The document discusses economic analysis in environmental impact assessments. It explains that the natural environment provides economic inputs and that environmental impacts can increase or decrease economic costs and benefits. It describes how economic analysis in EIAs evaluates the economic costs and benefits of environmental impacts by monetizing positive and negative on-site, off-site, short-term and long-term impacts on social welfare. The analysis follows steps to define the problem, identify physical impacts, assign economic values, estimate monetary costs and benefits, compare alternatives, and incorporate results into investment or policy decisions.

1. ECONOMIC ANALYSIS IN
ENVIRONMENTAL IMPACT
ASSESSMENT (EIA)
Nic D. Briones
SESAM-UPLB

2. Economy-Environment Linkage
The natural resource environment:
• Provides inputs to economic system, as
factors of production (e.g., land and raw
materials) .

3. Economy-Environment Linkage
• Adverse impacts on the environment
can increase economic costs that impair
development.
• Positive impacts on the environment
can increase economic benefits for the
community.
Economy-Environment Linkage

4. ECONOMIC COSTS AND
BENEFITS
• Economic costs and benefits are
changes in the welfare of individuals.
• Economic costs are defined as a
decrease in well-being whereas
economic benefits are an increase in
well-being.

5. ECONOMIC COSTS AND
BENEFITS
• In economics, costs and benefits are
directly linked.
• We can not use or consume
something, and receive benefit,
without giving up something, or
experiencing costs.

6. • As long as the benefits of improving
the environment are greater than the
costs needed to do the improvement,
then social welfare is increased.
Or the project would be socially desirable
from an economic perspective if benefits
are greater than the costs.
ECONOMIC COSTS AND
BENEFITS

7. Extended BCA:
Includes environmental benefits and
costs.
BENEFIT-COST ANALYSIS (BCA)

8. WHICH IMPACTS SHOULD BE
CONSIDERED IN ECONOMIC ANALYSIS?
 Positive and Negative
 On-Site and Off-Site
 Physical, Socioeconomic and
Psychological
 Near-Term and Long-Term
 Internal and External
Extended BCA

9. ECONOMICALLY RELEVANT IMPACTS:
 Positive Impacts - Benefits - those
that add to social welfare
 Negative Impacts - Costs - those that
reduce social welfare
 Ignore impacts that do not use up
real resources, e.g. transfer
payments, taxes, etc.
Extended BCA

10. PHYSICAL QUANTIFICATION OF RELEVANT
IMPACTS:
 Physical amounts of cost and benefit
flows
 Identify time of occurrence
 Environmental impact analysis
 Risk/uncertainty analysis
Extended BCA

11. Steps to Carrying Out Economic
Analysis in EIA
Step 1: Define the problem/ objective.
Step 2: Define analysis
Step 3: Identify ecological functions of
the project impacts
Step 4: Identify and prioritize physical
impacts (with and without
project)

12. Steps to Carrying Out Economic
Analysis in EIA
Step 5: Identify economic values
associated with physical impacts
Step 6: Rank costs and benefits for
valuation and identify
information requirements

13. Steps to Carrying Out Economic
Analysis in EIA
Step 7: Estimate environmental costs
and benefits in monetary terms
Step 8: Pool environmental and
conventional costs and benefits

14. Steps to Carrying Out Economic
Analysis in EIA
Step 9: Review all project costs and
benefits to check assumptions
are consistent
Step 10: Aggregate all costs and benefits
on annual basis
Step 11: Discount future costs and
benefits

15. Steps to Carrying Out Economic
Analysis in EIA
Step 12: Establish decision area
Step 13: Compare alternative scenarios
using chosen decision criteria
Step 14: Identify variables with high
uncertainty

16. Steps to Carrying Out Economic
Analysis in EIA
Step 16: Incorporate distributional
considerations
Step 17: State omissions, biases and
uncertainties
Step 18: Incorporate results into
project/policy analysis
Step 19: Draw investments or policy
conclusions