Jim Walker

Extending cost-benefit analysis for energy investment choices

Abstract Although cost-benefit analysis is still widely practised, because it addresses real and continuing problems, the technique has been frequently called into question. The present paper identifies three major limitations in the technique, and offers suggestions for improvements. While costs and benefits of energy investments have several dimensions, CBA attempts to give all effects an economic value. This often requires arbitrary and subjective judgments which have discredited the technique. It is proposed that CBA should be extended from the single economic dimension to include three others, environmental, technical and the analysis of risk. It is suggested that important subjective judgments should be made by the ultimate (political) decision maker, and not by the analyst.