Chapter 5: Cost–benefit analysis: identification of costs and benefits
The primary objective of environmental regulation is to prevent or minimize the degradation of the environment and the harmful effects that may have on human health and well-being. The accomplishment of this objective (representing the benefits of environmental regulation) does not come at no cost (there is no such thing as a free lunch). The costs associated with environmental regulation are borne by the government, the business sector and consumers: the government incurs the cost of devising, implementing and monitoring regulatory measures; business firms bear the cost of compliance and any possible adverse effect on the economy; and consumers bear the cost of higher prices of some goods and the removal of others from the market (those that are not environmentally friendly). The challenge, therefore, is to determine the best way to protect human health, safety and the environment while minimizing the explicit and implicit costs incurred in the process of devising, implementing and monitoring compliance with regulation. Cost–benefit analysis (CBA), sometimes called benefit–cost analysis, is an analytical tool that can be used to assess the benefits and costs of public projects, including regulatory proposals. It is a systematic process for calculating and comparing the benefits and costs of a project, decision or government policy. Costs and benefits are examined from the perspective of the community as a whole (hence the distinction between private and social costs and benefits) to help identify the project with the highest net benefit.
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