Economic evaluation of environmental impacts: Design of a cost benefit analysis of the lower guayas flood control project, equador

Summary

The linkage between ecology and economics can be made by describing our physical surroundings as possessing environmental functions. As soon as the uses of these functions compete with each other, the environment has an economic aspect. The main conflict boils down to using environmental functions, such as the functions of mangroves, in an unsustainable way by maximising production in the short run, on the one hand, and using functions sustainably in order to benefit from them in the long run, on the other.

The intensity of preferences for the future availability of functions cannot be established. From this it follows that the level of the discount rate, when calculating long-term environmental effects, can also not be set. Using the market interest as the discount rate for calculating the present value of long-term environmental costs and benefits means that the preferences for sustainable use of the environment amount to zero, for in that case the present value of a dollar earned 100 years from now is practically nil. This is a strong supposition, the correctness of which cannot be proven. Unfortunately most cost-benefit analyses, such as those of the World Bank, are based on this supposition.