The Role of Cost-benefit Analysis and Economic Impact Analysis in Environmental Assessment: The Case for Reform

ABSTRACT

Cost-benefit analysis and economic impact analysis both provide the ability to assess projects’ economic impacts, but through different methodological approaches and perspectives. In Canada and elsewhere, cost-benefit analysis is often eschewed in favour of economic impact analysis in environmental assessment processes. This paper presents a criteria-based evaluation of the two methods and shows that cost-benefit analysis has numerous strengths relative to economic impact analysis but that both methods are useful. Consequently, we recommend that the environmental assessment process be reformed to include cost-benefit analysis complemented by economic impact analysis to provide decision-makers with more complete information.

KEYWORDS:

• cost-benefit analysis
• economic impact analysis
• methods of impact assessment
• benefits

Acknowledgments

This manuscript was initially developed during the lead author’s PhD research, and accordingly we would like to thank Sean Markey and Kevin Hanna for helpful comments. Thanks also to anonymous referees for helpful comments.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1. We use the term ‘economic impact analysis’ to refer to the method of EconIA and the term ‘economic impact assessment’ to refer to the act of assessing economic impacts through EconIA or other methods of analysis. Likewise, we use the acronym EconIA to avoid confusion as the acronym ‘EIA’ is commonly used to refer to ‘environmental impact assessment’.

2. In 2019, the lead author contracted Canada’s national statistical agency to run their input-output model for an EconIA at a cost of only $2,100 CDN. This compares to budgets of $50,000 CDN or more for CBAs that the lead author has undertaken.

Additional information

Funding

This work was supported by the Social Sciences and Humanities Research Council of Canada [Canada Graduate Scholarship – Doctoral 2006-2009].