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Cost-Benefit Analysis (CBA) For EIA

Cost-benefit analysis (CBA) is used in environmental impact assessments to quantify the costs and benefits of a project in monetary terms. CBA weighs the costs of a project proceeding, such as environmental damage and resource use, against the economic benefits to determine if the project should be approved. It attempts to put a monetary value on both the direct costs and environmental impacts of a project as well as the economic benefits. While CBA provides a framework for comparing costs and benefits, it has limitations in assigning monetary values to all environmental and social impacts.

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Vikaas Sager
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624 views16 pages

Cost-Benefit Analysis (CBA) For EIA

Cost-benefit analysis (CBA) is used in environmental impact assessments to quantify the costs and benefits of a project in monetary terms. CBA weighs the costs of a project proceeding, such as environmental damage and resource use, against the economic benefits to determine if the project should be approved. It attempts to put a monetary value on both the direct costs and environmental impacts of a project as well as the economic benefits. While CBA provides a framework for comparing costs and benefits, it has limitations in assigning monetary values to all environmental and social impacts.

Uploaded by

Vikaas Sager
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Cost-Benefit Analysis (CBA)

for EIA
Learning Objective:

At the end of this lesson, students will be able to


understand the CBA tools for the analysis of EIA in
terms of costs (Environment, Economic).
Introduction
▪ Cost-Benefit Analysis (CBA) is a set of practical
procedures for guiding public expenditure decisions.
▪ In EIA the CBA is a part of the justification for the project.
▪ CBA is undertaken to weigh the costs of project proceeding
with the benefits that would arise from it.
▪ CBA attempts to put a monetary value on project’s direct
costs, environment loss/damage, and benefits; expressed
in the same units.
 We want our environment to be clean and safe.

 But ‘how much’ clean and safe ?

 How to measure environmental benefits and costs ?


Most Efficient
• Our aim is to
Resource
Total Cost
attain the
Distribution
‘most efficient’
Total Benefit
resource
distribution.

• We will select
the option
with the
‘maximum’ net
Maximum Net benefit
Benefit

M0 M1 M* M2
Figure 5.2 Total and marginal damage and benefit functions, and the efficient level of flow pollution emissions

D(M) D(M)
B(M)

B(M)

Maximised net
benefits

Emissions, M

dD
dM

* B
dB
Abatement/Miti- dM
gation Cost A

M* M̂ Emissions, M
Project costs
 Project cost = cost of resources + cost on third parties

 Include only incremental costs on developments

 Do not include – interest payments, depreciation

Example: The costs of a road project would include the cost


of labor and materials used in construction, as well as other
costs such as the loss of parkland and homes, pollution,
disruption to neighborhoods or the loss of peace and quiet.
Project benefits
 Use and Non-use values

 Use values = all use benefits to man

 Non-use values =
Direct or Indirect use benefits + option values
+ existence values
Example: The benefits include time/fuel saved to
road users, increased predictability of journey
times and increased accessibility to a location.
Environmental values
Secondary benefits
- Surprisingly rresults from primary benefits of the project
Not included in CBA
e.g. project > higher wages to employees > higher
expenditure > improve quality of life

- These are viewed as transfer between communities rather


than net addition to community income
Option values
 Risk is attached to all decisions

 Uncertainty about demand and supply in future

 Pay more to insure demand or supply

 Option value =

value that an individual is willing to pay in excess to


expected use value to preserve an asset
Uncertainty Adjustment
ENPV
P = 0.5
$ 2.5 M
$5M

$2M
Project A
P = 0.5
$-1M
$ - 0.5 M

//
Project B

P=1
$ 1.5 M $ 1.5 M
Steps in CBA
• Role: 1
Selction of Environmental components (Flora, Fauna, Air, Water, Soil)

• Role: 2
(i) Environmental mitigation
measures converted into monetary value
(ii) Management plans /costs

Environmental Impacts of a project and abatement/mitigation/subsidy cost

 Role 3: Economic assesment of the environmental impacts of


the project.
Drawbacks of CBA
- Impacts are to be transformed and stated in clear
monetary terms; which is not always possible for various
terms i.e. indriect health problems, mortality, habitat loss
long-term irreversible impacts

- Identifying all the consequences of a particular project


or policy option is difficult

- Not possible to find economic value on resulted


environmental losses or gains i.e. Air/water quality,
land/soil degradation etc.

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