9 Centre for Economics and Business Research 3. The Analytical Approach The analytical approach of this report is to assess whether or not, from the Government’s perspective, and taking into account their own methodological assumptions, this represents a decision that is ‘good for society’. It is not merely an economic assessment, as it takes into account the Government’s tools of valuing environmental and health impacts, in particular, values for CO2e emissions. The analysis in this report allows the impacts on society to be assessed in a way consistent with other Government assessments. However, the report does not make any judgement as to the validity or robustness of the methodological frameworks and scientific assumptions implied by these appraisal tools and methods. This ensures that the findings of the report can be used to inform Government decision makers about its policy choices; whether to persist with the planned bans or to adjust them. The key measures to summarise the impacts are ways of comparing present value monetised costs and benefits. The Present Value of Benefits (PVB) is the sum of all discounted benefits and dis-benefits and the Present Value of Costs (PVC) similarly measure the discounted costs over the appraisal period. It then gives the value of these impacts in the prices of a given base year (in this case, 2022). The Benefit-Cost Ratio (BCR) is given by PVB / PVC and indicates how much benefit is obtained for each unit of cost, with a BCR greater than one indicating that the benefits outweigh the costs. The Net Present Value (NPV) is a measure of the total economic impacts of a proposal. It is simply the discounted present value of the sum of all benefits and costs. Typically, if a project has a BCR below one (i.e., a negative NPV), it indicates that the costs exceed the benefits over the appraisal period, and hence that given proposal should not proceed unless there are important non quantifiable benefits that have not been taken into account5. In practice, it is desirable to have a BCR above the level of two (where benefits are twice that of costs) for a project or proposal to be sufficiently competitive when compared against a portfolio of potential options or alternative projects. Where costs exceed benefits, the Government will consider that project ‘Poor’ value for money and the BCR will be between zero and one. The methods and techniques used to derive both the BCR and NPV results are consistent with both HMT’s Green Book and the Department for Transport’s Analysis Guidance (TAG)6. Benefit valuation Greenhouse gas emissions values (“carbon values”) are used across government for valuing impacts on GHG emissions resulting from policy interventions. This is the approach used 5 See for example the seminal paper by Nobel Laureate Kenneth Arrow et al presented to the American Association for the Advancement of Science ‘Is There a Role for Benefit-Cost Analysis in Environmental, Health, and Safety Regulation?’ Kenneth J. Arrow, Maureen L. Cropper, George C. Eads, Robert W. Hahn, Lester B. Lave, Roger G. No11, Paul R. Portney, Milton Russell, Richard Schmalensee, V. Kerry Smith, and Robert N. Stavins https://scholar.harvard.edu/files/stavins/files/is_there_a_role_for_benefitcost_analysis.pdf 6 DfT TAG guidance Link
RkJQdWJsaXNoZXIy ODMyMDY=