Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

Table 2.17 Simple multi-criteria analysis for two projectsProject AProject BScores* Weight Impact Scores* Weight ImpactEquity 2 0.6 1.2 4 0.6 2.4Equal opportunity 1 0.2 0.2 1 0.2 0.2Environmental protection 4 0.2 0.8 2 0.2 0.4Total 2.2: moderate impact 3.0: relevant impact* 0: zero impact; 1: scarce impact; 2: moderate impact; 3: relevant impact; 4: very high impact2.7.3 Economic impact analysisAs regards major projects, Article 40(e) 1083/2006 EU Regulations requires Member States or managingauthority to provide the Commission with a cost-benefit analysis, including ‘the foreseeable impact on the sectorconcerned and on the socio-economic situation of the Member State and/or the region and, when possible and whenappropriate, of other regions of the Community.’’The discussion of the socio-economic context, as in section 2.1.1 will usually deal at least qualitatively withsome project impacts at national, regional or sector level, but CBA is intrinsically a micro-economicapproach. The overall social impact is captured by the ENPV and this would be a sufficient statistic ofwelfare changes. When mega-projects (very large projects relative to the economy) are considered, they arelikely to have a macroeconomic impact (technically they are going to change the shadow prices becausethey are non-marginal). In such (infrequent) cases, an economic impact assessment may be carried out as acomplement to CBA.Economic impact analysis is a tool to assess the impact of a given intervention or programme on its socioeconomicenvironment. This kind of analysis focuses on macroeconomic indicators and forecasts theinfluence of the project on these indicators. The results of economic impact analysis often determinewhether public support should be provided on the grounds of economic benefits to a given area.The results should be helpful at:- sector level, in identifying critical areas and defining policy actions;- the macroeconomic level, in defining relative contributions.For example, the method can be used to assess the wider economic impacts of a facility or anevent/attraction on a target locality. In the context of the Structural Funds, the social, economic andenvironmental impacts of an intervention are all interlinked. The various types of impact assessment maytherefore need to be combined in an integrated impact assessment, the nature of which will vary accordingto the type of intervention, and the aims of cost-effectiveness of the overall impact assessment package.Rather than an alternative to CBA, economic impact analysis is therefore recommended as acomplementary tool, at least to the extent that economic impact analysis provides additional information,not deliverable by CBA, on the macro effects of project implementation (e.g. impact on regional trade,impact on GDP growth, etc.).EXAMPLE: ECONOMIC IMPACT ANALYSIS FOR PROJECTS BELONGING TO THE TEN-T AXISRecent evidence shows the use of Economic Impact Analysis for major transport projects, as, for example, the Oersund Fixedlink, operative since 2000 and connecting Denmark (Copenhagen) with Sweden (Malmoe).Beyond a CBA, the economic impact of the link was evaluated, as it was built with the objective of strengthening the economicand cultural ties between Denmark and Sweden. In particular, before project implementation, the Oeresundsbro Konsortiet (theproject operator) defined and evaluated the possible impacts of the link at regional level as follows:- creation of a balance between the relatively high level of unemployment in Skane (Sweden) and the acute demand for labourin Denmark (especially Copenhagen);- relief of the overheated housing market in the Copenhagen area whereas housing in Skane is more reasonably priced andcapacities are available;- creation of a domestic market comprising 3.6 million consumers and 220,000 Danish and Swedish companies.Source: EVATREN67