Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

ANNEX FEVALUATION OF HEALTH &ENVIRONMENTAL IMPACTSWhy do we value the environment?The economic evaluation of the environment helps decision-makers to integrate into the decision-making processthe value of environmental services provided by ecosystems. Direct and external environmental effects are expressedin monetary term 119 in order to integrate them into the calculation of homogenous aggregate CBA indicators of netbenefits.When face with strong uncertainty and irreversibility in the future availability of the environmental resources or forethical reasons, other evaluation methods can be applied, such as Environmental Impact Assessments, multi-criteriaanalyses or public referenda. These methods avoid the need to express all the environmental impacts and individuals’preferences in a single numeraire, but are often less consistent and open to manipulation of the information.Evaluating environmental impacts in investment projectsMost public infrastructure projects have negative or positive impacts on the local and global environment. Typicalenvironmental impacts are associated with local air quality, climate change, water quality, soil and groundwaterquality, biodiversity and landscape degradation, technological and natural risks. A decrease or increase in the qualityor the quantity of environmental goods and services will produce some changes, gains or losses in social benefitsassociated with their consumption.For example, a road infrastructure will be expected to reduce the availability of useful rural land, will change rurallandscape, will increase pressures on biodiversity and negatively affect air quality due to increased traffic flows. Eachof these impacts will reduce the provision of environmental services by the ecosystems and will lower economicbenefits. In contrast, investments in waste treatment facilities will decrease environmental negative impacts on soiland water and will increase economic benefits related to the provision of high quality environmental services toeconomic agents (consumers and producers).Not taking into account environmental impacts will result in an over- or underestimation of the social benefits of theproject and will lead to bad economic decisions.119A direct effect can be observed on markets (through the variation of price and quantity) or in the decision-making process, while externaleffects arise when the economic behaviour of an individual (or a firm) affects the behaviour of another (individual or firm), without any economiccompensation or transaction from the former to the latter. In economics, pollution or resource depletions are often analysed with the help of theexternality concept.220