enhanced potential for attracting foreign capital, i.e. investment in industrial activities or tourism revenues, as a result of improved environmental standards Direct pollution reduction
Enhanced ecosystem operation
Enhanced international reputation
Reduced negative property value impacts
Disaster risk reduction
Positive health impacts The benefit incurred by knowing that ESM of hazardous waste is in place generally (not local to the ‘valuer’)
Reduced risk of hazardous waste accidents that will impact for many years after they occur
Limitations on future land use where hazardous waste incidents have occurredNonmarket Valuation
Observable market prices do not generally exist for an environmental good or common (in this sense it is a value of the actual common or value of the environmental good such clean air, clean waste, clean soil,etc. as they are not traded in markets Therefore the marginal social cost of damage to the environmental good or common[12] is difficult to value in monetary terms. As a result, they are not often included in financial assessments for projects or policy changes.
However, while challenging, it is not impossible to value and integrate these costs and benefits into CBA frameworks. The economic value of a resource-environment system as an asset is the sum of the discounted present values of the flows of all the services it provides (Freeman, 1993, pg 5). The basic principle underlying non-market valuation is that people’s willingness to pay (WTP) for the preservation or improvement of these services or their willingness to accept (WTA) compensation for a loss of these services from the ecosystem common or considered also as an environmental good (air, water, etc) and provides a monetary value for environmental goods.
Stated Preference aluation techniques assess the WTA or WTP by directly surveying Individuals or households using hypothetical market scenarios. Contingent Valuation (CV) is the best-known and most widely employed of these methods. A second nonmarket valuation technique is Revealed Preference valuation, of which hedonic pricing methods are the most established.
Discounting and Other Distributional Issues
In order to be able to compare costs and benefits generated at different moments in time, all monetised values are discounted to a point “zero” in time and referred to as the Net Present Value. An appropriate discount rate determines the change in value of a single unit of a cost (or benefit) for each year in the future – taking into account inflation, interest and other macroeconomic factors –compared to the value of the same unit today. Thus with discounting, the benefits or costs of a particular policy programme can be viewed on a constant scale over a long period of time. Discounting is an important issue in CBA generally, but is particularly critical to understanding the full impact of the Basel Convention as many of the effects of exposure to hazardous waste take years to become apparent.
Although traditional CBA application has utilized a single discount rate to calculate the time-value of a particular benefit, debate has ensued in recent years over whether the rate should in fact be variable and which are the most accurate rates to use. According to CBA experts, because macroeconomic conditions and individual preferences tend to be inconsistent over time, CBA requires a similarly variable discount rate.[13] Current thinking suggests a declining discount rate over time; which in the long run resemble the “lowest possible” rates of approximately 1%.[14] Essentially, rates of this level indicate that the value of a particular benefit will decrease at a decreasing rate over time. Of course, exact declines in the discount rate will depend on specific economic circumstances at that time.
The nature of waste treatment and transport infrastructure in particular means that their environmental impacts are concentrated on relatively few individuals living in close proximity. Conversely, the benefits such as good quality available disposal infrastructure and avoidance of national environmental fines, for example, are dispersed across the wider population (Mitchell and Carson, 1986; Pommerehne et al., 1997).
Other Important Concepts in CBA
In order to accurately represent the repercussions over the economy or society at large, the CBA practitioner must contend with measurements of consumers’ surplus and rents, the distinction between benefits and transfer payments, double counting, shadow-pricing, externalities, the choice of investment criterion and problems of uncertainty.
Cost Analysis
This section sets out the various cost components of implementing the Basel Convention guidelines for ESM of hazardous waste. The objective here is to establish Terms of Reference (ToRs) for future case studies that will examine each of the components in greater detail either provided or led by the country itself or carried out from by an economist .
Regulatory/Operations Costs
These costs commonly take the form of increased public expenditures to negotiate, draft and implement national laws that fulfil obligations under the Basel Convention, along with the establishment of the needed structural changes and adaptations to appropriately implement the laws. Although Parties are required to provide the Secretariat with annual data on hazardous waste imports and exports, currently there is no obligation to provide expenditure data. A rigorous CBA will require robust data on the changes in public spending for national implementation of the Convention however.
Although available data is limited, certain existing sources will be helpful in guiding future empirical research in this regard. The Basel Convention Secretariat, under the obligations of Article 13 of the Convention, manages a wealth of information on national policy initiatives, and the generation and transboundary movement of hazardous and other wastes. Due to variation in national categorizations, measurement techniques and frequency of reporting between Parties, it is difficult to draw robust conclusions from this data however. For this reason, further work to standardize this data must be conducted in order to truly understand the impact of implementing the Convention on public waste management system expenditure.
Any such research would need to identify the projects introduced (preferably year on year) to reduce transboundary movement of hazardous wastes and promote ESM for this waste stream in each case study country. Currently, the best source for this data is the Secretariat. The majority of reporting Parties at least make reference to policy initiatives in their annual reports. Gathering further information is likely to require a survey conducted through the Secretariat. These project surveys should be detailed, with data gathered separately on waste collection, sorting, composting, landfilling (modern facilities), incineration and recycling initiatives. Although these distinctions will not have an effect on the aggregate regulatory and operation costs, they will be essential to subsequent analysis of the optimal scale of policy implementation.
A second option for generating a picture of public expenditure costs at the national level is to conduct a literature survey of public reports from countries actively implementing ESM for hazardous and other wastes in a transparent fashion. For example, the 2003 report from the United Kingdom (UK) Treatment and Capacity Task Force on Hazardous Waste provides a detailed case study. Similarly, the United States and most EU Member States have produced comprehensive reports on the state of hazardous waste management in their respective jurisdictions.
Information on the total annual expenditures on these projects will need to be gathered. Little data is available on annual national spending for hazardous waste collection, transport and treatment. The OECD released recent data in 2007 on pollution abatement and control expenditures in member countries. Although this data has similar limitations to that of the Basel national reports, the report provides actual waste expenditure data for both the private and public sector. While this data is not appropriate for inclusion in the CBA exercise proposed – it a) only represents one year, b) deals solely with developed countries and c) does not differentiate between hazardous and other wastes – it does provide a useful framework for further primary research to be conducted in countries that already provide detailed data to the OECD. These countries include Austria, Belgium, Germany, The Netherlands, Switzerland and the UK.[15]
The fixed costs (for example, construction and retrofitting costs for treatment and final disposal facilities) and operational costs (for example, labour and energy costs) of ESM projects must also be identified. In calculating the overall costs and benefits of the implementation of the Basel Convention, the distinction between fixed and recurrent costs may be viewed as unnecessary. However, as the proposed CBA will analyze the Convention’s year on year effect, it is important to distinguish between sunk costs and annual costs. Furthermore, the costs and benefits of implementation will depend on the status quo for administrative capabilities, environmental quality and amount of wastes being produced and treated within existing Parties’ and potential signatories’ jurisdictions.
Existing studies on solid and hazardous waste management will help generate a model for quantifying waste management costs. Studies already identified for this purpose include Palmer, Sigman and Walls (1996) and OECD (2004).
In summary, the following research questions must be addressed regarding regulatory costs:
Research Question 1: What projects have been introduced to reduce production and transboundary movement of hazardous waste and encourage ESM of waste in case study countries?
Research Question 2: What are the total annual expenditures on ESM projects for hazardous and other wastes in case study countries?
Research Question 3: What fixed and operational costs are associated with ESM projects for hazardous and other wastes in case study countries?
Compliance Costs
While the public sector experiences an increase in expenditures due to administrative and enforcement costs, a significant portion of the monetary costs of reaching compliance is borne by the private sector. These costs include changes in production techniques to reduce the quantity of waste produced; retro-fitting or replacement of transport vehicles and increased cost for recycling or final disposal to adhere to higher environmental management standards; increased time burden falling on businesses and household for sorting, composting and recycling waste.[16]
Compliance costs can fall on businesses through Extended Producer Responsibility (EPR), environmental taxation or additional investment required to keep up with changes in waste legislation. Individual households can also be subject to cost increases through polluter pays policy (PPP) or point-of-purchase taxation. The complex nature of private sector compliance means that it may be difficult to retrieve robust data on these costs, particularly for developing countries.
Careful consideration of the distribution of costs and benefits from a particular policy is an essential aspect of modern welfare economics. Although traditional CBA is primarily concerned with the aggregates of costs and benefits, recent economic studies have attempted to integrate equity and distributive effects. Some experts view this recent change in policy making and research as an appeal to social justice concerns, ensuring that low-income individuals to not bear an unfair proportion of the social burden. Others view these considerations as an attempt to identify the socio-economic effects on individuals that are “more highly valued” to policy-makers, perhaps due to a higher propensity for political activity.[17]
With regard to the Basel Convention, it is essential that research is motivated by environmental justice concerns and not political strategy. Thus additional research is required into the distribution of compliance cost burdens across income levels in each case study country.
Pearce (2006) provides a useful framework for integrating distributive considerations into CBA. According to this paper, a distinction must be drawn between “rights-based distribution” and “preference-based distribution” of compliance cost burdens. Under the rights-based approach, every member of a community is entitled to the same “acceptable” level of risk, regardless of socio-economic status. The preference-based approach, on the other hand, values efficiency as the primary determinant of equity. This signifies that a certain level of risk inequality can be deemed efficient and equitable as long as it is based on an individual’s willingness to pay to avoid risk. While this approach may result in optimal levels of environmental risk, it does not address the concern of unfair cost burden distribution.
Essentially, Pearce questions the assumption that all income levels share the same marginal utility for the same good. By integrating income considerations into the calculation of marginal utility, low-income individuals generate a higher weighted sum of utilities, thus altering the net gain of individual benefits. A similar calculation strategy can be utilized to adjust for distribution of benefits using a weighted WTP based on income elasticity.
According to Pearce et al. (2006), environmental policymaking may have the effect of stimulating technological investment and progress. This results in further complicating the calculation of compliance costs, leading to a problem of asymmetric information whereby compliance costs are overestimated by analysts. As ESM of hazardous waste relies heavily on continuing technical innovation, this issue is particularly relevant for the proposed CBA. Although the actual value of technological investment may be difficult to calculate for a given year, this information will be crucial for if compliance costs for the Convention are to be accurately represented in the CBA.
In summary, the following research questions must be addressed regarding compliance costs:
Research Question 1: How have private business investments for ESM changed with implementation of the convention?
Research Question 2: How have annual per-household expenditures on waste separation and disposal changed since implementation of the Convention?
Research Question 3: How have compliance costs been distributed among low-income and high-income communities within the country?
Research Question 4: What new investments in research and development of new technologies have been initiated as a result of Basel Convention implementation? Have these investments yielded gains likely to impact on the future efficiency of ESM? Have these investments had other efficiency impacts on private sector productivity?
Transaction and Transport Costs
Transaction costs are those costs that arise from the exchange of assets between actors.[18] In terms of the Basel Convention, these costs include: negotiations between Parties; international communications; contract-making; communications between national government, the private sector and the general public; time invested in sorting and transporting waste; and infrastructural maintenance.
In addition, implementation of the Convention often calls for drastic restructuring of waste transport routes, leading to substantial transportation costs. These costs are external to compliance and regulatory costs, as hazardous waste travels new distances (either within a country or across national boundaries) to comply with environmental treatment standards.
The following research questions must be addressed regarding transaction and transport costs:
Research Question 1: How much is spent annually in policy negotiations and international communications regarding the Basel Conventions?
Research Question 2: What are the costs associated with the transportation of hazardous waste to state-of-the-art treatment facilities that were not necessary prior to implementation of the Convention?
Research Question 3: How have these transaction and transport costs increased (or decreased) since implementation of the convention?
Costs to Competition and Productivity
Environmental policies often have an indirect effect on international competition within environment-related industries. This is particularly relevant at the firm-level where additional regulations can lead to the creation or reinforcement of barriers to entry for foreign competitors. Regulations can also lead to an increase in the final price of products due to an increase in marginal costs. This has relevance for consumer demand and thus overall profitability. As such, profit-maximizing firms in environment-related industries are less likely to increase capital investment. Particular impacts are felt by producers subject to Extended Producer Responsibility (EPR) policies (however, impacts vary depending on the design of the policy and whether or not it necessitates full or partial, financial and/or physical responsibility). In order to account for potential losses in competitiveness and productivity, it is important to understand the costs that fall on internationally-competitive firms as a result of environmental regulation.
Outside of those industries dealing directly with hazardous waste management, the industries that are likely to suffer as a result of implementation of the Convention include chemical production, energy generation, pulp and paper factories, mining, leather production and tanning, electric and electronic equipment production and medical equipment manufacturers. As described in Section IV.A, implementation of the Basel Convention requires a certain level of investment in infrastructure, monitoring and assessment systems and training of personnel. As such, the likelihood of firms relocating to countries with a lighter burden of environmental regulation must also be taken into consideration.
At the international scale, there is also a hypothetical question to address as to whether or not there is a loss of international trade as a direct result of implementing the Basel Convention. The Convention potentially poses difficulties pertaining to international obligations to the ‘most-favoured nation’ status. Wirth (1998) has conducted research on the relationship between the Convention and international and regional trade agreements. Further research and more research summaries of the current situation are sought to provide appropriate information for a study.
The following research questions have been identified as important for the question of costs to competition and productivity[19]:
Research Question 1: What industries are directly affected by implementation of the Convention in a given country?
Research Question 2: How have market conditions for these industries changed since implementation of the Convention?
Research Question 3: Is there any evidence of firms relocating operations to other countries as a result of compliance cost burdens imposed by Basel Convention ratification and enforcement?
Research Question 4: Has the implementation of the Convention affected compliance with international trade agreements in each signatory country?
Environmental Costs
As described in Section IV.B, implementation and enforcement of the Basel Convention requires public and private investment in regulatory, waste tracking and waste treatment infrastructures. This is liable to increase costs within the hazardous waste market. There is a risk that increased costs can encourage increased illegal waste management activity if credible enforcement procedures are not in place. The following questions should be answered and incorporated into the CBA:
Research Question 1: Is there evidence of increased illegal dumping in Basel Convention Party jurisdictions whereby actors seek to avoid increased costs imposed by implementation?
Research Question 3: Have new market conditions affected the prevalence of illegal waste markets (for example, illegal dumping) in a positive way?
Benefit Analysis
Under analysis in this Section are the benefits of implementing the Basel Convention. The objective here is to establish Terms of Reference (ToRs) for future studies that will examine each of the benefit components in greater detail over the course of the proposed project.
Costs of Inaction
Little reliable data exists on transboundary movement and treatment of hazardous waste prior to the creation of the Conventions’ national reporting mechanism in 1993 (required under Article 13). For this reason, it is difficult to determine the actual economic situation relating to hazardous waste management before this time. Thus the counterfactual or ‘inaction’ scenario for this analysis will rely on estimates derived from theoretical studies, the existing empirical evidence and case studies of poor hazardous waste management.
Avoided Monetary Costs
Improper disposal can often lead to clean-up, site management, emergency response and compensation costs that often impose a considerable financial burden to society. In most cases, present day investments in Environmentally Sound Management (ESM) of hazardous waste will result in avoided future remedial costs that are likely to result from less stringent waste management strategies.
Certain ESM policy strategies such as Extended Producer Responsibility (EPR) and the Polluter Pays Principle (PPP) shift the financial burden of hazardous waste management from the public to the private sector. In the short run, these initiatives lead to decreases in overall government expenditures on waste management, that are likely to be only partially offset by increased private investments (regulation and compliance costs discussed in Section V.B).
Massey (2005) analyzed the financial benefits of environmentally sound production processes, paying particular attention to the long term savings attributable to reducing water, energy usage and toxic chemical production. This report, which was prepared for the Swedish Chemicals Inspectorate, examined a large number of case studies from small and medium enterprises globally during the adoption of particular ESM strategies. The study found that in certain countries, the private sector reaped considerable benefits from reduced use of raw materials including reduced waste removal and treatment costs, lower fees for water consumption, fewer punitive fines for noncompliance and reduced costs resulting from government mediation.
Although it is rarely studied and difficult to calculate, illegal dumping is an important aspect of hazardous waste management. This is especially true in the developing world. According to Pearce and Turner (1994), in some developing countries as much as 20-40% of waste is not collected at all and usually is handled by unregistered scavengers.[20] Similarly, as much as 50% of food output is lost between the point of production and the point of consumption. When such a high percentage potential waste is left unmanaged, these countries are forced to deal with the issue in subsequent years through costly clean-up and public health initiatives.
Pearce and Turner (1994) have produced a helpful (though relatively outdated) study on these avoidable costs in developing countries. In Thailand, for example, some 35-55% of recurrent costs of waste management are accounted by for street cleaning. Although a distinction must be drawn between municipal and hazardous waste, this study places the overall expenses of waste mismanagement in perspective. This is an especially costly issue for the developing world where seemingly unnecessary costs severely limit a developing country’s capacity for ESM.
Research on clean up costs from incidents and avoidable clean-up costs in developing countries is needed to fully understand the extent of the benefits of ESM and the Basel Convention. Specific data provided by individual countries would help to gather information on current or recent costs. At the same time, retrospective data on related expenditures, impact and damage of similar incidents could help to provide comparable costs and apply this data to the scenario of avoided costs. With the risk of environmental compensation cases becoming more relevant in developing country situations in coming years, indicating the avoided costs through the implementation of the Convention will provide insightful data and information. While the best situation would be to have data available since the implementation of the Convention, it is most likely that data would be found over set time periods.
Compensation for environmental disasters associated with the mismanagement of hazardous waste is legislated for in many industrialized countries, though probably best established in the United States (US).[21] Compensation transfers can be categorised into monetary payments, in-kind benefits and packages that mix the two.[22] Compensation, and the related issue of the costs of insurance[23] to cover accidental damage, should be included in policymaker considerations of the avoided monetary costs yielded as a result of implementing the Basel Convention.[24]
The following research questions should be addressed when analyzing the avoided monetary costs that result from implementation of the Convention:
Research Question 1: For each country, how much was spent annually on hazardous waste clean-up and maintenance of insufficient equipment prior to implementation of the Basel Convention?
Research Question 2: How have these annual expenditures changed since implementation of the Convention?
Research Question 3: Have new market conditions affected the prevalence of illegal waste markets (for example, illegal dumping) negatively?
Research Question 4: What examples currently exist as to the amount of compensation paid to affected parties when hazardous waste has been mismanaged?
Research Question 5: What is the cost of insurance in situations where Basel Convention standard guidelines are not being enforced? Can a simple model of costs be developed if sufficient data is not available to indicate costs avoided through full implementation of the guidelines vis a vis the counterfactual of non-implementation of the guidelines?
Direct Pollution Reduction
The external impacts from waste management infrastructure have been identified as being either fixed or variable. Fixed externalities are impacts that result from the existence of a hazardous waste landfill site or incinerator, for example, i.e. property loss, visual pollution and concerns over potential health impacts. Variable externalities on the other hand, concern impacts related to the volume of waste being treated, such as traffic volumes and traffic emissions, emissions to air and leakage to groundwater.[25] Improved environmental management, as a result of adoption and enforcement of the Basel Convention, will lead to direct pollution reduction and should therefore be included in the CBA of implementation.
Research Question 1: What value can be attributed to pollution reduction along impact pathways, i.e. Water quality, air quality, soil quality, scenic qualities?
Savings on Human Mortality and Health
Although it is generally accepted that long-term exposure to hazardous waste has a negative effect on human health, there is little agreement regarding the exact health effects or burden of disease attributable to such exposure. This is largely due to an overall lack of consistent scientific research on both the potential levels of exposure and the adverse medical effects of toxic waste treatment.
Certain studies have shown links between hazardous landfilling and contamination of drinking water[26], increased prevalence of birth defects and increased rates of lung, bladder, stomach and rectum cancer.[27] Incineration of unsuitable waste materials, particularly those containing polyvinyl chloride, leads to the generation of dioxins, furans and co-planar polychlorinated biphenyls (PCBs), substances classified as human carcinogen. Long-term, low-level exposure to these substances may lead to the impairment of the immune system, the impairment of the development of the nervous system, endocrine system and reproductive functions, and certain cancers.[28] Similarly, the incineration of heavy metals or materials with high metal contents, particularly lead, mercury, or cadmium, can lead to the spread of heavy metals in the environment, causing a wide range of adverse health effects.[29]
In order to quantify the Convention’s actual effect on improving public health, one must determine the overall change in the economic burden of disease attributable to exposure to hazardous waste since the implementation of a particular waste policy. This not only implies the ability to determine the exact severity of health risks due to hazardous waste exposure (which is yet to be determined), but also the economic value of human health and even life itself (which is an issue of some controversy in CBA).
Rabl (2003) and Vrijheid (2000) have each contributed helpful reviews of recent studies on this issue. Rabl’s work concentrates on epidemiological studies of air pollution mortality. Although this accounts for only a portion of the health issues linked to exposure to hazardous waste, Rabl’s analysis can be a solid starting point for research. Particularly relevant is Rabl’s attempt to quantify short term and long term exposures, an issue which has compromised the validity of many waste-related health studies. The review also demonstrates the importance of analyzing the loss of life expectancy (LLE) attributable to an environmental issue as opposed to mere premature deaths, especially given the cumulative nature of the health effects resulting from long-term exposure. This analysis also accounts for inconsistencies in age and sensitivities to exposure in a given population, two considerations which are essential to the hazardous waste issue.[30]
Vrijheid’s work concentrates on the health effects of hazardous waste specifically, particularly pertaining to landfilling practices. The review presents findings from a number of single-site and multi-site studies in an attempt to expose a recurrent conclusion. As in Rabl’s study, Vrijheid acknowledges the difficulty in drawing dependable conclusions from this analysis, as many studies suffer from methodological difficulties of accurately quantifying hazardous exposures. The author also comments on the weakness of current evidence regarding the relationship between hazardous waste exposure and cancers.[31]
According to environmental economists, calculating the economic cost of these health effects relies on the Value of Statistical Life (VOSL). Theoretically, VOSL is secured by a contingent valuation method, taking a particular change in risk of death and dividing this into a population’s average WTP for that risk reduction.[32] For example, if a particular action will reduce an individual’s risk of dying from 5 in 10,000 to 3 in 10,000 (Δr of 2 in 10,000), and the average WTP for this reduction is $50, then the VOSL would be calculated as:
WTP / Δr = (50 x 10,000) / 2 = $250,000
Although this simplified equation seems relatively straightforward, there is considerable inconsistency in past estimations of VOSL for environmental economic studies. In 2004, for example, the US EPA established VOSL at $6.1 million during an analysis of how far to go in removing arsenic from drinking water.[33] Other studies have suggested that a value of $3-5 million is more suitable for the USA, compared to just $2 million in the UK and considerably less for Japan.[34]
The following questions should be addressed when analysing the health benefits of the Basel Convention. Health data on the risks associated with a set of hazardous wastes or chemicals may be needed, for which the criteria of actual or empirical data and the use of risk assessment data may need to be considered.
Research Question 1: For each of the health risks listed above, what fraction of the total burden of disease is directly attributable to exposure hazardous waste for the country in question?
Research Question 2: How has the prevalence of relevant health risks changed since the country’s implementation of the Basel Convention?
Research Question 3: What is the economic value of this reduction (or increase) in health risk?
Research Question 4: How have losses of income and expenditures on health services due to illness attributable to hazardous waste exposure changed since implementation of the Convention in the county in question?
Research Question 5: How does this value change when comparing the risk to children to that of adults?
Research Question 6: What is the difference between short-term and long-term health benefits of the Convention?
Property Value Impacts
A number of studies have shown that localities hosting hazardous waste treatment infrastructure have been ‘stigmatised’, reflected in decreased property prices for those areas.[35] Furthermore, Gawande and Jenkins-Smith’s study (2001) shows that hazardous waste transport has a negative impact on property prices along the route of transport. These property price decreases result in real economic losses for local communities. The negative public perception driving the property price drops is largely the result of previous examples of hazardous waste mismanagement. This has implications for a CBA of implementation for the Basel Convention:
Research Question 1: How does the public perception of the standard of hazardous waste management change once the Basel Convention has been ratified in a country?
Research Question 2: How have property prices been affected by implementation of the Convention?
Although little research has been conducted on the cost of inaction for environmentally unsound waste management practices, recent studies on related environmental issues could serve as a helpful guide for future research. One study that can be particularly helpful is the 2007 report on the international workshop on the cost of inaction in combating desertification, issued mainly through the Global Mechanism. As this workshop attempted to analyze the entire economic cost of land degradation due to desertification (much like this project aims to do with hazardous waste), these avoided monetary costs account for only a portion of the analysis. For the most part, these costs consist of avoided damage costs that would be suffered if the Convention had not been enacted, largely consisting of clean-up and replacement costs. The OECD study on Costs of Inaction (2007) also provides a useful framework for developing a specific case study on hazardous waste management.
Reputation Impacts
Many countries suffer substantial economic losses as a result of the mismanagement of hazardous and other wastes.. Hazardous waste, especially when dumped illegally or disposed of in an environmentally unsound manner, can cause offensive sights and smells that are unattractive to both members of the community and visitors. Often, this leads to negative perceptions of communities, sparking a decrease in capital investment, private business development and tourism revenues. Implementation of the Basel Convention, specifically through the promotion of environmentally sound waste management, is expected to decrease these negative economic effects of hazardous wastes.
The following research questions should be addressed when analyzing the aesthetic benefits to employment and working conditions from the Basel Convention:
Research Question 1: What are the full implications for foreign direct investment (FDI) of mismanagement of hazardous waste?
Research Question 2: In countries where tourism is particularly important, how have national tourism revenues and capital investments changed since implementation of the Convention?
Research Question 3: What portion of these changes in tourism and private investment can be realistically attributed to Basel Convention-related policies?
Enhanced Ecosystem Operation
The ecosystem provides a number of goods and services that are negatively affected by the mismanagement of hazardous waste. These environmental goods and services include water and air purification, ecological cycling in soil, habitat provision, regulation of weather behaviour, and regeneration of light, energy and nutrients.[36] As the majority of these goods are not traded on a formal market, they are not traditionally attached to a specific market price. Thus, this CBA must conduct further research to quantify the exact economic burden of hazardous waste on the ecosystem, as well as the effect of Basel Convention-related policies on the reduction of that burden.
The following research questions should be addressed when analyzing the environmental benefits of the Basel Convention:
Research Question 1: How have levels of water and air pollution changed since implementation of the Convention? How much of this change can be attributed to the Basel-related policy?
Research Question 2: How have rates of land degradation in areas near hazardous waste management sites (or former sites, if applicable) changed since implementation of the Convention?
In recent studies, it has proven difficult to accurately model land degradation due to a single environmental factor, such as exposure to hazardous waste. The Millennium Ecosystem Assessment from 2003 recommends that ecosystem models be structured around the value of services provided by ecosystems, specifically regarding provision of food and wood. Through this evaluation, levels of degradation will naturally differ significantly among regional case studies. When evaluating the effects of hazardous waste, where the effected land will most likely be concentrated around management and disposal sites, degradation levels will be especially inconsistent (depending on crop fields, grazing areas, forests, etc in the area).[37]
Choosing the best valuation technique is a crucial decision when evaluating the effect of hazardous waste on land degradation. Although the MEA recommendations have been embraced by organizations such as UNEP and the World Bank, such a technique runs the risk of underestimating the overall costs of land degradation. After all, this model only accounts for the ecosystem services that effect two land-related “industries” (food and wood), when it is entirely possible for certain regions to draw considerable economic resources from elsewhere. For this reason, it could be worthwhile to pursue a spatial approach to evaluation, especially considering the fact that most of the CBA will rely on case study analysis. This methodological issue will be pursued further in subsequent sections.
Research Question 3: What is the economic value of the change in ecosystem services since implementation of the Convention?
There are two theoretical categories of costs associated with the economic value of the ecosystem. First there is the assumption that the ecosystem, if left alone from any type of pollution, would provide the same goods and services year after year. Thus, the ecosystem costs of a particular action, such as the dumping of hazardous waste, are quantified by the total loss in value of the ecosystem’s initial stock of goods and services. This would focus on marginal and discrete changes to a localized ecosystem, as apposed to overly ambitious attempts to determine the net value of the “total ecosystem.”[38]
The second way of looking at this value is in terms of opportunity cost, or the “forgone social value” of the ecosystem.[39] This strategy assumes that a particular ecosystem’s value is best quantified not by its initial state, but by the next best usage or conversion of its resources (for example, agriculture investment or development initiatives). When a certain percentage of an ecosystem becomes sterile (say, as a result of mismanaged hazardous waste), that ecosystem is no longer valued at its potential for conversion or its initial environmental services. Thus, the economic value of this ecosystem depletion can theoretically be calculated as the forgone profits from either of these services. Other economists choose to value this opportunity cost through a method of “replacement costs.” This method assumes that losses of productive functions of a natural ecosystem can be restored through the creation of “artificial capital.” Thus, the final economic value of an environmental loss can be secured through the market price of the artificial capital that replaces it.[40]
It is important to note that finding the total value of an ecosystem, even on a regional scale, is quite difficult and beyond the scope of this project. Instead, the relevant value is the changes in this ecosystem. Even when determining this value, however, there is considerable uncertainty as to what exactly these changes in goods and services will be. Also, when dealing with actions that considerably deplete ecosystem services (like hazardous waste mismanagement); it is important to acknowledge the irreversibility of such effects when determining economic value. For this reason, many environmental economists argue for a “precautionary” or “real options” approach to ecosystem valuation in CBA, in which policymakers should take far more caution in potentially losing ecosystem services than current calculations of costs and benefits may suggest.[41] Others may argue the importance of the “safe minimum standard” of valuation, which states that ecosystem conservation must always be the economically right option unless the opportunity costs of conversion are “intolerably high.”[42] In other words, ecosystem depletion can be an economically viable option only if the activity involved, such as increased hazardous waste management, provides extensive benefits in the form of increased revenues, decreased poverty levels or decreased unemployment rates.
Research Question 4: How has the net usage of hazardous waste-related energy (total energy used – total energy recovered) changed since implementation of the Basel Convention?
Many of the tools for environmentally sound waste management, such as landfill sites and incinerators, tend to use a large amount of carbon-based and other fuels. Through new technology, however, these sites are able to minimize energy depletion through energy production, as a by-product of their waste disposal functions. For this reason, researchers must concentrate on a Basel Convention-related policy’s net effect on energy availability instead of only analyzing waste-related energy use.[43]
Increased Employment and Improved Working Conditions
When evaluating environmental policies, there are a number of employment effects one must consider. Environmental policies can be both positive (creation of new or preservation of existing jobs in certain industries and for new industries not previously existing) or negative (forcing plants to plants, increasing price of labour, shifting production capacity, etc). In other words, though there is often pressure to include employment on the benefit side of CBA, the actual impact on labour depends entirely on the nature of the environmental policy and the condition of the country’s labour market. The impact (positive and negative) on gender and employment could be viewed in this context.
Relevant research has been completed on the effects of certain environmental policies on environment-related employment in OECD countries. This study, although helpful in understanding the theoretical impact of particular policy strategies on environment-related employment, it discusses very little about those markets directly related to hazardous waste or economic costs associated with these initiatives. According to this OECD study, the overall long-term, economy-wide effect of most environmental policies is very limited. At the same time, however, short term and transitional impacts on employment may be significant, especially on the local level.[44]
The following research questions should be addressed when analyzing the benefits to employment and working conditions from the Basel Convention:
Research Question 1: What employment sectors are significantly impacted (could be directly or indirectly) by hazardous waste management and waste trade activity?
According to existing data, the direct employment effects in the environmental goods and services (EGS) sector alone vary between 0.4% and 3.0% of total employment in OECD countries and between 1% and 1.5% in the majority of countries.[45] Although these percentages may seem significant, the economy-wide employment effects of implementation of a single environmental policy are very limited. In regards to hazardous waste specifically, public policy could have marginal effects on individuals in the waste collection, pollution management, cleaner technology research, recycling services, ecological remediation and cleanup, manufacturing and other sectors.
Research Question 2: What effect has implementation of the Convention has on employment levels for these jobs?
Research Question 3: What effect has the Convention had on wages for these jobs?
Research Question 4: What is the total economic value of this net change in relevant employment?
Disaster Risk Reduction
Since the 1960s, the global real economic losses attributable to environmental disasters have risen by over 800%.[46] In all, 80% of natural disasters occur in Asia, causing an estimated $368 billion in damages to the continent between 1991 and 2001.[47] The role of hazardous waste management in this incredible increase is usually linked to that of overall environmental degradation over the past half century. Hazardous wastes can cause depletion of certain ecosystem goods and services (as described above) that naturally help to control water storage, storm protection, flood mitigation, shoreline stabilization, erosion control, landslide and avalanche protection, safeguards against droughts and even the reduction of hurricane risks and tidal surges.[48]
Direct costs associated with natural disasters take the form of damages to stocks of physical and human capital, including the costs of relief, rehabilitation and reconstruction (buildings, crops and economic and social infrastructure, etc). Indirect costs include lost output and investment, macroeconomic imbalances caused by disasters and resulting incidences of debt and poverty.[49]
Although little research on the link between environmental degradation and “natural” disasters has been completed, most scientists agree that the two environmental concerns are at least loosely linked. More research must be undertaken on this relationship before we can begin to quantify the Convention’s economic contribution to disaster reduction.
The following research questions should be addressed when analyzing the benefits from disaster reduction attributable to the Basel Convention:
Research Question 1: How have the total economic losses due to natural disasters changed since implementation of the Convention? How has the severity of these storms or other natural disasters such as earthquakes changed over the past 20 years?
The ADPC (2004) has published a helpful literature review of scientific and economic studies on the relationship between environmental depletion and natural disasters. Although the study discusses little about hazardous waste directly, it provides a useful starting point for future research when combined with knowledge waste-related effects on the ecosystem.
Another literature review presented by Environmental Resource Management (2005) outlines the specific costs and benefits of policies aimed at disaster risk reduction. Although this is not the primary goal of the Basel Convention, the relationship witnessed between hazardous waste and natural disasters leads one to expect that similar costs and benefits will apply to the Convention’s implementation. The document relies primarily on case study analysis, demonstrating the overall costs of specific natural disasters and the benefits experienced from specific policy initiatives. For this reason, the ERM document provides a solid reference for past economic research on environmental disasters.
Research Question 2: According to scientific theory, what is the exact link between unsound management of hazardous waste and the frequency and severity of natural disasters? How much of the change in economics losses can be theoretically attributable to hazardous waste management policy?
Research Question 3: Based on sound hypotheses, how are risks of natural disasters expected to change in each region in coming years? In the next decade? Beyond that? Do the recent reports from the IPCC and other bodies provide insights to future changes that can be included in the analysis?
Methodology
CBA Design
An effective CBA must begin with a fundamental decision regarding the nature of the comparison to be analyzed. The analyst must first determine the “counterfactual” against which the costs and benefits will be compared. The primary choice rests in whether the research will be compared to a “do nothing” counterfactual, mostly based on previous waste management systems, or whether it will be compared to a set of alternative policies that attempt to achieve the same outcome. This decision determines the nature of the economic research and will have a large impact on the costs and benefits observed during the evaluation.[50] As this particular CBA attempts to compare levels of hazardous waste production and trade today to those before the implementation of the Convention, the analysis will concentrate on the “counterfactual” approach. However, since there is undeniable value in comparing the many policy alternatives in implementation of the Convention’s guidelines, the analysis will conclude with a brief consideration of the cost-efficacy of such alternatives.
Survey
Perhaps the most difficult aspect of a waste-related CBA is developing a method of accurately quantifying external costs and benefits that are not traditionally priced. On a theoretical basis, the primary source of value in CBA is individual preference, as it is the most effective gauge for an individual’s wellbeing, welfare and utility. Economic preferences are commonly measured by one’s willingness to pay (WTP) for a benefit or willingness to accept (WTA) compensation for a cost. Thus, monetary valuations for non-market goods can be determined by estimating the maximum amount of money an individual is willing to pay to obtain some level of a good or service, or the minimum amount of compensation that individual is willing to accept as compensation for some level of distress. These individual preferences can then be aggregated to form a social preference, comprised of a simplified sum of social benefits and social costs.[51]
As the desired data deals with personal preferences, a survey-based method would be most effective. There are two main survey strategies for quantifying WTP and WTA when dealing with non-market goods such as health and ecosystem depletion. Under the Choice Experiment or Choice Modelling (CM) strategy, respondents are asked to choose their most preferred option from a choice set of at least two options, one of which is the status quo or current situation. Under a Contingent Ranking (CR) experiment, respondents are required to rank a set of alternative options, characterized by a number of attributes, which are offered at different levels across options. As with CE, a status quo option is normally included in the choice set to ensure welfare consistent results.[52] The choice between these methods of data collection will depend heavily on the researcher’s perspective on valuation technique, which may vary depending on what specific costs and benefits are researched.
Regional Case Studies
Given the global nature of the issue, this CBA will have to rely heavily on case-study analyses to expose the trends in ESM of hazardous waste in specific regions and levels of economic development. These case studies will begin by an analysis of the yearly data included in annual reports to the Basel Secretariat. While this source provides sufficient data on the overall production, imports and exports of hazardous waste, it gives no information regarding waste expenditures, health status, or macroeconomic changes for each country. As this information is vital to an effective CBA, further research much be completed on these case studies. Certain OECD countries, namely Austria, Belgium, Germany, Netherlands, Norway, Switzerland, and the United Kingdom, have demonstrated a willingness to provide such information in the past,[53] so it may be in our best interest to use them as potential case studies for their regions. These case studies should include countries from North America, South America and the Caribbean, Western Europe, Eastern and Central Europe, Middle East, East and Southern Africa, West and Central Africa, East Asia, Central Asia, Southeast Asia, and Australia.
Based on the quality of data received through annual reporting to the Secretariat (particularly since the reporting process was revised in 1999), apparent representation of the region as a whole, and perceived willingness to supply the additional necessary data to the Secretariat, it is recommended that the following countries are considered for regional case studies of the costs and benefits of implementation of the Convention:
North America: Canada (no production data), Mexico (no production data)
South America and Caribbean: Brazil (no production data), Argentina (no production data), Ecuador, Cuba (only production data)
Western Europe: Netherlands, Germany, Belgium, Austria, Norway, Switzerland, UK
Eastern and Central Europe: Belarus, Bulgaria, Czech Republic, Slovakia, Poland, Russian Federation (no production data)
Middle East: Israel, Bahrain, Qatar (limited import/export data), Egypt (inconsistent reporting),
Eastern and Southern Africa: South Africa (no production data), Zambia, Mozambique (inconsistent data, only export data)
West and Central Africa: Niger (only biannual reports), Morocco (consistent reporting, inconstant data),
Central Asia: Uzbekistan, Kyrgyzstan
East Asia: Republic of Korea, Japan (no production data), China (only production data)
Southeast Asia: Malaysia, Singapore
Oceania: Australia, New Zealand (no production data)
Other Considerations
Opportunity Costs
An important consideration for policymakers is the alternative uses for the funds required to implement and enforce the Basel Convention. A national CBA framework would have to take into consideration the other policy programs that would be funded if the Basel Convention was not implemented.
Limitations
The Basel Convention’s national reporting mechanism is the source of the majority of available data on these activities. This data is largely inconsistent however. As the Basel Convention Secretariat has no mechanism for enforcing mandatory yearly reporting, many Parties choose to send data sporadically, if at all. As a result, any conclusions on the progress of hazardous waste control reached through analyzing this data must be subject to considerable scrutiny.
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World Health Organization, “Policy Paper on Safe Health-Care Waste Management”, August 2004.
Freeman, A. M. 1993. The Measurement of Environmental and Resource Values. Theory and Methods. Washington, DC, Resources for the Future
Nemerow, N.L. and Agardy, F.J. (1998) Strategies of Industrial and Hazardous Waste Management John Wiley and Sons
References by Section
Cost Benefit Analysis (CBA) and the Convention
David Pearce, Giles Atkinson, and Susana Mourato, “Cost Benefit Analysis and the Environment: Recent Developments”, OECD, Paris, 2006
Stephen Smith, “Analytical Framework for Evaluating Costs and Benefits of EPR Programmes”, OECD Working Group on Waste Prevention and Recycling, Paris, 3 March 2005.
UNEP, “Draft Guidance on Socio-Economic Assessment for National Implementation Plan Development and Implementation under the Stockholm Convention,” Third COP, Dakar, March 2007.
Cost Analysis
Regulatory/Operations Costs
OECD, “Pollution Abatement and Control Expenditure in OECD Countries”, Working Group on Environmental Information and Outlooks, Paris, March 2007.
Karen Palmer, Hilary Sigman, and Margaret Walls, “The Cost of Reducing Municipal Solid Waste”, Resources for the Future Discussion Paper, Washington, September 1996.
Margaret Walls, “EPR Policy Goals and Policy Choices: What Does Economics Tell Us?” Economic Aspects of Extended Producer Responsibility. OECD, Paris, p21-49, 2004.
Compliance Costs
David W. Pearce, “Framework for Assessing the Distribution of Environmental Quality,” The Distributional Effects of Environmental Policy, Ysé Serret and Nick Johnstone (eds.), OECD, Paris, 2006, p 23-75.
W. Kip Viscusi and James T. Hamilton, “Are Risk Regulators Rational? Evidence from Hazardous Waste Cleanup Decisions,” The American Economic Review, Vol. 89, No. 4, Sep 1999, pp. 1010-1027.
Transportation Costs
David Pearce, Giles Atkinson, and Susana Mourato, “Cost Benefit Analysis and the Environment: Recent Developments”, OECD, Paris, 2006, p76-79
Costs to Competition and Productivity
David A. Wirth, “Trade Implications of the Basel Convention Amendment Banning North-South Trade in Hazardous Waste,” Ban Amendment Trade Implications, Vol 7 Iss 3, Blackwell Publishers, 1998.
Bengt Kristrom, “Framework for Assessing the Distribution of Financial Effects of Environmental Policy,” The Distributional Effects of Environmental Policy, Ysé Serret and Nick Johnstone (eds.), OECD, Paris, 2006, p 79-137.
Stephen Smith, “Analytical Framework for Evaluating Costs and Benefits of EPR Programmes”, OECD Working Group on Waste Prevention and Recycling, Paris, 3 March 2005, pp 43-44.
Environmental Costs
Benefit Analysis
Costs of Inaction and Avoided Monetary Costs
David Pearce and R. Kerry Turner, “Economics and Solid Waste Management in the Developing World,” CSERGE Working Paper WM 94-05, May 1994.
The Global Mechanism, “Report on the International Workshop on the Cost of Inaction and Opportunities for Investment in Arid, Semi-Arid and Dry Sub-Humid Areas,” FAO Headquarters, Rome, December 2006.
The Global Mechanism, “Investing in Recovery of Arid Land,” Working Paper, Rome, November 2006.
Savings on Human Life and Health Impacts
David Pearce and Giles Atkinson, “Cost Benefit Analysis and the Environment: Recent Developments”, OECD, Paris, 2006, p 207-212
OECD Working Paper, “The Valuation of Environmental Heath Risks to Children: Environmental and Methodological and Policy Issues”, Working Party on National Environmental Policy, Paris, 2 September 2005.
A. Rabl, “Interpretation of Air Pollution Mortality: Number of Deaths or Years of Life Lost?” Journal of Air and Waste Management Association, Vol. 53, No. 1, pp. 43-50. Jan 2003.
Godfrey Lubulwa, and Jeff Davis, “Inclusion of Environmental and Human Health Impacts in Agricultural Research Evaluation: Review and Some Recent Evaluations”, Australian International Agricultural Research, Economic Evaluation Unit Working Papers Series, December 1994.
Martine Vrijheid, “Health Effects of Residence Near Hazardous Waste Landfill Sites: A Review of Epidemiologic Literature”, Environmental Health Perspectives, Vol 108, Supplement 1, March 2000.
WHO, “Policy Paper on Safe Health-Care Waste Management”, August 2004.
WHO, “Fact Sheet on Health Care Waste Management”, October 2004, October 2000.
David Pearce, Giles Atkinson, and Susana Mourato, “Cost Benefit Analysis and the Environment: Recent Developments”, OECD, Paris, 2006, p193-220
David W. Pearce, “Framework for Assessing the Distribution of Environmental Quality,” The Distributional Effects of Environmental Policy, Ysé Serret and Nick Johnstone (eds.), OECD, Paris, 2006, p 23-75.
David Pearce, Giles Atkinson, and Susana Mourato, “Cost Benefit Analysis and the Environment: Recent Developments”, OECD, Paris, 2006, p193-220
Holt, Jim, “The Human Factor,” The New York Times Magazine, 28 March 2004
Ecosystem Service Provision
David Pearce and Giles Atkinson, “Cost Benefit Analysis and the Environment: Recent Developments”, OECD, Paris, 2006, p 207-212
David Pearce, D. Moran, and D. Biller, Handbook of Biodiversity Valuation: a Guide for Policy Makers, OECD, Paris, 2002.
The Global Mechanism, “Report on the International Workshop on the Cost of Inaction and Opportunities for Investment in Arid, Semi-Arid and Dry Sub-Humid Areas,” FAO Headquarters, Rome, December 2006.
The Global Mechanism, “Investing in Recovery of Arid Land,” Working Paper, Rome, November 2006.
Employment and Working Conditions
Organization for Economic Co-operation and Development, “The Social Dimension of Environmental Policy,” OECD Observer Policy Brief, Paris, June 2006.
OECD, “Environment and Employment: An Assessment,” Working Paper on National Environmental Policy, Paris 2004.
Risk Reduction for Disasters
Asian Disaster Preparedness Center, “Environmental Degradation and Disaster Risk,” Issue Paper for the Embassy of Sweden / Sida Bangkok, February 2004.
Ann Dedeurwaerdere, “Cost-Benefit Analysis for Natural Disaster Management – A Case Study in the Philippines,” CRED Working Paper 143, 1998.
Environmental Resources Management, “Natural Disaster and Risk Reduction Measures: A Desk Review of Costs and Benefits,” Department of International Development, December 2005.
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( UNEP/CHW.9/1.
120608
[1]Yanez et al. 2002, p904.
[2] Mishan, 1982: Foreword xix.
[3] Referred to as a situation of Potential Pareto Improvement.
[4] Pearce et al., 2006, p 35
[5] For example, the OECD Council also has its own control system that governs the trans-boundary movement of hazardous materials between OECD member countries. This allows, among other things, the OECD countries to continue trading in wastes with countries like the United States that have not ratified the Basel Convention.
[6] This paragraph has been based on a useful blog discussion published on 17 November 2007 . Accessed online, 4 June 2007.
[7] This paragraph has been based on a useful blog discussion published on 17 November 2007 . Accessed online, 4 June 2007.
[8] See Freeman (1993) for further discussion on the designation and measurement of value for environmental and natural resources.
[9] Ibid, pg 6-11.
[10] This ‘existence value’ occurs because humans sometimes place an intrinsic value on nature or natural resources, even though they may never, for example, see the wildlife or visit these habitats, 1967; Pearce and Turner, 1990).
[11] Request from Parties further input on this table and the discussion of categorisation of costs and benefits
[12] Refer to information in The Tragedy of the Commons," Garrett Hardin, Science, 162(1968):1243-1248
[13] Pearce et al. 2006
[14] Ibid, p186
[15] OCED (2004), p18-22.
[16] Hogg (2005), p14.
[17] Viscusi et al. (1999), p1014.
[18] Tojo and Hansson (2003), p254.
[19] It is important to note that it is often difficult to translate competition and productivity costs as a result of environmental policy changes into monetary effects. For this reason, Smith (2005) contends that these considerations should be left unmonetised and used exclusively for comparison to the net social benefit of a policy, leaving policymakers to decide whether the net benefit is sufficiently large to outweigh the likely size of competition and productivity costs.
[20] Pearce and Turner (1994) p7
[21] In the US, the Love Canal and Warren County, North Carolina protests brought local environmental damage from toxic waste sites into the public and political arena. These incidents contributed to the emergence of compensation or equity-oriented siting policies at state and federal level. The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA or ‘Superfund’) was enacted in response to environmental pressure groups to finance the environmental restoration of hazardous waste sites (White and Ratick, 1989).
[22] Jenkins et al., 2006
[23] See Nemerow and Agardy (1998), pg 696.
[24] Compensation payments are made to off-set public opposition or actual damage related to the negative environmental and social impacts of hazardous waste management. As such, it is important to recognise that compensation payments proxy these externalities (transaction costs being zero) and should not be double-counted in the CBA framework.
[25] DEFRA, 2003
[26] WHO (2000)
[27] Vrijheid (2000), p102
[28] WHO (2004)
[29] WHO (2000)
[30] Rabl (2003), pg 14
[31] Vrijheid (2000), p110
[32] Pearce et al. (2006):196
[33] New York Times, 28 March, (2004)
[34] Pearce et al, (2006), pg 199
[35] Groothuis and Miller, 1994; McClelland et al.,1990; Lober and Green, 1994; Frey et al., 1996.
[36]Pearce et al 2006, p170
[37] Global Mechanism 2006, p11
[38] Pearce et al 2006, p175
[39] Ibid, p173
[40] Global Mechanism 2006, p9
[41] Pearce et al. 2006, p180
[42] Ibid, p181
[43] Smith, 2005, p32
[44] OECD 2003, p73
[45] OECD 2006, p 5
[46] ADPC 2004, p28
[47] Ibid, p1
[48] ADCP 2004, p6
[49] ERM 2005, p2
[50] Smith 2005, p28
[51] Pearce et al. 2006, p42
[52] Pearce et al. 2006, p130
[53] OECD Data, 2004
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