Abstract
The cost-benefit efficiency of projects is often wrongly evaluated due to the neglect of projects’ impact on the environment. In this paper, we aim to establish a model to measure such an impact and hence propose a more reasonable approach to evaluating cost-benefit efficiency of projects. We divide the total cost of a certain project into two parts: Business Cost (BC) and Environmental Cost (EC). BC is the explicit cost that can be approached from financial statements, while EC is the implicit cost which we try to quantify. EC is composed of three parts: (1) the Ecosystem Service Value (ESV), (2) the Restoration Cost (RC) to treat the pollution caused by the projects, and (3) the Disaster Cost (DC), potential losses caused by disasters due to launch of new projects. In order to make a cost-benefit efficiency analysis, we introduce profitability index, which is further developed into an adjusted profitability index by taking time value into consideration. Two case studies are conducted to evaluate the effectiveness of the model. A regional case of a coal-mining project proves that RC and DC play a significant role in cost-benefit efficiency analysis, while a nationwide case of high-speed rail shows that project scale matters. Additionally, we put our attention on the intensity of the project, which is a created measurement to characterize the project. Based on the study of intensity, the mechanism of cost-benefit break-even is further explained and some suggestions are proposed to policy makers.
Highlights
In developing countries such as China and India, infrastructure construction is in full swing with the acceleration of modernization
This paper proposes that the Environmental Cost (EC) of land consists of three parts: Ecosystem Service Value (ESV), Restoration Cost (RC), and Disaster Cost (DC): EC ESV + RC + DC
If the land was not used for the project, it could have provided people with natural resources that could be converted into money. e Restoration Cost (RC) represents the money to treat the pollution caused by the project. e Disaster Cost (DC) represents the potential financial losses caused by disasters that may happen due to the project
Summary
In developing countries such as China and India, infrastructure construction is in full swing with the acceleration of modernization. Erefore, finding a way to quantify environmental cost is crucial to maintain a sustainable society and provide a promising future for the generations. Is indicator refers to the area of a productive land needed to sustain a certain amount of population within a country or region. This concept was designed to quantify the sustainability of a specific land and focused more on the human’s influence on environment. Based on this theory, researchers proposed a method called ecosystem service footprint (ESF), which can help us measure various services and products provided by a certain region
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