Cost–benefit analysis for energy policies

Abstract

Over the past three decades, cost–benefit analysis (CBA) has been applied to various areas of public policies and projects, including energy. Research on CBA varies significantly and can be classified into two wide areas of work: (1) studies identifying the technical and economic reasons underpinning CBA and (2) studies consisting of empirical evaluations over the performance of samples of CBA. CBA is not the only example of economic tools applied to energy policymaking. Since the 1960s, the impact of energy policy measures has been assessed within the framework of various appraisal and evaluation tools. Decision analysis, environmental impact assessment, and strategic environmental assessment are all notable examples of appraisal tools pre-dating and alternatives to CBA in the assessment of energy policies, programs, and projects. This chapter provides an overview not only of CBA, but also of other appraisal and evaluation tools that have been historically applied to assess the impacts of energy policies, programs, and projects. It focuses on the types of data and models that typically inform CBAs for energy policies; the organizations involved; and issues of data exchange between energy companies and policy-makers. It is concluded that the technical and economic analyses underpinning CBAs on energy policy and regulation vary significantly depending on the type of policy, institutional aspects of decision-making, and availability of data.