Dual discounting in cost-benefit analysis for environmental impacts

Abstract

Discounting has been a long-established intertemporal efficiency tool in cost-benefit analysis which focuses on project selection at communal level with a view to maximising the social welfare. However, with the relentless growth in environmental stress that, in good parts, stems from investment projects the established criterion in discounting appears to be inadequate especially when environmental issues are taken into consideration. This paper looks at how dual focus on efficiency and sustainability can be achieved by using dual discounting, i.e. discounting environmental benefits separately and differently from other costs and benefits and applies this alternative criterion to an afforestation scheme in the United Kingdom which contains carbon sequestration in addition to timber benefits. © 2010 Elsevier Inc. © 2011 Elsevier B.V., All rights reserved.