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

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Table 1. Criteria defining a sound method of impact assessment

Criterion	Description	References
Suitability to Context	Method is appropriate to the role, types of data, impacts, information sought, and other characteristics of the analytical context.	1, 4, 7, 9, 12, 13, 15, 16, 19, 21, 22
Flexibility	Method performs well under changing circumstances.	1, 4, 7, 21
Scientific Robustness	Method’s steps are sensible, and method is logical, sensitive to inputs, produces consistent results with same inputs, produces results that compare well with results of other methods designed to answer similar questions, is not internally biased, and produces results that are consistent with theory.	1, 3, 4, 6, 7, 12, 15, 19, 20, 22
Minimal Subjectivity	Method requires few subjective inputs.	4, 7, 15, 17
Ease of Comprehension	Method is easily evaluated by potential users for applicability, and method’s underlying theory, key assumptions, and results are easy to understand. Method is easy to use, and it is easy to see how method works.	1, 3, 4, 7, 8, 12, 16, 21
Usefulness of Outputs	Outputs address questions being asked, facilitate understanding of the meaning of the project’s impacts, and are expressed in familiar and verifiable terms.	1, 2, 3, 4, 5, 7, 12, 14, 15, 21
Cost	Method is not costly and has low time, data, and personnel requirements.	3, 4, 10, 12, 21, 22
Validity	Method is widely viewed as appropriate and is compatible with external conditions and existing institutions.	3, 4, 6, 12, 13
Participative Qualities	Method is participatory and democratic in nature or can be adapted for participation.	3, 9, 11, 18, 21, 22

References: 1: Chicken (1994), 2: Diez (2001), 3: Green (1997), 4: Gunton and Vertinsky (1990), 5: Gunton et al. (2004), 6: Hanley and Spash (1993), 7: Hochschorner and Finnveden (2003), 8: Hollick (1981), 9: ICPGSIA (2003), 10: Kok et al. (2006), 11: Laird (1993), 12: McAllister (1982), 13: Nash et al. (1975), 14: Noble (2014), 15: Park et al. (2006), 16: Rosenhead (2005), 17: Sadar (1996), 18: Samset (2003), 19: Soumelis (1977), 20: Tiruta-Barna et al. (2007), 21: Warner and Preston (1974), 22: Wood (2003).

Table 2. Economic impacts of the Enbridge Northern Gateway pipeline project from the alternative perspectives of CBA and EconIA.^1.

Impact Category	CBA^2	EconIA^3,4
Project benefits	Net social cost of $2.5 billion (base case) based on net of project benefits and costs.	$311.5 billion in GDP ‘benefits’ plus employment and government ‘benefits’ (see below)
Employment	No incremental employment or labour income benefits due to opportunity costs of labour (base case).	$69.9 billion in labour income and 907,069 person-years of employment across Canada
Environmental impacts	$1.4 billion (base case) in air pollution, greenhouse gas, ecosystem service costs, passive use damages, and other unmonetized impacts.	n.p.
Government	$0.4 billion (base case) in royalties and taxes.	$98.3 billion in royalty and tax benefits
Other	Various unmonetized ‘sociocultural’ impacts including conflict and opposition, loss of subsistence use, and psychological stress	n.p.
Sensitivity analysis	Net social costs ranging from $7.4 billion to $0.7 billion.	No sensitivity analysis.

Notes: 1. 2012 Canadian dollars. 2. Net present value. 3. ‘n.p.’ means not provided as outside of scope of EconIA. 4. Undiscounted. Source: Broadbent (2014).

Table 3. Summary of evaluation of CBA and EconIA

Evaluation Criterion	CBA	EconIA
Suitability to Context	focused on net impacts capable of assessing many types of impacts and providing perspective on project rationale, distribution, sustainability, significance, public interest, and justification monetization of non-market impacts is challenging incapable of addressing non-utilitarian values capabilities to address risk, but results may conflict with precautionary principle	incapable of assessing net impacts scope limited to subset of economic impacts incapable of addressing non-utilitarian values little capacity to assess project rationale, distribution, sustainability, significance, public interest, or risk
Flexibility	multiple techniques and forms that can be used to address multiple analytical contexts	single form
Scientific Robustness	longstanding and perhaps greatest theoretical basis of any method of impact assessment critiques of WTP, the basis of valuation in CBA problems in discounting, but the only method concerned with time-value Kaldor–Hicks criterion ignores whether compensation actually occurs	long history of methodological development problematic assumptions, such as no constraints on project inputs
Minimal Subjectivity	both entail subjective judgments creating space for bias
Ease of Comprehension	both easy to understand on surface but a black box beyond this
Usefulness of Outputs	rare abilities to aggregate all impact data and evaluate a project as a whole, assess significance in quantitative terms, and offer a decision recommendation, though aggregation criticized despite fact that aggregation inevitable makes value judgments explicit informs of distribution of impacts, also unique ability to inform of economic efficiency standard CBA outputs not what decision-makers are typically interested in results can vary substantially depending on uncertain input parameters, like all quantitative methods	outputs are in terms useful to decision-makers provides some distribution information results would vary substantially depending on uncertain input parameters, like all quantitative methods, but uncertainty rarely explored
Cost	not inexpensive	relatively inexpensive
Validity with Stakeholders	CBA viewed as essential by some, rejected or viewed negatively by others governments mandate it in some contexts, ignore it in others	well accepted and widely used around the world
Participative Qualities	based upon values of all individuals that are given standing, but is typically carried out technocratically divorced from stakeholders participative forms of CBA are emerging	no participative qualities

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