In principle, cost-benefit analysis (CBA) affords an understanding of the necessary choices different policies imply.
Such an analysis should not be the exclusive basis for decision; but it allows decision-makers to assess the tradeoffs implicit in allocation resources to one thing over something else.
CBA forces decision-makers to confront the specific implications of their decisions. Unfortunately, such an approach is difficult to apply in the environmental context.
CBA requires tradeoffs to be compared in monetary terms.
This leads to the obvious objection that it requires us to “price” life or nature, something that many people find conceptually repugnant.
However, the problem is actually deeper than this. In many cases, CBA calculations must be made relying on rudimentary models of complex systems that are, for the most part, noteworthy more for their inaccuracy than their precision.
Worse yet, many of the figures used in any such calculation are no more than rough estimates based on uncertain assumptions.
Much of the benefit in fuel reduction is linked to the reduction of cost resulting from lower consumption. However, if all consumers employ the same approach, the price of fuel will not go down. The benefit thus reduces.
Some years ago, many municipalities shifted to natural gas-powered buses on the basis of a given ratio of price between natural gas and diesel fuel.
When the ratio changed, the calculation was thrown off.
It is also difficult to estimate the duration of the environmental problem that exists. The generally higher prices of fossil fuels in recent years — and the political instability of many of the main sources of supply — has resulted in increases investment in the development of new technologies. If the costs of wind-generated and solar-photovoltaic electricity are brought down to the cost of hydroelectricity, then the demand for fossil fuels is likely to fall sharply worldwide.
Many of the most promising environmental initiatives have long life cycles.
If such new technologies emerge over the next five years, decisions based on the assumption that technology will not change over the next 10 to 20 years will obviously be thrown off.
As the emergence of personal computers and cellphones demonstrated, there is no way of anticipating technological development with any high level of accuracy.
Another question concerns the reliability of the information available to decision-makers.
The manufacturers of environmentally “friendly” products are often the only source of information concerning the benefits that their products offer.
Frequently, the benefits of using such products are overstated, while the costs are blithely ignored.
Beyond outright misrepresentation, environmental purchasing also suffers from products and approaches that initially seem to offer a real promise of enhanced environmental protection, but which ultimately prove disappointing and sometimes worse than what was originally being used.
When the first nuclear power electrical stations came on line in Britain in the 1950s, it was said that “perfectly clean” electricity would soon be “too cheap to meter.” Today, we continue to grapple with the problems (and cost) of decommissioning many such reactors and storing their spent fuel.
Low cost energy has never materialized.
In a 1999 American study, the cost of hydroelectric energy was found to range from two to eight cents per kilowatt-hour (kwh). Coal-generated electricity from five to six cents, wind from five to eight cents, and oil from six to 84 cents. Nuclear-generated electricity was 10 to 12 cents per kwh. Only solar photovoltaic generation was more expensive.
Quite apart from the question of how to segregate green products from non-green, comes the question of how to factor the benefit of a green product into the purchase decision.
Many municipalities that have adopted environmental initiatives in relation to procurement have directed staff to accord green sources of supply and credit 10 per cent toward any evaluation price.
Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com.
Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
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