Economic Analysis of the Environmental Aspects of Investment Projects
By William J. Vaughan, Sergio Ardila (12/95, ENP-100, En) See also Environment and Natural Resources
This working paper is being published with the sole objective of contributing to the debate on a topic of importance to the region, and to elicit comments and suggestions from interested parties. This paper has not gone through the Department's peer review process or undergone consideration by the SDS Management Team. As such, it does not reflect the official position of the Inter-American Development Bank.
We have a long way to go before economic analysis can be used effectively to decide on the optimal degree of environmental protection in our nonenvironmental investment projects. Nevertheless, by anticipating undesirable environmental effects of projects and explicitly including measures for their prevention, control and mitigation, the Bank's environmental assessment process provides a measure of protection that heretofore was not present. The process will become mature when the national authorities can confidently apply a uniform set of environmental regulations to private and public investments, irrespective of the source of the financing, and the environmental assessment process becomes an integral component in the appraisal of major projects in our borrowing countries. The paper argues that the Environmental Assessment process would be more productive and understandable to economists if it placed more emphasis on the need to find cost-effective solutions.
The paper begins with a brief discussion of why economic analysis is important, general ways it can be used, and some limitations. Then, the dangers of misapplication of several techniques are illustrated with some real examples drawn from the IDB's experience, to emphasize why it is important to get wholly familiar and comfortable with using the methods before the results they produce can be believed. There are lots of pitfalls for the unwary. It concludes with a section on the use of economic analysis in the environmental assessment process at the IDB.
Last updated: 05/08/07
