Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

economic analysis also needs to consider the externalities (positive and/or negative) that are notaccounted for in the converted financial inputs and outputs quoted above.Table 4.28 Conversion factors adopted in economic analysisType of cost CF NotesStandard conversion factor 0.96 SCFSkilled labour 1.00 The labour market is assumed to be competitiveUnskilled labour 0.60 Shadow wage for not-competitive labour market 73Land 1.33 SCF x local market price (40% higher than prices paid for expropriation)Building erection (constructions) 0.70 40% construction materials (CF=SCF), 5% skilled labour, 45% unskilledlabour, 10% profit (CF=0)Materials (Chemicals, reagents, etc.) 0.96 Traded good; CF=SCFEquipment 0.60 10% construction materials (CF=SCF), 5% skilled labour, 75% unskilledlabour, 10% profit (CF=0)Energy (electricity, heat and gas) 0.96 SCFWater services 0.96 SCFWaste treatment service 0.96 SCFFeasibility study, design, etc. 1.00 100% skilled labourEngineering, geological and1.00 100% skilled labouradministrative servicesMachinery, manufactured goods, 0.670 50% unskilled labour, 50% equipmentcarpentry, etc.Investment (weighted) 0.705 4,7% feasibility study, design, etc., 1,2% land, 39,5% buildings, 54,6%machinery, manufactured goods, carpentry, etc.Replacement of short life components 0.670 100% machinery, manufactured goods, carpentry, etc.Residual value 0.705 100% investment (weighted)Remediation and decontamination 0.676 10% skilled labour; 79,8% unskilled labour, 10,2% materials(weighted)Intermediate services and goods 0.718 10% skilled labour; 50% unskilled labour, 30% machinery, manufacturedgoods, carpentry, etc., 10% materialsElimination costs of ash and slag waste 0.673 5% skilled labour; 80% unskilled labour, 10% energy, 5% materialsFirst, the negative externalities are taken into account: the cost of noise, odours, aesthetic and landscapeimpact.The negative external impact of the normal operation of the incinerator is valued by means of a hedonicprice, assuming the real estate in the nearby area is depreciated. The hedonic price is assumed to be equalto the difference between the market value of the rent for the buildings in the area before the incineratorwas built and the value of the rent after the incinerator was built, this difference then corrected by anappropriate CF. Assuming a mean building density in the impact area (an area, centred on plant, of about700 m of radius) of 0.50 m 3 /m 2 a depreciation of 30% of a yearly rent of about 52.2 €/m 2 (corrected)leads to a hedonic price of €340,000 per year.Next, the positive externalities deriving from the waste treatment and from the energy recovery are takeninto account: i) the first of these is cautiously considered to be absorbed in the re-valued revenues of thewaste treatment 74 ; ii) the second is assumed to be equal to the benefit due to the CO 2 avoided by burningbiological wastes, excluding plastic and other petrol by-products 75 , in order to generate electricity and heat.73The unskilled labour conversion factor is calculated on the basis of the shadow wage, as follows: SW = FW (1-u) (1-t), were SW is the shadowwage, FW in the wage assumed in the financial analysis, u is local (regional) unemployment rate and t is the rate of the social security and relevanttaxes. In the case study, set u=12% and t=32%, the CF= (SW/FW) is equal to 0.60.74Alternatively, this benefit could be directly quantified by means of the morbidity avoided, subtracting from this the revenue (corrected by theown CF) deriving from the waste collecting and treatment fares or by means of the land consumption for an alternative waste disposal in landfillavoided.75Because the plastic and other recyclable wastes are selected and recovered in the plant, the burnt plastic fraction is low (not more than 25%).159