The notion of “sustainable development” has permeated significant parts of policy discourse about the environment. This reflects a number of (related) concerns including the development path that the broader economy is on and specifically the way in which (changes in) natural wealth affects this path. It is important that CBA speaks to those concerns especially as policy and investment projects have the potential to shift a development path (perhaps because of non-marginal actions or the cumulative effect of smaller decisions). There are a few implications of this but one of the most prominent (as well as far-reaching) is to circumscribe CBA by having it live within sustainability constraints, perhaps based on ecological criteria. This places greater emphasis on a single appraisal within the context of a portfolio of policies or projects. That is, the constraint is that this portfolio, on balance, maintains the ecological status quo with practical applications of this approach including biodiversity offsetting. This raises important issues. On the one hand, there is a benefit to avoiding untoward and irreversible damage to (possibly) critical resources. On the other hand, there are opportunity costs to applying the shadow projects approach that need still to be considered.

The valuation of ecosystem services has become a crucial element (perhaps the crucial element) in quantifying the contribution of ecosystems and biodiversity to human well-being. While the evidence base is broad and – at least for some ecosystem services – deep, reflections on this progress indicate a need for greater understanding of ecological production, especially as it relates to spatial variability and complexities in the way that services are produced. This is a truly interdisciplinary given the need for natural science to inform the stages of this analytical process. There is considerable debate remaining also about how to conduct decision analyses in those contexts where valuation and understanding of the natural world is likely to remain relatively uncertain. Such challenges need to be viewed in context. A growing number of large-scale ecosystem assessments has shown how the empirical record can be put to use in an informative and policy-relevant way. Such developments could be crucial in translating valuations into meaningful policy analysis.

The social cost of carbon (SCC) is the central concept for the inclusion of climate change damages in the Cost-Benefit Analysis of public policy and public investments. It measures the present value in monetary terms of the damages incurred when an additional ton of carbon (or any other Greenhouse gas) is released into the atmosphere. The SCC can be added as a cost item for projects that induce carbon emissions, and as a benefit item for projects which induce a net reduction in carbon emissions. Most public projects have an impact on carbon emissions, but energy, transport and agriculture are key areas of concern where it will be important that the SCC is taken into account. In environmental policy, the SCC informs the optimal carbon price and the optimal level of emissions abatement. Implementation of carbon price (e.g. via a tax or permit system) will provide incentives for reduced carbon emissions across all sectors of the economy. Many countries now recognise the importance of the SCC and, as a result, have their own approaches to the estimation of the SCC. In this chapter the theoretical underpinnings of the SCC are explained, and the different approaches to the estimation of the SCC are elaborated upon. Since emissions of carbon have global impacts, which vary across time and space, and in many different sectors, calculation of the SCC is complex, requiring inputs from many different disciplines ranging from climate science, to agronomy, to social science, incuding economics. There are also considerable uncertainties at every stage of the process through which carbon causes damages. Three important questions which make the calculation of the SCC difficult are: What path will emissions take? How will emissions affect temperatures? How will temperatures cause damages? There are considerable uncertainties at each step of this calculation, which are compounded by the potentialfor ‘threshold effects’ and catastrophic outcomes. Yet the importance of climate change as a global problem, and the need to implement policies in line with commitments under international agreements means that many countries have already implemented carbon taxes or use the SCC routinely in their regulatory analysis. In this chapter the methods currently used to analyse and calculate the SCC are discussed. Some of the difficulties and disagreements on the issue are highlighted, and examples of current international practice on using the SCC in the CBA of public policy are explained.

The valuation of health risks is a long standing area of both research and policy application. Even so, increasing evidence of the global burden of disease and especially the role of environmental pollution as a determinant of this burden has added a further urgency to this work. Considerable strides have been made in recent years in terms of clarifying both the meaning and size of the value of statistical life (VSL). One of the main issues has been how to “transfer” VSLs taken from e.g. from country-to-country or where life expectancy of those people who are the object of policy and investment project proposals differs. Needless to say, this still requires that applications are done with care and judgement. In some areas, the literature offers firmer guidance here than in others. Notably, age may or may not be relevant in valuing immediate risks – the literature is arguably ambiguous with regards to the empirical relationship. That said, in terms of practical guidelines, the empirical record has been important in translating findings in base or reference levels for health values for use of policy or project appraisal.