Projects and Environmental Effects

All projects have some environmental effect, either positive or negative, since either directly or indirectly all projects will create some demand on natural resources, and some waste products to be assimilated by the environment. Since these effects are frequently not the subject of market transactions prices are not charged to reflect these environmental impacts and they remain one of the most obvious examples of external effects. Recent policy discussions on developing countries have stressed the importance of environmental sustainability to ensure that projects do not make demands on the environment that are excessive relative to the current stock of natural capital. Hence environmental concerns are a highly topical issue for project analysis. However whether or not environmental considerations are important for a particular project will vary with its characteristics; a simple threefold classification may serve to illustrate the point. We can think of (1) Environmental projects where the main objective is to produce an environmental benefit, either in terms of an improvement to the environment or the avoidance of damage that would otherwise occur. Examples here are a project to preserve wetlands as a natural park and thus to avoid costs created by the loss of important species or habitat; rehabilitation of a power plant to remove gas emissions into the atmosphere; an irrigation improvement scheme to correct waterlogging and soil salinisation problems that reduce crop yields.