Assessing Environmental Policies

Are policies to protect the environment giving value for money – and how can we know? Recognising that policy decisions should be based on a comparison of costs and benefits, a number of OECD governments have introduced legal provisions requiring a cost-benefit analysis (CBA) of new environmental regulations or measures.

Cost-benefit analysis involves comparing the costs and benefits of a given policy in a common unit of measurement – namely, money. The costs of environmental protection are, at least in principle, fairly easy to measure in monetary terms. They include the regulatory costs of implementing and enforcing the measure on the government budget, as well as the compliance costs borne by firms and households in order to meet regulatory standards, environmental taxes, tradable permits or other policy measures. However, the benefits of environmental policies are often far harder to calculate for the simple reason that many benefits are not reflected in marketed goods and services.

How can we measure these elements and give them a monetary value? How can we take into account future generations? How can we deal with equity? How can we address issues of uncertainty and irreversibility? Drawing upon leading experts in the field, the OECD has taken stock of these new developments, and assessed the contribution of CBA to efficient decision making. This Policy Brief looks at the outcome of this study and the lessons that can be drawn from it.