cost benefit analysis (environmental impact assessment)
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ANALYSIS COST – BENEFIT
(CBA)PONNADA PUSPALATHA
Assistant Professor
ADITYA INSTITUTE OF TECHNOLOGY AND MANAGEMENT(AUTONOMOUS)Tekkali, Srikakulam.
IntroductionCost-benefit analysis is a set of practical
procedures for guiding public expenditure decisions.
We want our environment to be clean and safe.
But ‘how much’ clean and safe ?
How to measure environmental benefits and costs ?
Total Cost
Total Benefit
Maximum Net Benefit
Q1 Q*
Q0 Q2
Most Efficient Resource Distribution
• Our aim is to attain the ‘most efficient’ resource distribution.
•We will select the option with the ‘maximum’ net benefit
Project cost =
cost of resources + cost imposed on third parties
Include only incremental costs
Do not include – interest payments, depreciation
Project costs
Project benefitsUse and Non-use values
Use values = all use benefits to man
Non-use values =
Direct or Indirect use benefits + option values + existence values
Environmental valuesEnvironmental Values
Use Values
Direct Use Values (Timber, Food,
Recreation)
Indirect Use Values
( Nutrient Recycling)
Non-use Values
Optional Use
Values(Gene pool)
Bequest Values
(Conservation
Rainforests)
Existence values(Conservation of Tiger)
Secondary benefitsResult from primary benefits of the project
e.g. project > higher wages to employees > higher expenditure > improve quality of life
Not included in CBA
Viewed as transfer between communities rather than net addition to community income
Option valuesRisk 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 continued ….
Project A
Project B
ENPV
$ 1.5 M
P = 1
P = 0.5
P = 0.5$ 5 M
$ - 1 M
$ 2 M
$ 2.5 M
$ 1.5 M
$ - 0.5 M
//
Steps in CBA
• Role:1• Environmental components (i) for presenting various option (ii) Selecting among them
• Role: 2(i) Environmental mitigation
measures converted into costs (ii) Management plans
are useful
Living organisms
Air Water Soil
i.e, environmental impacts (of a project) are accounted
Role 3: Economic assesment of the environmental impacts of a project.
Drawbacks: 1. Impacts are to be: Transformed and stated
in clear monetary terms
2. Not useful for small scale development projects.
3. Not possible to find economic value on environmental losses or gains that resulted from a development project.
Not always possible
Intangibles like health – Related impacts of industrial developments
Site evaluation together with Major design options:Within (i) economic limitationsIi) technical limitations
That give LEAST ECONOMIC COST to the community
Thank You !
AGSIP 13 – Resource Economics
Question X: Options A, B and C.Please choose the option you prefermost by ticking ONE box.
Fifteen-year effects
How much I pay each
year
Healthy vegetation left in floodplains
Kilometres of waterways in good health
Protection of Aboriginal
Cultural sites
Unallocated water
I would choose
Option A$0 20% 1500 25% 0%
Option B$20 30% 1800 35% 5%
Option C$50 40% 2100 45% 10%
Choice Modelling Valuation Technique – example choice set
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