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The Equivalency Principle for Discounting the Value of Natural Assets: An Application to an Investment Project in the Basque Coast

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  • Aline Chiabai
  • Ibon Galarraga
  • Anil Markandya
  • Unai Pascual

Abstract

Making decisions about optimal investments in green infrastructure necessitates setting social discount rates. This paper suggests a practical way for determining the discount rate for projects or programmes in which one of the options is to maintain or restore land to an undeveloped state. We propose an “equivalency principle” to derive a simple rule that sets the discount rate. The rule is based on the premise that the long term value of a piece of undeveloped land ought to be at least the same as the value of an identical piece of land in the vicinity to which permission has been granted for development. We illustrate this principle with various case studies and we apply it to a contentious investment project in the Basque Country associated with the regeneration of a large scale harbour that involves reclaiming undeveloped land that has important ecological values, including for the conservation of a marine ecosystem. Copyright Springer Science+Business Media B.V. 2013

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  • Aline Chiabai & Ibon Galarraga & Anil Markandya & Unai Pascual, 2013. "The Equivalency Principle for Discounting the Value of Natural Assets: An Application to an Investment Project in the Basque Coast," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 56(4), pages 535-550, December.
    • Handle: RePEc:kap:enreec:v:56:y:2013:i:4:p:535-550
    DOI: 10.1007/s10640-012-9589-8
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