ENVIRON IMPACT ASSESS REV 1990;10:55-68 55

COST-BENEFIT ANALYSIS AND

ENVIRONMENTAL IMPACT ASSESSMENT
T OR H U N D L O E , * G E O F F R E Y T. Mc D ON A L D , *
J OHN WA R E , * AND L E A N N E WI L KS * *
The need to marry ecology and economics is the underlying theme of a report
by the World Commission on Environmental Development. The present article
argues the case f or utilizing extended cost-benefit analysis in environmental im-
pact assessment. Environmental assessment requires that all impacts, ecologi-
cal, economic, and sociological, be integrated. Assessment should be presented
in a f orm that allows a decision maker to rapidly comprehend the net effects of
a proj ect or policy. Economic evaluation permits this. I t is essential that all
significant impacts be ultimately measured in terms of changes in utility and di-
sutility. Considerable progress has been made in extending cost-benefit analy-
sis, such that externalities, including off-site ones, can be measured and incor-
porated in a net present value or cost-benefit ratio. While the paper argues the
case f or utilizing cost-benefit analysis, it also discussed some of the important
limitations.
I n t r o d u c t i o n
This paper argues the case for utilizing extended cost-benefit analysis (CBA) as
a technique for environmental impact assessment (EIA), and discusses the ra-
tionale for such an approach. In doing so, it indicates the shortcomings in
traditional EIA practice.
*Institute of Applied Environmental Research, Division of AusWalian Environmental Studies, Griflith University,
Nathan, Brisbane, Queen~land, Australia.
**Fish Section, Bureau of Agrifultural Economics, Canberra, ACT Austrafia.
1 9 9 0 E h e v i e r S c i e n c e P u b l i s h i n g C o . , Inc.
6 5 5 A v e n u e of the Americas, N e w York, N Y I0010 0195-9255/90153.50
56 HUNDLOE, McDONALD, WARE, ANDWILKS
Environmental Impact Assessment
Definition of the "Environment"
A prerequisite for discussion of EIA theory is the definition of the term "en'i-
ronment. " Reference to the EIA literature indicates that the "environment" should
be broadly defined, so that it at least encompasses ecological, sociological, and
economic dimensions. It could be extended beyond that to include the cultural,
political, and institutional framework of a society. Reference to statutory re-
quirements in various jurisdictions also indicates a broad definition of the term,
though there are some exceptions.
EI A Theory
Both EIA theory and statutory requirements--the latter with some possible ex-
ceptions----emphasize that impacts are to be assessed in relation to ecological,
social, and economic impacts. EIA theory and legislation requiring EIAs evolved
out of concern that the normal procedures for assessment (or evaluation) of
proposals and projects were based on a less-than-comprehensive approach. The
standard assessments were financial and engineering studies. Such appraisals
were occasionally complemented with some form of traditional CBA. Practical
difficulties in measuring externalities limited the theoretically wide scope of
CBA. In some circumstances, because of either statutory or policy requirements,
a multi--objective planning (MOP) approach was applied in evaluations. MOP
took various forms, but more sophisticated studies included separate analyses
of the effects of a project in terms of economic efficiency, regional development,
environmental impacts, and social impacts. In practice environmental and social
impacts were those not readily amenable to measurement in CBA terms. "En-
vironmental" impacts usually referred to negative impacts on the natural envi-
ronment, while "social" impacts usually pertained to matters such as j ob loss
and income security, family disruption, access to institutional resources, or more
generally a loss of "belonging" or self-esteem.
The introduction of the EIA concept had major influences on project appraisal.
It defined "environmental" in the broadest possible terms, and it implied that
the various effects of a project, policy, or program could be compared and some
type of overall result could be presented to decision makers----on balance, is the
project desirable or not? The broad definition of "environment" meant that the
practice of discussing separately the various elements of a project (for example,
engineering, economic, ecological, sociological) had to be complemented with
a holistic study. The need to compare and "weigh-up" led to the search for an
EIA methodology. This search followed two distinct paths (see, for example,
Viohl and Mason 1974.). One path resulted in the introduction of a variety of
new concepts, such as the overlay method (McHarg 1969); checkl i st s--bot h
simple and with weights (see Canter 1977 for a categorization of checklists); the
COST- BENEFI T ANALYSIS AND E1A 57
Leopold-type matrix in its numerous forms (see Leopold et al. 1971 for the
original method); networks (Sorenson and Moss 1973); the Isard ecol ogi c-eco-
nomic input-output analysis (Isard 1972); the so-called Environmental Evalua-
tion System by Dee et al. (1975). The list of new methods is very extensive.
The other path was based on extending CBA such that all impacts could be
brought under a common measuring rod.
In addition to the EIA literature, a social impact assessment (SIA) literature
has developed. Social impact has been defined to include health impacts, rec-
reational activities, aesthetic interests, land and housing values, j ob opportunities,
community cohesion, lifestyles, governmental activities, psychological well-
being, and behavioral response on the part of individuals, groups and commu-
nities (Roberts and Sievering 1977). Much of the SIA literature is oriented to
description of changes in socio--economic characteristics, such as population,
occupation, and income distribution, that are predicted to occur from the im-
plementation of a project. Considerable effort has also gone into developing
indicators of well-being (or social indicators). Evaluation of these impacts is
usually related to changes in individuals' perceptions, preferences, attitudes, and
concerns, and the rating of these by the analysts.
Much of what SIA attempts is dealt with by CBA, in which social impacts
are expressed as gains or losses in utility. The CBA approach adopts an objective
conceptual framework which, i f supplemented by "incidence analysis" (the iden-
tification of all gainers and losers, whether their gains or losses are real or
pecuniary), can be used as a rigorous complement to ratings or weightings in
SIA methodologies. While a great deal of effort has gone into the search for a
new methodology, as evidenced by the extensive literature, it has been deficient
in one maj or--arguabl y the most important--aspect: providing an overall, ob-
jective assessment as an aid to decision making. An over-riding problem has
been the lack of a conceptual framework, and CBA can function to alleviate this
problem. Two influential authors, Inglis in Australia (1983) and Suriyakumaran
(1980) on behalf the United Nations Environment Programme, have argued for
the adoption of a CBA approach. The progress in applying the CBA approach
has been relatively slow.
While a general theory of CBA can be argued to exist (putting aside some
dispute as to the identification of the social welfare function and other theoretical
disagreements), two factors have hindered the adoption of this approach to EIA.
The first is the practical one of measuring externalities. The second is a philo-
sophical objection. The latter comes in many forms. Some object to using money
as a measuring rod for nonmarket commodities such as natural beauty or health.
There are two major forms of this objection: one is opposed to the use of money
but presumably not against other (unstated) human measures of value; the other
is against attaching human values of any kind to natural ecosystems or aesthetics.
The latter notion is based on opposition to the anthropocentric view of other
living things, in which the other animals, and plants, are deemed to have intrinsic
58 HUNDLOE, McDONALD, WARE, AND WILKS
values. This would appear to be the ethical position of the so-called deep ecol-
ogists. EIA cannot accommodate this position: it is humankind who is assessing
the impacts, and by definition it is human values that are being applied.
There are other kinds of objections to the use of CBA, which are often cast
is philosophical terms, but in essence they are (i) an unfounded, erroneous belief
that cost-benefit analysts are somehow, by undertaking their trade, usurping the
power of political decision makers, who may be politicians or bureaucrats (for
a lengthy and partisan view of this attitude, see Self (1975); and (ii) a view of
society and the political decision-making process that conflicts with the philo-
sophical basis of CBA (that individual preferences should coun0. This opposition
to CBA comes from both "left" and conservative thinkers. The issue here is not
that "market votes" (or simulated market votes) are not equally di st ri but ed--a
point clearly recognised by cost-benefit analysis---but rather a paternalistic view
that each individual is not the best j udge of his or her utility and some things
(merit and demerit goods) should be decided upon by a more knowledgeable
elite.
While consideration of the matters raised immediately above might seem,
prima facie, somewhat extraneous to the development of an EIA methodology,
they are the central issues. If EIA is to improve the decision-making process,
we need to decide what type of decision-making process we want, what are the
essential features of good government and good society. The questions that have
exercised the minds of humans since the time of the great Greek thinkers and
the various criteria that have been laid down throughout the ages do not lose
their currency because we wish to include additional factors (such as ecological
relationships or pollution) in our decision making. That stated, further consid-
eration needs to be given to the EIA concept.
EIA Process and CBA
There are three basic stages in the EIA process: (i) a baseline study; (ii) a
predictive and evaluative stage; and (iii) a monitoring program. The second stage
of the process can be divided into (a) identification of impacts, (b) prediction
of impacts, and (c) evaluation of impacts. The role for CBA is at the evaluation
stage. Prior to the selection of the project and reasonable alternatives a screening
process is involved to determine i f full evaluation is required. CBA is appropriate
for this undertaking. Scoping is a related concept, the aim of which is to delineate
the central issues in impact assessment. Likewise, CBA is appropriate for this
task. CBA can also be used in a monitoring program. The usefulness of CBA
can be shown clearly, once it is understood that ultimately impacts occur to
resources and attributes that are valued by humans. Numerous condition changes
may occur before there is an impact on resources or an attribute that is valued
for its direct "productive" output. If the terminal condition results in a change
COST-BENEFITANALYSISANDEIA 59
Increased impervious I
surfacing
I
Increased surface ~ Calculate surface runoff (SR)
runoff I S R I = f (A permeability, slope, e t c . )
Increased s o i l
erosion
C a l c u l a t e s o i l e r o s i o n (SE)
= f (A S R , s o i l e r o d i b i l i t y , s l o p e e t c . )
Increased sediment
transport
Calculate sediment transport (ST)
= f (A S E , stream capacity,
transportation rate, e t c .
1
Increased s i l t a t i o n ~ Calculate estuary s i l t a t i o n (ES)
I E s l = f (6 S T , currents, ebb flow, t i d e s ,
vegetation, e t c . )
Increased m o r t a l i t y
of organisms
Calculate m o r t a l i t y o f o r g a n i s m s (MO)
= f (A E S , a s s i m i l a t i o n capacity of
organisms, e t c . )
1
Increased impact o n
commercial fishery
i M c l
C a l c u l a t e m o r t a l i t y of commercial
species (MC)
= f (A M O , energy flows, food chains,
e t c . )
FIGURE 1. Linked prediction equations.
in producti ve resources or attributes there is an end result change that i s easi l y
measured.
Often a val ued state o f the envi ronment may not be adversel y or posi t i vel y
changed until a series o f sequenti al , but nonval ued, changes occur. For exampl e,
increased i mpervi ous surfacing (a causal acti on) may produce increased surface
water runof f wi th a subsequent increase in sheet erosi on. This erosi on may in
turn increase sedi mentati on, l eadi ng to the l oss o f habitat for l ower organi sms
vital to the f ood chai n o f a speci es o f fish o f major commerci al fisheries' im-
portance ( see Sorenson and Mos s 1973; Pepper n. d. ; Canter 1977) . In the above
exampl e, four consequent condi t i on changes f ol l ow the causal acti on (i mpervi ous
surfacing) before a direct adverse effect on a val ued resource was identified, An
eval uati on o f envi ronmental condi t i on changes affecting such expl i ci t val ues
provi des a much more definite basis for i denti fyi ng and wei ghi ng tradeoffs in
the deci si on- maki ng process.
Thi s c aus e - c ondi t i on- e f f e c t chai n o f impacts, or network o f i mpacts, can be
model ed, and at each l evel quantitative prediction is required. Pepper ( n. d. ) has
illustrated the concept s wi th "linked prediction equations" as in Figure I.
60 HUNDLOE, McDONALD, WARE, AND W1LKS
The process illustrated in Figure 1 clearly shows that the final impact is
measured in economic terms. (The model presented here is a very simple one
and deliberately neglects the possibility of economic effects occurring at any but
the final stage.) The figure also illustrates that the prerequisite for evaluation is
information on the relationship among physical, biological, and ecological attri-
butes of the environment. To a significant extent the economic evaluation will
only be as good as the noneconomic information and predictions. In this regard,
others have noted that a major problem is the "limitation of both theory and data
in the realm of biology and ecol ogy" (Freeman 1975).
The most significant advantage of adopting a CBA approach to EIA is that it
provides a consistent, objective framework, which facilitates an optimization
approach to the use of the environment. By the process the CBA methodology
integrates developmental with conservation and preservation considerations, rather
than dichotomizing them as can be the case with traditional EIA.
There are other possible advantages over the usual EIA practice. First, the
CBA approach could normally involve less time and financial costs in preparing
EIAs. There would, or should, be less effort devoted to some of the common
features of the first-generation EIAs, such as costly extensive fauna and flora
lists that have little bearing on decision making, and more effort applied to
prediction by ecologists and economists. Second, the CBA approach presents
the analysis in a form more readily understood by decision makers and the public
than to do the traditional EIA methods.
Issues in EIA Theory
Analysis of Need
Analysis of need is clearly the objective of EIA. Do we need the project, given
its benefits and costs? If we do not undertake the project, what benefits do we
forego and what costs do not arise? These are the very questions CBA seeks to
provide answers to, from a societal perspective, in terms of each individual' s
measurement of utilities and disutilities, which are then summed.
Before concluding that CBA is the appropriate methodology to address this
issue we need to consider whether there are other (more appropriate?) means of
ascertaining need. This raises the question of whose preferences should count
and takes us back to our previous brief discussion of decision making. If the
view is taken that some know better than others that the project is " needed" - -
these could be the proponent (say a business enterprise concerned with its fi-
nancial rewards, but not externalities) or a government (concerned with short-
term electoral support )--we must recognize we are doing two things. The first
is taking an authoritarian or paternalistic position to decision making. The second
is neglecting externalities in the case of business determining need (which sub-
verts the rationale for EIA); and in the case of politicians determining need,
COST-BENEFIT ANALYSIS AND EIA 61
limiting evaluation to, at the best, majority rule without consideration of intensity
of preferences, or to short-term political advantages. Clearly, to allow a pro-
ponent who will financially benefit from a project to determine that it is needed
is contrary to the EIA concept. If governments are to determine need for a
proj ect mwi t hout the benefit of some objective measurement of society' s pref-
erence (and intensity of preferences)---this is not necessarily in conflict with the
theory of representative democracy (as opposed to participatory democracy),
which relies on government to act in the public interest. If EIA is adapted to
the CBA methodology this does not take the ultimate decision on whether the
project should proceed out of the political arena. Rather it means that governments
have better information than they would in other circumstances.
In practice the analysis of need in EIAs is the major shortcoming. Without a
conceptual framework--i n practice most EIAs are undertaken in an analytical/
conceptual vacuum---it is not possible to arrive at anything but subjective judg-
ments on the need for a project.
Objectives of the Proposed Action
The statement of objectives of a project has obvious implications for the definition
of alternatives. The more narrowly the objective is stated, the more constrained
the choice. A narrow statement of the objective is a problem for non-CBA
approaches to EIA. Adopting a CBA framework, it does not matter what objective
a proponent has in mind.
Alternatives
The environmental impact of alternatives to the proposed action is a major
feature of EIA. In the Australian requirements "feasible and prudent" alter-
natives have to be evaluated. In the United States guidelines there is a re-
quirement to "study, develop, and describe appropriate alternatives." This was
further explain by the Council on Environmental Quality (CEQ) (1973); "A
rigorous exploration and objective evaluation of the environmental impacts of
all reasonable alternative a c t i o n s . . , is essential." Examples are given: these
include (i) the no-action alternative; (ii) postponing action pending further study;
(iii) alternatives of a significantly different nature, which would provide sim-
ilar benefits with different environmental impacts; (iv) alternatives related to
different designs or details that would prevent different environmental im-
pacts; (v) alternative measures to provide compensation for fish and wildlife
losses, including the acquisition of land, water, and interests therein. There is
a need to define a "feasible and prudent" alternative, or "appropriate" and
"reasonable" alternatives. In illustrations of (iii) above, the CEQ (1973)
guidelines state that an alternative to a flood control program (such as a dam)
62 HUNDLOE, McDONALD, WARE, AND WILKS
would be nonstructural methods (prohibiting occupation in flood-prone areas),
and suggest mass transit as an alternative to highway construction. In both
cases either alternative would provide similar benefits but with different en-
vironmental impacts. This can be viewed as a cost-effectiveness approach and
obviously does not address the question of the net benefits of the alternatives.
These radically different means of achieving the same objective are what
Coates (1974) terms "macroalternatives." Coates' s example of macroalterna-
tives relates to the Alaskan oil project. Macroalternatives might include the
development of geothermal resources, reducing demand for energy, or in-
creasing oil imports. Design alternatives as in (iv) above are termed "syst em
alternatives" by Coates. The selection of macroalternatives has to be guided
initially by technical considerations or the state of art. "Feasibility" can be
defined as technically feasibility, or physical constraints. There may be addi-
tional feasibility factors to be considered such as cultural, political, legal, and
institutional constraints, but these should not be considered constraints in an
economic assessment. Institutional constraints (that is, government interven-
tion for non-market-perfecting purposes) raise the issue of second best. The
question becomes, to what extent should the analyst accept as given an insti-
tutional constraint? Various economists argue that these constraints should be
taken as given unless it is known, or reliably predicted, that the government
is going to abolish them. (See, for example, McKean 1972, Sen 1972.) This
is probably the only practical approach, though it might be considered to fall
short of pure cost-benefit analysis.
Once the macroalternatives have been selected, the problem becomes one
of comparing them. The only sensible approaches are either mul t i -obj ect i ve
planning (MOP) or CBA. Some argue for the MOP approach, with each al-
ternative evaluated against explicit ecological, economic, social, technical, and
public policy criteria. There are two fundamental difficulties with the MOP
approach. First, it does not allow for other than subjective (noncommensurate)
comparisons of the various measures (though, at least, it allows for consis-
tency within categories); second, it does not suggest the basis for establishing
the explicit criteria for each of the objectives. The CBA approach aims to
circumvent these problems.
In its simplest form, when the CBA method is used the decision rule is
this: with a given budget, choose the alternative that has the greatest positive
net benefits. If all projects (decisions) are subjected to this rule, the most de-
sirable ones will be undertaken first and ultimately all projects with net ben-
efits will be undertaken. The opportunity cost rule would guide decision mak-
ing: the cost of project A is the net benefit foregone from not undertaking the
next best alternative. This simple rule is subject to distributional considera-
tions (discussed later).
A lack of serious consideration of alternatives is a major shortcoming in
EIA practice.
COST-BENEFIT ANALYSIS AND EIA 63
Cumulative Impacts
The project-by-project assessment that is the normal practice in EIA does not
lend itself to a straightforward treatment of cumulative impacts. It is possible
that the adverse or beneficial impacts of one project might be inconsequential;
but on the other hand, it might be that if another development were to occur in
the same location, or impact on the same ecosystem, the total impacts of the
two (or even additional projects) might be significant.
There are ecological, social, and economic factors to be taken into account
in tracing and measuring cumulative impacts. From an ecological perspective
some of the key factors are: synergistic effects; interrelationships and feedbacks;
time dependence or time lags (for example, the concentration of heavy metals
in aquatic foodchains); threshold effects (impacts that only appear when a critical
concentration of a pollutant has been exceeded); saturation effects (the leveling
of f of the magnitude of impact as the level of impact increases); exponential
effects; recovery time. These ecological factors can be important for the project,
but are probably more pertinent in the cumulative impacts sense.
From an economic perspective the cumulative impact that has to be considered
is any effect on prices and quantities of goods and services. In particular, if
there are price effects this changes the assessment from one of the marginal
project (the traditional CBA situation) to a more complex analysis. This is one
very important aspect of how traditional CBA has to be modified, or extended,
for EIA purposes. Traditional CBA often makes two basic assumptions: (i) all
prices other than those for the goods or services in question remain constant;
(ii) benefits or losses do not change the real income of recipients. A general
equilibrium (or disequilibrium) analysis allows for changes in prices and real
incomes in recognition that "everything depends on everything else. " As Peskin
and Seskin (1975), state, "consequences on the markets for other related goods
and services comprise effects which may or may not be included in cost-benefit
analysis." It is an empirical matter to determine, for any project, whether or not
there are net gains or losses in real resource use from consequential impacts.
From a social perspective, cumulative impacts could manifest themselves in
a variety of ways, depending on the type of projects involved. For example, one
tourist resort in a rural area might place insignificant demands on the existing
social infrastructure and the lifestyle of local inhabitants, while two may over-
crowd the local service industries and change the lifestyle of locals.
Whatever the origin and form of cumulative impacts they need to be traced
through space and time to their ultimate effects. There are practical limits to the
extent this can be achieved. Both incomplete understanding of the ecological,
social, and economic processes and "analysis paralysis" are the constraints.
Nevertheless, it would appear that the most important issue in the assessment
of cumulative impacts is that all projects proposed for a specific locality be
assessed simultaneously.
64 HUNDLOE, McDONALD, WARE, AND WILKS
Induced Impacts
The notion that induced impacts have to be considered is explicit in the EIA
concept, as evidenced by the use of the terms "secondary" and "indirect" impacts:
A variety of projects, such as highways, airports, or water resource projects,
can stimulate or induce secondary effects in the form of associated investments
and changed patterns of demographic, social, and economic activities. Therefore
a project has to be defined so that the induced impacts are included. There is a
practical limit as to how far in space or time such impacts can be traced.
The terms "secondary" and "indirect" as used in the EIA literature should be
given the widest meaning possible, though not a technical meaning as might be
used in economic analysis. In the EIA sense they are consequential results. How
these are to be treated in a CBA framework is an important question.
The answer is that if the utilities or disutilities of individuals change, through
a chain of events originating with the project, such changes should be measured
in a CBA. (This is an issue that needs very careful consideration.)
Short Term and Long Term
Both short-term and long-term impacts are required to be assessed. As a general
rule, neither temporal concept is defined in the EIA literature, and it is a question
of practicality as to how far into the future it is possible to predict impacts; nor
does the EIA literature present a conceptual framework for making short-term
and long-term trade-offs.
Short-term impact assessment could be confined to the construction phase of
a project, and long-term impacts would be those occurring during the life of the
project. But in certain circumstances the long-term impacts could continue be-
yond the life of the project. The ideal approach would be to trace impacts as far
into the future as practical.
The temporal flow of impacts in CBA terms is dealt with by the use of a
discount rate. Positive discount rates devalue future benefits and costs. Leaving
aside the debate about setting appropriate discount rates, we see the more im-
portant question as the ethical one of intertemporal equity. That is, should the
present generat i on' s discounting of the future be accepted on an ethical basis?
Ramsey in 1928 (cited in Butlin 1981) t ook the view that "discounting of future
benefits is ethically indefensible" and Pigou (1920) echoed similar concerns with
his famous notion of a "faulty telescopic faculty. " The simplest ethical position
is that governments should attempt to give all periods equal weight. This is the
Rawlsian criterion for intergenerational equity (Heal 1981, p. 68). It is not as
simple as this. Numerous factors have to be considered. Will income levels rise
or fall over time? The issue of uncertainty about the future is also very important
and may provide a valid reason for discounting future benefits (Heal 1981). A
further consideration is that of risk. Here there is a need to determine the prob-
COST-BENEFIT ANALYSIS AND EIA 65
abilities of the occurrence of certain events and to undertake sensitivity analysis
using a number of possible scenarios. As Krutilla and Fisher (1975) state, "In
an uncertain economi c environment there is a value in the retention of an option
which would otherwise be foreclosed. " Option demand is a valid measure in
CBA. Some economists argue that opinion value is directly included in an
appropriately defined measure of consumers' surplus and that it is an error to
suggest that it was a benefit over and above the standard willingness to pay (see
Haveman and Weisbrod 1975). The contrary view is that option value must exist
for unique, irreplaceable assets because of the costs associated with uncertain
future demands when individuals are risk averse (see, for exampl e, Lindsay
1969; Cicchetti and Freeman 1971; Schmalensee 1972).
A separate literature on risk assessment in EIA has recently devel oped (see
Kates 1978 and Whyt e and Burton 1980). Whyte and Burton (1980) argue that
"the weighting of alternatives is at the heart of the risk assessment process. "
Kates (1978) states that, inter alia, CBA is one of the methods of evaluation,
as is a variant of CBA namel y, benefi t -ri sk analysis, which compares rates of
risk to the benefit arising from the activity.
Kates (1978) states, "In this variant of benefi t -cost analysis, risk is a surrogate
for social cost . " Whyt e and Burton (1980) also accept that CBA is a useful tool
for the assessment of environmental risk, but state:
The incorporation . . . economi c considerations into the assessment of envi ronment al risk has
proved to be a difficult and frustrating task. There are three reasons for this. Firstly, the met hods
devel oped for economi c evaluation have not won wi despread acceptance in risk assess-
me nt . . , often lack of agreement of objectives . . . the necessity to place a monet ary val ue
on human life . . . is a source of deep seated conflicts of val ue and belief.
None of these reasons is necessarily valid for not taking a CBA approach: the
acceptance of a met hodol ogy should not depend on widespread acceptance; the
second reason is obscure; the third, which has been subject to considerable
discussion in the CBA literature, pertains to only one of the many types of risks,
and damage to property or to the productive and/or amenity value of an ecosyst em
is not subject to the same ethical considerations.
Irreversibility
The EIA literature makes specific reference to irreversible and irretrievable com-
mi t ment of resources. The issue of irreversibility has been addressed by Krutilla
and Fisher (1975) thus: "We should acknowledge that every decision, once
i mpl ement ed is irreversible. What is important, however, is the distinction be-
tween cases in which the consequences of a decision (i . e. , its opportunity cost)
are permanent and those in which they are ephemeral; and between those that
are significant and those that are inconsequential." These authors illustrate this
66 HUNDLOE, McDONALD, WARE, AND WILKS
concept by reference to a production process that can be readily altered i f demand
changes, and decisions which alter, for all practical time, the natural environ-
ment.
Increased per capita demand and increased population result in growing ag-
gregate demand for the fixed services of the natural environment. As nonrenew-
able resources such as natural environments are increasingly destroyed, the value
of the remaining ones increase. As Krutilla and Fisher (1975) argue, "what is
needed for resource valuation, is a dynamic model that reflects the growth in
demand and the appreciating nature of the value of the service flow from such
resources. "
The Bas e l i ne
It is essential to isolate the project impacts from those produced by other causes.
Natural variations over time establish a shifting baseline against which impacts
have to be predicted and measured. The basic question is, what will the natural
environment be like in the future without the project? There is, therefore, a need
to model the natural variation of important biotic components over time. Not
only can (or will) the natural ecosystem alter over time without the project, so
can (or will) economic, sociological, and cultural factors. Such changes have to
be modeled and predicted.
Conclusion
The foregoing has been a brief discussion of the central EIA requirements, with
reference to the applicability of CBA in the EIA process. It has not been possible
in the space available to deal with the theory and practice of CBA in any detail.
There exists a substantial literature on the application of CBA to projects and
policies which have been controversial in environmental terms (see, for one
recent example, Dixon and Hufschmidt 1986). The need for a marriage between
ecology and economics now has universal acceptance and is, in fact, the theme
underlying the report to the United Nations by the World Commission on En-
vironment and Development (1987). While much more needs to be done in
refining the theory and practice of CBA, sufficient applications exist to illustrate
its potential, and additional impetus is given to this development by the challenge
of the Commission.
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