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Cost benefit analysis (environmental impact assessment)

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environmental impact assessment

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Cost benefit analysis (environmental impact assessment)

  1. 1. PONNADA PUSPALATHA Assistant Professor ADITYA INSTITUTE OF TECHNOLOGY AND MANAGEMENT(AUTONOMOUS) Tekkali, Srikakulam.
  2. 2. Introduction  Cost-benefit analysis is a set of practical procedures for guiding public expenditure decisions.
  3. 3.  We want our environment to be clean and safe.  But ‘how much’ clean and safe ?  How to measure environmental benefits and costs ?
  4. 4. Total Cost Total Benefit Maximum Net Benefit Q1 Q * Q0 Q2 Most Efficient Resource Distribution • Our aim is to attain the ‘most efficient’ resource distribution. •We will select the option with the ‘maximum’ net benefit
  5. 5.  Project cost = cost of resources + cost imposed on third parties  Include only incremental costs  Do not include – interest payments, depreciation Project costs
  6. 6. Project benefits  Use and Non-use values  Use values = all use benefits to man  Non-use values = Direct or Indirect use benefits + option values + existence values
  7. 7. Environmental values Environmental Values Use Values Direct Use Values (Timber, Food, Recreation) Indirect Use Values ( Nutrient Recycling) Non-use Values Optional Use Values (Gene pool) Bequest Values (Conservation Rainforests) Existence values (Conservation of Tiger)
  8. 8. Secondary benefits  Result from primary benefits of the project  e.g. project > higher wages to employees > higher expenditure > improve quality of life  Not included in CBA  Viewed as transfer between communities rather than net addition to community income
  9. 9. Option values  Risk is attached to all decisions  Uncertainty about demand and supply in future  Pay more to insure demand or supply  Option value = value that an individual is willing to pay in excess to expected use value to preserve an asset
  10. 10. Uncertainty continued …. Project A Project B ENPV $ 1.5 M P = 1 P = 0.5 P = 0.5 $ 5 M $ - 1 M $ 2 M $ 2.5 M $ 1.5 M $ - 0.5 M //
  11. 11. Steps in CBA • Role:1 • Environmental components (i) for presenting various option (ii) Selecting among them • Role: 2 (i) Environmental mitigation measures converted into costs (ii) Management plans are useful Living organisms Air Water Soil i.e, environmental impacts (of a project) are accounted
  12. 12.  Role 3: Economic assesment of the environmental impacts of a project.  Drawbacks:  1. Impacts are to be: Transformed and stated in clear monetary terms  2. Not useful for small scale development projects.  3. Not possible to find economic value on environmental losses or gains that resulted from a development project. Not always possible Intangibles like health – Related impacts of industrial developments
  13. 13.  Site evaluation together with Major design options:  Within (i) economic limitations  Ii) technical limitations  That give LEAST ECONOMIC COST to the community
  14. 14. Thank You !
  15. 15. AGSIP 13 – Resource Economics Question X: Options A, B and C. Please choose the option you prefer most by ticking ONE box. Fifteen-year effects How much I pay each year Healthy vegetation left in floodplains Kilometres of waterways in good health Protection of Aboriginal Cultural sites Unallocated water I would choose Option A $0 20% 1500 25% 0% Option B $20 30% 1800 35% 5% Option C $50 40% 2100 45% 10% Choice Modelling Valuation Technique – example choice set

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