engleski

Impact of environmental costs and benefits on project economics

Economics of a project depends on the ratio between the project output and input into the project. The output of the project should include also benefits and costs of the project impact on the environment. In this sense it is important to reduce as far as possible the adverse environmental impacts of the projects. Environmental impact assessment (EIA) is a primary tool for achieving this objective, by inserting critical environmental information into the process of project assessment and preparation. Economic analysis, by comparison, is employed to determine if the overall economic benefits of a proposed project exceed its costs, and to help design the project in a way that produces a solid economic rate of return. Adverse environmental impacts are part of the costs of a project, and positive environmental impacts are part of its benefits. Consideration of environmental impacts, therefore, should be integrated with the other aspects of the project in the economic analysis to the extent possible. EIA is an information-gathering and analytical process that helps avoid environmentally unsound development. It focuses on environmental externalities: unintended adverse effects of development projects on the environment. The impacts identified in the EIA process have not often been converted into monetary terms, however. A major reason behind the generally weak link between EIA and economic analysis has been the lack of useful guidance on converting physical impacts into monetary terms. The paper describes some useful methods that can be applied for this purpose. These methods can be divided into direct and indirect methods. The paper describes the process of incorporating environmental impacts identified in the EA into the project analysis as a two-step process. It also explains the problem of temporal and spatial boundaries, i.e. the problem of measuring the impacts of environmental changes in the future and beyond the boundaries of the project itself.

Environmental impact assessment; cost benefit analysis; indirect methods; project economics

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