Environment Directorate


Cost-Benefit Analysis and the Environment

Further Developments and Policy Use

This book explores recent developments in environmental cost-benefit analysis (CBA). This is defined as the application of CBA to projects or policies that have the deliberate aim of environmental improvement or are actions that affect, in some way, the natural environment as an indirect consequence. It builds on the previous OECD book by David Pearce et al. (2006), which took as its starting point that a number of developments in CBA, taken together, altered the way in which many economists would argue CBA should be carried out and that this was particularly so in the context of policies and projects with significant environmental impacts. It is a primary objective of the current book not only to assess more recent advances in CBA theory but also to identify how specific developments illustrate key thematic narratives with implications for practical use of environmental CBA in policy formulation and appraisal of investment projects. Perhaps the most significant development is the contribution of climate economics in its response to the challenge of appraising policy actions to mitigate (or adapt to) climate change. Work in this area has increased the focus on how to value costs and benefits that occur far into the future, particularly by showing how conventional procedures for establishing the social discount rate become highly problematic in this intergenerational context and what new approaches might be needed. The contribution of climate economics has also entailed thinking further about uncertainty in CBA, especially where uncertain outcomes might be associated with large (and adverse) impacts.

Published on June 25, 2018Also available in: French


Abbreviations and acronyms
Executive summary
Overview of main issues
Environmental cost-benefit analysis: Foundations, stages and evolving issues
Methods of environmental valuation5 chapters available
Revealed preference methods
Contingent valuation method
Discrete choice experiments
Value transfer
Subjective well-being valuation
Core elements of cost-benefit analysis4 chapters available
Quasi-option value
Distribution and cost-benefit analysis
Selected issues in environmental cost-benefit analysis4 chapters available
Sustainability and natural capital
Ecosystem services and biodiversity
The social cost of carbon
Health valuation
Cost-benefit analysis in practice3 chapters available
Current use of cost-benefit analysis
Political economy of cost-benefit analysis
CBA and other decision-making approaches
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