Integration of environmental concerns into economic analyses of projects and policies in an operational context

Abstract

The efficient use of natural resources (both mineral and biological), as well as man-made capital and human resources, is a vital prerequisite for economic and social development. One key role of ecological economics is to help value environmental and natural resources more precisely, and internalize the cost and benefits of using such resources into the decision-making process. This paper reviews current economic approaches to the analysis of projects and policies and discusses possibilities for better intergrating environmental concerns into public decision-making. It reviews current practices as they relate to project analysis, the analysis of economic policies, and national income accounting. A major need at present is not for more theory or techniques, but for application of existing methodology and approaches to concrete problems, particularly in developing countries. The major objective should not be to provide fine-turned numbers, but to indicate orders of magnitude. Some project and policy alternatives can be ruled out in this fashion. Also, one can often identify the key estimates to which the decision is sensitive and focus more refined analyses on them. Cost-benefit analysis should be used to the extent possible. Alongside, one needs to consider and, to the extent possible, rigorously analyze consequences and risks that cannot be measured in monetary terms and use, for example, multi-criteria analysis where possible. This, together with sound judgement, are at present the best inputs into decision-making.