Impact prediction, evaluation and mitigation - Introduction to Environmental Impact Assessment - page 148

(DoE 1991). The multi-criteria/ multi-attribute methods involve scoring and weighting
systems that are also not problem-free. The various approaches are now outlined. In
practice, there are many hybrid variations between these two main categories, and these
are referred to in both categories.
5.3.2 Cost — benefit analysis and monetary valuation techniques
Cost—benefit analysis itself lies in a range of project and plan appraisal methods that
seek to apply monetary values to costs and benefits (Lichfield et al. 1975). At one
extreme are partial approaches, such as financial—appraisal, cost—minimization and
cost-effectiveness methods, which consider only a subsection of the relevant population
or only a subsection of the full range of consequences of a plan or project. Financial
appraisal is limited to a narrow concern, usually of the developer, with the stream of
financial costs and returns associated with an investment. Cost effectiveness involves
selecting an option that achieves a goal at least cost (for example, devising a least—cost
approach to produce coastal bathing waters that meet the CEC Blue Flag criteria). The
cost-effectiveness approach is more problematic where there are a number of goals and
where some actions achieve certain goals more fully than others (Winpenny 1991).
Cost-benefit analysis is more comprehensive in scope. It takes a long view of projects
(farther as well as nearer future) and a wide view (in the sense of allowing for side
effects). It is based in welfare economics and seeks to include all the relevant costs and
benefits to evaluate the net social benefit of a project. It was used extensively in the UK
in the 1960s and early 1970s for public sector projects, the most famous being the third
London Airport (HMSO 1971). The methodology of CBA has several stages: project
definition, the identification and enumeration of costs and benefits, the evaluation of
costs and benefits, and the discounting and presentation of results. Several of the stages
are similar to those in EIA. The basic evaluation principle is to measure in monetary
terms where possible—as money is the common measure of value and monetary values
are best understood by the community and decision-makers—and then reduce all costs
and benefits to the same capital or annual basis. Future annual flows of costs and benefits
are usually discounted to a net present value (Table 5.6). A range of interest rates may be
used to show the sensitivity of the analysis to changes. If the net social benefit minus cost
is positive, then there may be a presumption in favour of a project. However, the final
outcome may not always be that clear. The presentation of results should distinguish
between tangible and intangible costs and benefits, as relevant, allowing the decision-
maker to consider the trade-offs involved in the choice of an option.
Cost-benefit analysis has excited both advocates (e.g. Dasgupta & Pearce 1978,
Pearce 1989, Pearce et al. 1989) and opponents (e.g. Bowers 1990). It does have many
problems, including identifying, enumerating and monetizing intangibles. Many
environmental impacts fall into the intangible category, for example the loss of a rare
species, the urbanization of a rural landscape and the saving of a human life. The
incompatibility of monetary and non-monetary units makes decision-making problematic
(Bateman 1991). Another problem is the choice of discount rate: for example, should a
very low rate be used to prevent the rapid erosion of future costs and benefits in the
analysis? This choice of rate has profound implications for the evaluation of resources for
future generations. There is also the underlying and fundamental problem of the use of