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Benefit-cost analysis of non-marginal climate and energy projects

Dietz, Simon and Hepburn, Cameron (2013) Benefit-cost analysis of non-marginal climate and energy projects. Energy Economics, 40 . pp. 61-71. ISSN 0140-9883

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Abstract

Conventional benefit-cost analysis incorporates the normally reasonable assumption that the policy or project under examination is marginal. Among the assumptions this entails is that the policy or project is small, so the underlying growth rate of the economy does not change. However, this assumption may be inappropriate in some important circumstances, including in climate-change and energy policy. One example is global targets for carbon emissions, while another is a large renewable energy project in a small economy, such as a hydropower dam. This paper develops some theory on the evaluation of non-marginal projects, with empirical applications to climate change and energy. We examine the conditions under which evaluation of a non-marginal project using marginal methods may be wrong, and in our empirical examples we show that both qualitative and large quantitative errors are plausible

Item Type: Article
Official URL: http://www.journals.elsevier.com/energy-economics/
Additional Information: © 2013 Elsevier B.V.
Library of Congress subject classification: G Geography. Anthropology. Recreation > G Geography (General)
G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency; Cost-Benefit Analysis
H - Public Economics > H4 - Publicly Provided Goods > H43 - Project Evaluation; Social Discount Rate
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters
Sets: Departments > Geography and Environment
Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 02 Aug 2013 09:57
URL: http://eprints.lse.ac.uk/51336/

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