The value of the environment – Is it a matter of approach?

This paper discusses why estimates of the benefits of reduced air pollution differ in accordance with the approach used. Estimates based on bottom-up studies of the damage costs related to air pollution usually turn out much lower than estimates based on assessments of the utility of reduced air pollution, obtained for instance by willingness to pay assessments. This is usually explained by the fact that the willingness to pay approach includes the utility aspect of non-market values, and for this reason, it is often preferred to the damage cost approach. This is, however, not the whole story. The paper shows why alternative approaches should not be considered as being in conflict, but rather as means to get supplementary information necessary to put a value on environmental quality. Information from bottom-up assessments of damage costs and from studies of the willingness to pay is used in a macroeconomic model to carry out an evaluation of the social costs of energy saving measures in Hungary.