European Practice and Experience
Evaluating Sustainable Development series
Edited by Clive George and Colin Kirkpatrick
Chapter 11: Assessing the Cost-Effectiveness of Environmental Policies in Europe
11. Assessing the cost-eﬀectiveness of environmental policies in Europe Benjamin Görlach, Eduard Interwies, Jodi Newcombe and Helen Johns I. INTRODUCTION1 Economic analysis for policy appraisal is generally interested in answering two questions, ‘is a given policy objective worth achieving?’ and ‘if so, has the policy objective been achieved in the most cost-eﬀective way?’. While the ﬁrst question is addressed in a cost-beneﬁt analysis (CBA), the second question can be answered with the help of a cost-eﬀectiveness analysis (CEA). Cost-beneﬁt analysis (CBA) is carried out in order to compare the economic eﬃciency implications of alternative actions. The beneﬁts from an action are contrasted with the associated costs (including the opportunity costs) within a common analytical framework. To allow comparison of these costs and beneﬁts related to a wide range of scarce productive resources, measured in widely diﬀering units, a common numeraire is employed: money. This is where most problems usually start for economic policy or project appraisal since some resources, especially environmental resources are diﬃcult to evaluate in money terms. Many of the goods and services provided by ecosystems, such as amenity, clean air, and biodiversity sustenance, are not traded on a market, hence, no market price is available which reﬂects their economic value. Such prices need to be estimated instead through the use of valuation studies, for example eliciting people’s willingness to pay for a particular environmental good. By comparing costs and beneﬁts in monetary...
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