UNDP-UN Environment Poverty-Environment Initiative

Economic valuation and analysis – A building block towards inclusive green economy

Making the economic case of the importance of sustainable managment of the environment and natural resources for pro-poor economic growth, and achievement of the Millennium Development Goals (MDGs) is an important component of the Poverty-Environment (P-E) mainstreaming approach.  

Economic-based analysis and argumentation for environmental investment can be the most effective in convincing decision-makers on the importance of environmental sustainability for achieving development goals.  It requires one to understand and be able communicate on the environment and associated systems in economic terms, and how the environment sector can be explained as a productive sector that can be managed to generate pro-poor and inclusive economic growth.

In response to country demand, PEI has piloted a number of economic valuation studies at country level that aimed to inform and influence economic development policy and planning.  These studies touch on key aspects of the PEI publication “Making the Economic Case: A Primer on the Economic Arguments for Mainstreaming Poverty-Environment Linkages into Development Planning” including:

  • Treating the environment base as an economic asset where environmental resources and ecosystem services are seen as productive natural capital having economic values, and where trade-offs exist between investing in sustaining this natural capital and converting it to other uses or allowing for degradation.
  • Emphasizing the economic returns from environmental investment and the economic costs of environmental degradation.  This can be expressed through a number of variables including among others employment, returns on investment related to rehabilitation of ecosystems, human health affected by pollution and degradation, effects from climate change, improved or lost agricultural productivity and food security, etc.  
  • Understanding human and economic well-being outcomes and linking environmental goods and services with national economic and social indicators used to measure progress towards poverty reduction, equality and inclusive economic growth.

Achievements and Highlights

Malawi: In 2012, The Government of Malawi released the PEI supported report on the economic analysis of four key sectors: forestry, fisheries, wildlife and agriculture. Key findings included: Unsustainable natural resource use costs the country the equivalent of 5.3% of GDP each year, more than the total funding allocated to education and health in the 2009 national budget. It also revealed the untapped potential of the country’s wealth of natural resources for tackling extreme poverty. Soil erosion alone reduces agricultural productivity by 6%/year, and if this yield was recovered, an additional 1.88 million people would be lifted out of poverty by 2015. 

As a result of the report, the Government of Malawi intends to increase the allocation of public sector funds to environmental programs aimed at improving agricultural production and sustaining key ecosystem services.  The report information and analysis has also served to inform the inclusion of sustainability indicators in the monitoring and evaluation framework for the ‘Agricultural Sector Wide Approach’ coordinated jointly with the World Bank country programme. In 2013 the  Guidelines for the preparation of the 2013/14 Budget included a chapter on the importance of the alignment with sustainability guidelines.

Laos: The Lao Peoples Democratic Republic (PDR) adopted legal and economic, social and economic assessment tools to ensure that foreign investments promote job creation, environmental standards and poverty alleviation.  These tools were elaborated and piloted with the support of PEI and have contributed to assist the Government to measure the contribution of agricultural concession contracts to the delivery of the national strategy and for Provincial governments to have the means of tracking investments into their provinces. 

Rwanda: In 2006, the Republic of Rwanda and PEI undertook a study on the Economic Analysis of Natural Resource Management in Rwanda.  The report findings estimate that about 15 million tons of soil is lost annually to soil erosion, representing an annual economic loss of USD 34.3 million annually or equivalent to almost 2% of GDP annually (2006 figures). This has been translated to represent a decline in the country’s capacity to feed 40,000 people/year. This work was followed by a review of existing and potential environmental fiscal reforms and other economic instruments and in 2012 Rwanda established a National Climate and Environment Fund (FONERWA).

Key PEI Documents

Africa

Asia Pacific