How do you use environmental economics to make better project decisions?

1 Identify the environmental issues

The first step is to identify the environmental issues that are relevant to your project and the stakeholders who are affected by them. For example, if your project involves building a dam, you need to consider how it will affect the water quality, the biodiversity, the flood risk, the recreation, and the livelihoods of the downstream communities. You also need to identify who are the beneficiaries and who are the losers of the project, and how they value the environmental changes.

2 Value the environmental benefits and costs

The second step is to estimate the monetary value of the environmental benefits and costs of your project and its alternatives. This is not always easy, as some environmental goods and services do not have a market price, such as clean air, scenic views, or cultural heritage. However, there are various methods to elicit people's preferences and willingness to pay for these non-market values, such as surveys, experiments, or observations. By valuing the environmental benefits and costs, you can compare them with the financial benefits and costs, and calculate the net present value (NPV) or the benefit-cost ratio (BCR) of your project and its alternatives.

3 Compare the alternatives

The third step is to compare the alternatives based on their NPVs or BCRs, and choose the one that maximizes the social welfare. However, you also need to consider other factors, such as the distributional effects, the uncertainty, the risk, and the sustainability of the alternatives. For example, you may want to apply a discount rate that reflects the social time preference and the intergenerational equity, or a sensitivity analysis that accounts for the variability and the reliability of the data. You may also want to use a multicriteria analysis that weights the different dimensions of the alternatives according to their importance.

4 Communicate the results

The fourth step is to communicate the results of your environmental economic analysis to your clients and other stakeholders in a clear and transparent way. You need to explain the assumptions, the methods, the data sources, and the limitations of your analysis, and present the results in a concise and understandable format, such as tables, graphs, or maps. You also need to highlight the main findings, the implications, and the recommendations of your analysis, and address any questions or concerns that may arise from your audience.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?