Frameworks for the economic appraisal of environmental projects

The chapter presents theoretical and practical considerations that are integral to the development of a methodological framework intended for the appraisal of environmental projects. After a succinct presentation of the welfare economic foundation of the standard cost–benefit analysis (CBA), the chapter examines in detail how the accounting (measurement) of costs, benefits, and discount factors varies between private and public (social) projects. It is evident that environmental projects contributing to long-term economic and social improvement are very sensitive to the full accounting of external costs and benefits; the choice of discount rate; and the nature of the flow of benefits and costs over the life time of the project. The chapter also explores alternative methods for the appraisal of environmental projects that can either supplement or, under certain circumstances, replace conventional cost–benefit analysis. These methods include the precautionary principle, environmental impact analysis, environmental risk assessment and risk management, as well as Rawlsian ethics and environmental justice. At the end of the chapter it is clear that the appraisal of environmental projects is both a science and an art, and mastering the latter is the real challenge.