Study on Cost of Environmental Degradation Based on Cost-Benefit Analysis

Anhui University of Finance and Economics, Bengbu 233030, China

AbstractWith the rapid economic development of China, the environmental degradation brought by economic development cannot be ignored. In order to measure the cost of environmental degradation brought by land projects in the process of economic development and evaluate a land project, this paper establishes an ecological service evaluation model based on cost-benefit method to analyze the cost and benefit of land development projects from a new perspective, and explore effective strategies to alleviate environmental degradation.

Key wordsEnvironmental degradation, Land development, Cost-benefit analysis, Ecological service assessment

1 Introduction

With the rapid development of China’s economy and the acceleration of urbanization, people have high requirements for the ecological environment. However, in the process of land use project, it is often accompanied by a series of environmental problems, such as river pollution, air quality deterioration, climate change and so on. According to the data collected by China’s macroeconomic database, between 2007 and 2017, China’s fiscal expenditure on environmental protection increased from 99.582 billion yuan in 2007 to 561.733 billion yuan in 2017, with an average annual growth rate of 17.03%, it was even up to 45.75% in 2008 (Fig.1).

Fig.1 China’s fiscal expenditure on environmental protection in 2007-2017

The environment and economy are closely linked. If the economic loss caused by environmental degradation is neglected, it will directly lead to the inaccuracy of the cost and benefit measurement of land development projects, thus greatly reducing the efficiency of land use. Therefore, in the context of the increasing proportion of environmental protection expenditure, it is of great significance to establish a new ecological service assessment model to assess the real economic costs and benefits of land development projects when considering environmental costs.

In this study, through establishing an ecological service evaluation model based on the cost-benefit method from a new perspective, we analyzed the cost and benefit of land development projects, and explored effective strategies to alleviate the environmental degradation.

2 Literature review

In terms of cost and benefit measurement of land development projects considering the cost of environmental degradation, the research of experts and scholars mainly focuses on the following two aspects: one is the research of assessment methods. Liu Guangetal. studied the relationship between ecosystem services and environmental governance from the perspective of cost-benefit analysis of land development projects, and put forward a new idea of ecosystem service assessment[1]. On the basis of P-S-R theory, Wu Shaman established the index system framework of environmental performance assessment and made an empirical analysis[2]. Zhang Zulu used market value, human capital and ecological value to measure the direct and indirect environmental costs of the southern four lakes wetland, so as to assess the ecological and economic losses[3]. Xing Shisha, Cameoetal. used the method of water environment degradation assessment based on protection cost and damage assessment to obtain the water environment of Tai Lake basin in 2010[4].

From the above studies, it is found that the indirect environmental costs is very complex, so after considering environmental costs, most of the studies on ecosystem services assessment only put forward simple assessment ideas, which is of great difficulty for practical application. At the same time, it is necessary to carry out cost-benefit analysis through a large number of data collection and calculation, which causes a lot of trouble. To solve these problems, we calculated the indirect environmental cost from a new angle and transformed it into other variables which are easy to obtain, thus greatly simplifying the model and making the ecological service assessment model more widely applicable.

3 Research ideas

In the study, we used cost-benefit analysis method to estimate the real economic cost of land use projects. Firstly, we divided the total economic cost of land development project into land development cost and environmental cost. Secondly, the environmental cost is expressed as the sum of direct cost and the indirect one. The direct cost mainly includes the cost of water pollution, air pollution, solid waste treatment and the capital occupancy cost of environmental protection investment while the indirect one mainly includes the biodiversity loss, human health caused by a series of pollution. However, the indirect cost is difficult to find, so we transformed it into the direct one by building a "conversion factor". Finally, we established a new ecological service evaluation model taking the cost-benefit ratio as the real economic cost (Fig.2).

Fig.2 Research ideas

4 Research methods and results

4.1 Model establishment

4.1.1Direct environmental costs. (i) Water pollution control cost (Cwater), air pollution control cost (Cair), solid waste treatment cost (Csw). According to the average cost of water pollution, unit air pollution and unit solid waste, as well as the discharge of each pollutant, we obtained the total cost of treating three types of pollution:

(1)

whereQjrepresents the discharge of major pollutants of water pollution or atmospheric pollution,Cjrepresents the treatment cost of unit pollutants,j=1 represents water pollutants,j=2 represents atmospheric pollutants, andj=3 represents solid waste.

(ii) Environmental investment cost (CI). The investment can generate interest, so environmental protection investment will generate interest cost. Considering the term structure of interest, the interest cost of environmental protection investment of a land use project can be expressed as Formula (2):

(2)

whereItrepresents the amount of environmental protection investment in the periodt,rtrepresents the rate of return on investment at the timet, andηtindicates that the land scale of a land project at the timetaccounts for the total scale of all the land developed and used at that time.

4.1.2Indirect environmental costs. (i) Ecosystem species diversity loss costs (Csd). The cost of loss of species diversity in ecosystems represents the value of loss of species due to destruction of ecosystems due to land projects, including loss of animals, plants, crops and so on. Because the smaller the number of a species is, the more expensive it will be to conserve it in the future. Consequently, the loss cost of species diversity in ecosystems can be expressed as Formula (3):

(3)

whereWirepresents the reduction of the speciesidue to land use projects,Pirepresents the market value of the speciesiat present,Wi0represents the initial species number of the speciesi, andtis the time from the beginning of the impacted species to the protection.

(ii) Health loss cost (CH). The cost of health loss is expressed as follows:

(4)

whereQHrepresents the increasing number of the patients in the first year after the implementation of the land use project,Srepresents the average annual salary of every patient,t1represents the number of sick days,Trepresents the number of working days, andChospitalrepresents the increment of medical expenses paid by the patient after the execution of the land use project.

4.1.3Total environmental cost (CE). Based on the above analysis, we can get different components of the total environmental cost. So we can expressCEas follows:

(5)

whereT1is the time elapsed from the start of pollution to the current moment for a land use project. Considering Formula (1), Formula (2), Formula (3), Formula (4) and Formula (5) together, we obtained Formula (6) as follow:

(6)

(7)

At the same time, we use cost-benefit ratio to express and evaluate the real economic cost of land-use projects. So, real economic cost can be expressed as:

(8)

4.2 Simplification of the modelAs we can find easily, the model established above is very complicated, especially the indirect environmental cost, which is not easy to get the final solution. In order to simplify it and consider the land size in the land use project into the model, we adopted the following simplified method: Firstly, considering that the indirect environmental costs of land use projects including the loss of ecosystem biodiversity and human health will increase with the increase of pollutant emissions, the indirect environmental costs are expressed as a function of pollutant emissions.

(9)

(10)

whereαjandβjrespectively represent the influence coefficient of various pollutants on species diversity and human health,Chospitalrepresents the average medical expenses.

(12)

4.3 Solution of model

4.3.1Solution ofαjandβj. Sinceαjandβjrepresent the impact coefficients of various pollutants on species diversity and human health respectively, which are similar to the concept of elasticity, so they can be expressed as

αj=1+100Esd

(13)

βj=1+100EH

(14)

whereEsdandEHrespectively indicate the elasticity of various pollutants to species diversity and human health.

In order to estimate these two variables, the area of nature reserves (107ha) is used to approximate the change of species diversity, the average medical expenses (yuan) of outpatient patients in hospitals is used to approximate the change of human health level, and the total amount of industrial wastewater (107t), industrial waste gas (1012standard m3) and industrial solid waste (109t) are used to reflect the discharge of various pollutants (Fig.3). Secondly, considering the availability of data, the area data of nature reserves in China from 2003 to 2015 are obtained from the environmental database of China in EPS data platform, the average medical fee data of outpatients in hospitals from 2003 to 2015 are obtained from the tertiary industry database of China, and data of volume waste generation, the total amount of industrial wastewater, industrial exhaust gas and industrial solids from 2003 to 2015 are obtained from the macroeconomic database of China.

In order to better reflect the relationship between species diversity, human health and pollutant emissions, we used Eviews software to draw scatter plots of the relationship between the area of nature reserves (107ha) and pollutant emissions, as well as the relationship between the average medical expenses (yuan) of outpatient patients and pollutant emissions (Fig.4).

Fig.3 Relationship between the area of nature reserves and the discharge of waste water, waste gas and industrial solid waste

Fig.4 The relationship between the average medical expenses of outpatients in hospitals and the discharge of waste water, waste gas and industrial solid waste

Then, the double logarithmic model was established and solved by Eviews software. The coefficients in front of the independent variables areEsdandEH. The output of the software and the calculated results are shown in the Table1 and Table 2.

Table 1 Software output and processing when solving the value ofαj

Type of pollutant(j)Water pollutant(j=1)Air pollution(j=2)Solid waste(j=3)αj2.3301.2501.290Esd1.33%0.25%0.29%Prob.(t-Statistic)0.0100.0050.016F-statistic9.41511.8607.920

Table 2 Software output and processing when solving the value ofβj

Type of pollutant(j)Water pollutant(j=1)Air Pollution(j=2)Solid Waste(j=3)βj5.061.781.98EH4.06%0.78%0.98%Prob.(t-Statistic)000F-statistic55.72363.66142.73

4.3.2Solution ofCj. It is assumed that the technical level of various pollution treatments in each region is the same, and the technical level of pollution treatment does not change with time.

According to the amount of pollutants discharged and the total cost of treatment, we can get the average cost of treatment of various pollutants. In order to eliminate the influence of technological progress on the average cost, the average cost of each year was taken as the average cost of treatment of various pollutants:

(15)

According to the data from 2003 to 2015 that comes from China Environmental Database and Formula (15), we obtained that the value ofcjof water pollutants was 0.539 yuan/t, the value ofcjof air pollutants was 5.378 yuan/ m3, and the value ofcjof solid waste was 1.397 yuan/t.

4.3.3Final simplified model. Put the solutions ofαj,βjandcjinto Formula (12), and simplify it, the final simplified model is obtained:

Fig.5 Effects of the change of rG on the in-tercept term of the model Fig.6 Effects of the changes of D×RUA and Pi on the slopeFig.7 Effects of the changes of D×RUA and Chospital on the slope kwater

5 Conclusions and recommendations

This study shows that the real economic cost of the land use project will be affected by land use, species in the land development area, air pollution, water pollution, and solid waste discharge. Land planners should fully understand the expected benefits of the industry using the land, the impact on the economy, and the pollutant emissions of the land project. Based on the model, we know that the land use project is evaluated to select projects with lower relative economic cost.

We came up with the following recommendations. (i) For the protection of species diversity, high-pollution land should be developed and used away from areas with more species, especially rare species. (ii) For the protection of human health, land planners should plan for low-pollution or even non-polluting land in areas where people gather. (iii) For the planning of land size, land planners should fully consider the marginal benefits of land use, and then maximize the benefits when environmental costs are considered. (iv) Land managers can also use our established model to re-evaluate land use projects and determine whether land-use units are in violation based on comparisons between the two assessment results. Also, it is necessary to increase supervision and timely review and punish enterprises or individuals who use land illegally to minimize the environmental pollution caused by land use.