Economic Analysis and Environmental Assessment

Successful economic development depends on the rational use of natural resources and on reducing as far as possible the adverse environmental impacts of development projects. Environmental assessment (EA) is a primary tool for achieving this objective, by inserting critical environmental information into the process of project identification, preparation, and implementation. Economic analysis, by comparison, is employed to determine if the overall economic benefits of a proposed project exceed its costs, and to help design the project in a way that produces a solid economic rate of return. Adverse environmental impacts are part of the costs of a project, and positive environmental impacts are part of its benefits. Consideration of environmental impacts, therefore, should be integrated with the other aspects of the project in the economic analysis to the extent possible. This EA Sourcebook Update discusses the relationship of EA and economic analysis and gives guidance on how economic analysis might incorporate environmental costs and benefits.