cost benefit analysis for environment

Topics: Cost-benefit analysis, Cost, Economics Pages: 57 (14080 words) Published: March 13, 2014
Challenges for applying Cost-Benefit Analysis and valuation of environmental benefits to aid environmental decision-making in practice: Dr Jonathan Fisher1

Challenges for applying Cost-Benefit Analysis and valuation of environmental benefits to aid environmental decision-making in practice: Dr Jonathan Fisher2 Executive Summary
This paper draws on experience of applying economic analysis to various environmental issues to highlight challenges and lessons for the practical application of Cost-Benefit Analyses so that they can best aid environmental decision-making in practice.

Carrying out economic appraisals can be expensive and time consuming. So it is essential to specify clearly the question and issues and then focus the economic analyses on delivering value added information to improve decisions on them. Moreover, there must be proportionality in determining the type and level of economic analysis needed.

Section 2 demonstrates the importance of careful analysis of the costs of proposed measures. It can help clarify and firm up the trade offs and issues which should help frame and target any benefits valuation study so that it can best aid decisions on them. But this subject gets relatively little treatment and discussion in the academic environmental economics literature.

Section 3 reviews recent practice in the application of benefit valuations for recent reviews of the environmental programme for the water industry and preparation for the implementation of the Water Framework Directive (WFD). Section 4 then draws on this experience to highlight major challenges for the valuation of environmental benefits. The most important outstanding challenges concern how to address income constraints (challenge 11) and cover an overall programme of measures and schemes (10), especially where a policy comprehensively covers many wide ranging measures; while providing full information on the likelihood of each of the impacts arising so that respondents can properly perceive and value them (challenge 6). It is not clear whether even the best practice Stated Preference (SP) techniques can overcome all of these conflicting challenges. But the alternatives cannot measure up to these challenges and in fact fare worse.

Section 4 concludes that it is necessary to tackle adequately all the challenges. It suggests a way forward. This includes using in-depth elicitation to specify and clarify the impacts in question followed by a contingent valuation survey of a larger more representative sample of beneficiaries. This survey should cover a whole programme and the individual schemes within it. The survey and analysis should include validation and cross checks that the valuations given are plausible and valid. For example, it should include a follow up question to check that the respondent is really willing to forego goods or services they could purchase with their stated sum. Challenges for Applying Cost-Benefit Analysis and Valuation of Environmental Benefits to aid environmental decision-making in practice Introduction

The Environment Agency has long been a strong supporter of environmental economics. Along with the Swedish Environmental Protection Agency, we are the public bodies that are institutional subscribers to the European Association for Environmental and Resource Economists (EAERE). We sponsored a session at EAERE’s conference in Southampton in 20013 and have sponsored Envecon in 2007 and 2008. We have for four years given an annual prize for Masters dissertations that apply economic analysis to a practical environmental policy issue4.

In this vein, this paper highlights lessons and challenges for the environmental economics community for the practical application of Cost-Benefit analyses and benefit valuations so that they can best aid environmental decision-making in practice. It draws on experience of applying economic analysis to various environmental...

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