Environmental Cost-Benefit Analysis

Abstract

Environmental cost-benefit analysis, or CBA, refers to the economic appraisal of policies and projects that have the deliberate aim of improving the provision of environmental services or actions that might affect (sometimes adversely) the environment as an indirect consequence. Vital advances have arisen in response to the challenges that environmental problems and environmental policy pose for CBA. In this article, we review a number of these developments. Perhaps most notably this includes continuing progress in techniques to value environmental changes. Growing experience of these methods has resulted in, on the one hand, ever greater sophistication in application and, on the other hand, scrutiny regarding their validity and reliability. Distributional concerns have led to a renewal of interest in how appraisals might throw light on questions about equity as well as efficiency, and there have been substantial new insights for discounting costs and benefits in the far-off future. Uncertainty about what is lost when environmental assets are degraded or depleted has resulted in a number of distinct proposals although precaution is the watchword in each. Just as importantly, there is a need to understand when CBA is used in practice and why environmental decisions are often made in a manner apparently inconsistent with cost-benefit thinking.