Reducing the excess nutrient and sediment pollution that is damaging habitat and diminishing recreational experiences in coastal estuaries requires actions by people and communities that are within the boundaries of the watershed but may be far from the resource itself, thus complicating efforts to understand tradeoffs associated with pollution control measures. Such is the case with the Chesapeake Bay, one of the most iconic water resources in the United States. All seven states containing part of the Chesapeake Bay Watershed were required under the Clean Water Act to submit detailed plans to achieve nutrient and sediment pollution reductions. The implementation plans provide information on the location and type of management practices making it possible to project not only water quality improvements in the Chesapeake Bay but also improvements in freshwater lakes throughout the watershed, which provide important ancillary benefits to people bearing the cost of reducing pollution to the Bay but unlikely to benefit directly. This paper reports the results of a benefits study that links the forecasted water quality improvements to ecological endpoints and administers a stated preference survey to estimate use and nonuse value for aesthetic and ecological improvements in the Chesapeake Bay and watershed lakes. Our results show that ancillary benefits and nonuse values account for a substantial proportion of total willingness to pay and would have a significant impact on the net benefits of pollution reduction programs.

This paper demonstrates a new connection between benefit-cost analysis (BCA) and the national income and product accounts. The article computes an augmented measure of output, which is defined as gross domestic product (GDP) less environmental pollution damage. Environmental policy BCA is incorporated directly into the adjusted measure of output in two ways. In a particular time period, damages from pollution emissions are deducted from market GDP in a standard with-and-without policy comparison. Second, secular changes in damages, output (GDP), and correspondingly, in the adjusted measure of output are employed to estimate augmented rates of growth. Comparison to a no-policy counterfactual then yields the effect of the policy on the augmented measure of environmentally adjusted value added (EVA) growth. The empirical results suggest that, in the 30 states that adopted flue-gas desulfurization (FGD) technology between 2005 and 2011, augmented output grew 0.12% more quickly than in a no-scrub counterfactual. Augmented output growth in four states was at least 0.20% more rapid because of the installation of scrubbers. The paper reports that benefits-per-capita from FGD were mildly progressive and that counties with relatively large African American populations incur large benefits from FGD installation.

Advances in theoretical and computable general equilibrium modeling brought their conceptual foundations more in line with standard microeconomic constructs. This reduced the theoretical gap between welfare measurements using a partial or a general equilibrium approach. However, the separation of the partial and general equilibrium literatures lingers in many applications that this manuscript seeks to bridge. The now shared conceptual foundations, the importance of functional specification, the role of common price movements and closure rules are discussed. The continuing stricture in U.S. Government guidelines against including secondary effects in welfare measures is questioned.

Although benefit-cost analysis (BCA) can be traced back to European thinkers, its first practical applications were in the United States. Recent years have witnessed a growing demand for economic appraisals of policies in different sectors in Europe, but the implementation rate is still low compared to that in the United States. This article introduces a symposium that includes four articles that present current examples of how BCA is being applied in different sectors and in different institutional settings in Europe. They deal with environmental valuation in the United Kingdom, economic analysis for investment in Sweden’s transport sector, economic versus financial returns in European Union investment project appraisal, and BCA in EU chemicals legislation. The goal is to stimulate continuing discussion on the implementation of BCA, not only in Europe but also worldwide.

This paper presents an evaluation of the use of environmental valuation – techniques to assign monetary values to environmental impacts of policies and projects, especially nonmarket impacts – in U.K. policy. In doing so, we seek to contribute to the debate, more generally, of the use and influence of benefit-cost analysis (BCA) in national policy processes such as Impact Assessment. Specifically, our contribution in this paper is two-fold. First, we identify a number of trends that have characterized U.K. policy use of environmental valuation over the past two or so decades. While this has notably involved development of “sharable values” allowing more widespread uptake, it also seems that different branches of government have developed different traditions of use adding nuance to what, on the face of it, is otherwise a shared endeavor. Second, we evaluate the extent to which the use of environmental valuation can be said to have influenced policy decisions and the degree to which this is embedded by evolving policy processes. As such, we discuss two areas of environmental policy – water quality improvements and natural capital – which have entailed either substantial use of environmental valuation either in determining specific policy and investment project options or where this has helped shape the broader policy agenda. Our evaluation is not exhaustive; nor do our findings suggest that environmental valuation and BCA are necessarily the dominant driver of decisions, as we discuss. However, in recognizing this, we argue it is also important to consider a number of established or evolving cultural and legal institutional processes which broadly appear to support our assessment of such cases.

Beginning as a planning tool within Sweden’s national road administration some 50 years ago, benefit-cost analysis (BCA) has come to be a pillar of the national transport policy because of subsequent strategic choices made by the national parliament. These choices made it necessary to widen the analysis of costs to include also externalities and a foregone conclusion was that efficient investment priorities should be made based on BCA. But no one asked whether the political decision makers or the BCA models were up to that task. This paper reviews the institutional framework and practice of BCA in Sweden for transport infrastructure investment, and considers design issues that have been and still are debated, such as whether the discount rate should include a risk term and how to account for the marginal cost of public funds. A main concern with BCA results is the underestimation of construction costs, making transport sector projects look better than they are. Several ex post analyses have established that a higher NPV ratio increases the probability of being included in the investment program proposal prepared by the agency. The requirement to let projects undergo BCA seems to make planners “trim” project proposals by trying to reduce investment costs without significantly reducing benefits. This relationship is weaker among profitable projects. Moreover, there is no correlation between rate of return and the probability of being included in the final program, which is established on political grounds.

This paper investigates the role of cost-benefit analysis (CBA) in the context of the European Union (EU) Cohesion Policy. After presenting the EU policy framework and the CBA guidelines adopted by the European Commission, we perform an empirical analysis drawing from a dataset of around 1000 major project applications, submitted during the period 2007–2013 by 22 European countries, and representing almost €180 billion of investment. A distinctive feature of the current CBA approach adopted by the European Commission is that applications for funding must provide a forecast of both the project’s financial rate of return (FRR) and economic rate of return (ERR). While the former represents the financial profitability of the project from a private investors’ perspective, the latter reveals its socio-economic benefits for the whole society. The difference between ERR and FRR mainly depends on the use of shadow prices, the inclusion of externalities and other nonmarket effects in the estimation of ERR, whilst the FRR is based on market prices. We find that, on average, the FRR is slightly negative ($-2.9$%) and the ERR is positive (16.2%). ERR and FRR are positively correlated on average with differences across sectors. We discuss these findings and suggest further research needs.

In this paper we review the benefit-cost analyses (BCAs) made to support applications for authorisations under the EU’s REACH Regulation on hazardous chemicals. Experiences from over 100 cases suggest that there are a number of informational and methodological challenges to overcome in these BCAs. In particular, we find that many REACH applicants have had problems explaining the societal relevance of the regulatory impacts expected to affect them and other market actors. Adapting the framework for regulatory impact assessment proposed by Dudley et al. [(2017). Consumer’s Guide to Regulatory Impact Analysis: Ten Tips for Being an Informed Policymaker. Journal of Benefit-Cost Analysis, 8, 187–204], we discuss these impacts from a welfare economics perspective and make suggestions on how to improve current practices in BCA applied to chemicals risk management. From this discussion we then distill a number of topics that deserve more attention in applied BCAs under the REACH Regulation.