Economic

1
Economic Environmental Analyses Relationships
Challenges

• Daniel Sulzer
• Army Corps of Engineers
• Los Angeles District

2
Economic vs. Environmental Analysis

• Discussion Topics
• Incremental Cost Analysis
• Tradeoff Analysis

3
Economic vs. Environmental Analysis

• Incremental Analysis
• General Observations
• Experience/Example
• Suggestions
• Conclusion

4
Economic vs. Environmental Analysis

• Trade Off Analysis
• Definition Applicability
• Regulations
• Evaluation Process
• Examples

5
What Is Trade-Off Analysis?

• Applicability
• Planning studies which include National Economic
  Development (NED) and National Ecosystem
  Restoration (NER) outputs
• NED outputs measured monetarily () vs. NER
  outputs measured non-monetarily (e.g. Habitat
  Units)
• Increases in one type of output result in
  reductions in the other type of output (e.g.
  Flood Control vs. Ecosystem Restoration)
• Hence, Planners must analyze the trade-offs
  between NED and NER outputs when formulating and
  evaluating plans

6
Trade-Off Analysis Regulations

• ER 1105-2-100, Section 2-3 (f.) (Planning
  Process)
• The Combined NED/NER Plan. Projects which produce
  both National Economic Development (NED) benefits
  and National Ecosystem Restoration (NER) benefits
  will result in a best recommended plan so that
  no alternative plan or scale has a higher excess
  of NED benefits plus NER benefits over total
  project costs. This plan shall attempt to
  maximize the sum of net NED and NER benefits, and
  to offer the best balance between two Federal
  objectives. Recommendations for multipurpose
  projects will be based on a combination of NED
  benefit-cost analysis, and NER benefits analysis,
  including cost effectiveness and incremental cost
  analysis.
• Formerly referred to as the Optimum Tradeoff
  Plan.

7
Regulations, Cont.

• ER 1105-2-100, Appendix E, (E-61,E-62).
• When a project has both NED benefits and NER
  effects (multipurpose) the recommended plan
  should be best in the sense that no alternative
  plan or scale has a higher excess of NED benefits
  plus NEQ effects over total project costs. This
  plan should be called the combined NED/NER
  plan.
• In some cases more of one output (say, NER) can
  only be obtained by accepting less of another
  (say, NED). Formulating NED - NER tradeoffs are
  permissible, and should be made as long as the
  value of what is gained exceeds its
  implementation cost plus the value of what is
  foregone.

8
Evaluation Process

• Trade NED benefits in favor of NER outputs as
  long as the incremental (subjective) value of the
  NER outputs exceeds the sum of NED benefits
  foregone plus incremental costs.
• Incremental costs equal added cost necessary to
  realize added environmental outputs less reduced
  cost permitted by reduced NED outputs.
• Make all such trades of one output for another
  until it is not possible to make further trades
  improving the total project.

9
Simple Example
10
Simple Example, Cont.

• Alt 1 -- No Trade-Offs
• Alt 2 -- Same Net Benefits, Increased Restoration
  Costs/Benefits
• Alt 3 -- Trade Off NED Benefits for NEQ Benefits
  -- Are the additional 7 Habitat Units Worth an
  Incremental Cost of 2.14 (which includes a 10
  Reduction in NED Benefits)?
• Answer is Subjective

11
Conclusion

• We Must Continue to Improve our Analysis
  Procedures for Environmental Projects and Attempt
  to Quantify Environmental Outputs Where Possible
• Incremental Cost Analysis Tradeoff Analysis
  Provides a Framework for Formulating Evaluating
  Projects with Multiple Purposes
• Answers May Still Come Down to Subjective
  Judgment
• Questions/Comments

12
Environmental Operating Principles