Cost-benefit analysis has long been a core tool of public policy. The systematic process of calculating the benefits and costs of policy options and projects is now widely regarded as an essential step in the policy process. It helps decision makers to have a clear picture of ho society would fare under a range of policy options for achieving particular goals. This is particularly the case for the development of environmental policy, where cost-benefit analysis is central to the design and implementation of policies in many countries.

Imagine a choice between energy project options which involve investing in a coal-fired power plant or a renewable energy investment, such as in wind turbines. In choosing between these options (or deciding not to invest in either), one analytical tool that decision-makers and practitioners might reach for is cost-benefit analysis (CBA). This might start by understanding what these options provide in terms of benefits (defined as increases in human well-being) and costs (defined as reductions in human well-being). Although this may sound simple enough, some way must be found to aggregate environmental and social benefits and costs across different people (within a given geographical boundary) and finding some means of monetising these, accounting for different points in time. For one of these projects to qualify on cost-benefit grounds, its social benefits must exceed its social costs.

This chapter provides a summary of the key themes of the volume. These are the changing character of the developments at the knowledge frontier, the uptake of environmental CBA in actual policy formulation process and the location of possible limits to CBA. An explanation of the structure of the volume is also provided.

The rationale for and foundations of environmental CBA are well known but nevertheless provide a logical starting point. In summary, these are that: benefits are defined as increases in human well-being (or “utility”) and costs are defined as reductions in that well-being; for a project or policy to qualify on cost-benefit grounds, its social benefits must exceed its social costs. The geographical boundary for considering these costs and benefits is usually the nation but this can readily be extended to wider limits. Aggregating benefits across different social groups or nations can involve summing willingness to pay or to accept (WTP, WTA) regardless of the circumstances of the beneficiaries or losers (or it can involve giving higher weights to disadvantaged or low-income groups). Aggregating over time involves discounting where discounted future benefits and costs are known as present values. Much of the rest of this volume can be understood as developments to this standard practice with the emphasis on environmental CBA.