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Cost-Benefit Analysis (CBA)

Description:

 

It is a technique that compares the monetary value of benefits with the monetary value of costs in order to evaluate and prioritize issues.  The effect of time (i.e. the time it takes for the benefits of a change to repay its costs) is taken into consideration by calculating a payback period.  In its simple form, CBA uses only financial costs and financial benefits (e.g. a simple CBA of a road scheme would measure the cost of building the road, and subtract this from the economic benefit of improving transport links).  A more sophisticated CBA approach attempts to put a financial value on intangible costs and benefits (e.g. the cost of environmental damage or the benefit of quicker and easier travel to work) through measuring WTP ('willingness to pay' for an environmental gain) and WTA ('willingness to accept' compensation for an environmental loss).

 

Sources: DAC Guidelines and Reference Series Applying Strategic Environmental Assessment (OECD, 2006) and Final Draft Resource Manual to Support Application of the UNECE Protocol on Strategic Environmental Assessment (UNECE, April 2007).

 


References:

 

blue bullet EU: Guide to cost-benefit analysis of investment projects (including environmental impacts)(DG Regional Policy European Commission, 2002) is the standard for social cost benefit analysis in Europe - formally applied to major investments by the European Commission.    Annex E provides information on monetary evaluation of environmental services (page 112).

 

blue bullet Review of Technical Guidance on Environmental Appraisal: A Report by EFTEC (Economics for the Environment Consultancy), Chapter 3.9 Cost-Benefit Analysis (UK Department of the Environment, Transport and the Regions, 1999). 

 

blue bullet Other resources (source: Final Draft Resource Manual to Support Application of the UNECE Protocol on Strategic Environmental Assessment)

  • Boardman A, D Greenberg, A Vining, D Weimer, 1996. Cost-Benefit Analysis: Concepts and Practice, Prentice Hall, Upper Saddle River, USA.  
  • Dixon J, L Fallon Scura, R.Carpenter and P.Sherman, Economic Analysis of Environmental Impacts, Earthscan, London, 1994.  The information on this publication is available from the publisher (http://shop.earthscan.co.uk/ProductDetails/mcs/productID/140).
  • Hanley N and C Spash, 1993. Cost-Benefit Analysis and the Environment, Edward Elgar, Cheltenham.
  • Mishan E, 1988. Cost Benefit Anal ysis, Allen and Unwin, London.