A Comparative Analysis
Natural Resource Valuation and Damage Assessment in Nigeria A Comparative Analysis Environmental Law Institute August, 2003
This report was authored by Danielle Schopp and John Pendergrass, with additional research by Roman Czebiniak, of the Environmental Law Institute (ELI). The authors also thank Bruce Myers of ELI and Anthony Onugu of Bioresources Development and Conservation Programme for their contributions to the report. In addition, the authors also thank the following individuals for contributing their knowledge about the law and practice of natural resource valuation in Nigeria: Austin C. Otegbulu, C.J. (Chima) Nwogu, Dr. Bola Fajemirokun, Professor Anthony M. A. Imeubore, Professor Emmanuel Asuquo Obot, and His Majesty The Amayanabor of Kalabari Professor T.J.T. Princewill. Errors and omissions are solely the responsibility of the authors. Support for this report was provided by a grant from the John D. and Catherine T. MacArthur Foundation.
EXECUTIVE SUMMARY 2
Oil fields are abundant in the Niger Delta and provide the Nigerian government with much of its revenue. Environmental damage caused by oil production activities including exploration, drilling, production, transportation, and refining threatens biodiversity of the Niger Delta and the livelihoods of its inhabitants. Many of the people in the Niger Delta depend on the abundant natural resources of the delta for fishing, herbal medicines, food, fiber, and other uses. This report examines the methods used to place a value on environmental damage and the legal frameworks that United States, Nigeria, Kenya, and international law provide to compensate for injuries to natural resources caused by oil pollution. Placing an appropriate value on the environmental damage is important to ensure that oil companies take necessary precautions to avoid and abate damage caused by oil pollution, while providing compensation to the people that use and rely upon the damaged natural resources. Various economic methods can be used to assign a value to injured natural resources. Market valuation methods determine the value of goods or services provided by the resource by using prices for those goods or services as traded in the market. Three recognized market valuation techniques are the market price approach, appraisal method, and resource replacement cost. The benefit of such techniques include that the values are relatively easy to measure and are observable. A major drawback of such techniques is that they do not capture the value of subsistence use of natural resources that are not traded in the market. Furthermore, market valuation methods do not place a value on nonuse values, such as the economic value people place on assuring that future generations will be able to use the natural resource. Nonmarket valuation methods use indirect measures relying on behavior of people or surveys to determine the economic value of natural resources. Nonmarket techniques include the travel cost method, hedonic price method, factor income, and contingent valuation. Nonmarket valuation methods are capable of determining values for subsistence use of natural resources and nonuse values. These methods can be expensive as they rely on surveys or extensive collection of data and contingent valuation has been criticized as being inherently inaccurate. The focus of this report is to compare natural resource valuation in Nigeria to liability and valuation schemes of other countries. First, the principles and methods of natural resource valuation will be examined. Rules issued by the United States government provide some guidance on measuring natural resource damage, while the laws of other countries and international agreements provide less guidance. The U.S. statutes and regulations are among the most comprehensive in terms of natural resource damage and...