Cost and Benefits of Environmental Action

Aug31 2009 // By: RESCUE GREEN // Categories: Sustainability, Economics and Finance No Comments

In most situations, businesses, individuals, and families weigh the costs and benefits associated with certain actions, projects, and investments, in order to choose the best possible solution. Hence, the name Cost-Benefit Analysis or CBA. This seems like a practical and logical way to make decisions, however when considering environmental action several issues arise.

Governments use CBA to monetarily evaluate the costs/benefits of intervention and the merits of taking action. How then is this applied to environmental intervention/policy, and can the CBA measurement be used? The answer is that CBA is problematic in its application to the environment. Measuring the costs/benefits of environmental intervention strategies can not be calculated solely on monetary terms. There are several services that the environment provides, free of charge. Improved environmental policy would allow for more conservation of water and natural resources, energy efficiency standards, and air pollution regulations to name a few. On the other hand, the costs of environmental policies could result in higher costs for consumers, higher taxes (carbon use), and potentially the downfall of some industries.

Either way, environmental policy would affect different sectors in different ways, what policy makers and businesses must do is evaluate the long-term costs and benefits not just the short-term.

Furthermore, when using CBA governments and policymakers are required to place a value on life, on animal welfare, and on future generations. This becomes a very complex and ethical issue. Additionally, governments might use market rates to show whether addressing environmental issues now or later will be less costly. The problem here is that investing money to address the issue later denies carrying for the environment in the present. Alternatively, by spending the money today on environmental protection, governments could save lives and prevent further damage to the environment.

The short-sided view of politicians is also problematic. With set terms many politicians are looking for a “quick fix” solution to environmental problems to boost re-election prospects. However, the time-scale of environmental harms take much longer to develop, and require long-term solutions. Therefore, weighing the costs/benefits today jeopardizes future generations and makes it difficult for the government to respond to the full spectrum of environmental risks. Especially since some areas of society are more sensitive to environmental issues than others therefore their costs/benefits differ substantially.

It is important that policy makers use proper analyses to determine environmental policy and weigh several factors, not just those that will affect our pocketbook today, but our future outcomes as well.