Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

In our example considering distributional effects, the project increased its social value by 53.21. In other situations,as in Table E.3, welfare weights may reduce the social value of the project as a consequence of regressive benefitsdistribution.Table E.3Example of weights for regressive distributional impactClasses Net benefits Elasticity 0.7 Distributional impactHigh income 150 0.8176 122.64Medium income 100 0.9289 92.89Low income 50 1.5090 75.45Total 300 290.98A final shortcut for including distribution considerations is to focus solely on the impact of the project on the mostdisadvantaged groups. In fact, an additional analysis, along with the financial and economic analyses, will focus onthe impact of the project on the welfare of specific target groups (the poor, ethnic minorities, the disabled, etc.).The simplest solution is to establish some affordability benchmarks. For example, the share of water or otheressential services expenditure should not exceed a given threshold share of income of the target group (e.g. thebottom quintile).Study on affordability shares for gas and electricity servicesIn an EC study 117 the shares of income spent on gas and electricity services in EU25 countries was shown. Theaffordability was assessed for incomes below the risk-of-poverty threshold, which corresponded to 60% of themedian national equivalised disposable income.For these low-income users between 2003 and 2005 the average share of electricity expenditure for the old MemberStates was 0.9% and for the 10 new Member States it was 1.9%. The 2005 figures for gas were 0.76% for EU15 and1.36% for new Member States.Figure E.1 Percentage of low income spent on electricity services by low-income consumersSource: DG ECFIN (2007)117DG ECFIN (2007) - Evaluation of the Performance of Network Industries Providing Services of General Economic Interest - EuropeanEconomy 1/2007217