Has Cost Benefit Analysis Improved Decisions in Colombia? Evidence from the Environmental Licensing Process
Introduction
Environmental cost benefit analysis, CBA, is widely advocated as a useful method for guiding policy choices and project appraisals. The standard approach to CBA is justified on the grounds that it can identify efficiency-enhancing policies or projects (Hammitt, 2013). Economists thus think that CBA ought to be one of the fundamental criteria for evaluating environmental regulations (Arrow et al., 1996). In developed countries, although CBA is part of formal procedures for decision making used for regulatory and project assessment purposes, proponents of the method lament the limited influence of CBA in environmental decisions (Atkinson and Mourato, 2008). The evidence, however, is mixed. Recent empirical studies have failed to find a positive association between CBA results and project selection in Norway, The Netherlands and Germany (Eliasson and Lundberg, 2012; Eliasson et al., 2015; Annema et al., 2017; Dehnhardt, 2013). Similarly, for the United States there is evidence pointing to the limited impact of CBA on regulatory decisions (Hahn and Tetlock, 2008; Shapiro and Morrall III, 2012). On the contrary, evidence for Chile (Gómez-Lobo, 2012) and Sweden (Eliasson et al., 2015) suggest that CBA results do influence project selection.
That the same approach has differential influence in different countries leads to reflections on the political and administrative dimensions of CBA (Nyborg, 1998; Cole, 2011; Gómez-Lobo, 2012). While the normative theory of environmental regulation presumes an enlightened public sector that promotes the well-being of society through the design of policies and/or the selection of projects for which benefits outweigh costs, in practice CBA is better conceived as an informational input into a decision making process that involves multiple actors whose interests and values may conflict. Particularly if one takes into account the normative assumptions that have to be made in order to interpret CBA as a measure of welfare change (Nyborg, 2014).
In this paper we view CBA as an informational input and draw on the literature on the use of knowledge in the policy process to analyse the various ways in which CBA could influence decisions. In this way, our paper contributes to the literature that examines the political and administrative dimensions of CBA. Previous research on the topic, mostly in developed countries, has focused on how politicians use CBA and/or why they do not make better use of it (Nyborg, 1998; Mouter, 2017; Annema et al., 2017; Hahn and Tetlock, 2008; Dehnhardt, 2013; Sager, 2016). This research focuses on the role of CBA in administrative decision making in a developing country, and thus contributes to the discussion on how political factors affect how results of CBA inform decision-making.
Our study analyses the Colombian experience because ex-ante CBA is mandatory for large projects requiring an environmental license. The environmental license is an administrative act that authorizes the execution of large projects that may produce serious environmental impacts. The licensing process is structured around the environmental impact assessment study, EIA. Environmental valuation and CBA are part of the EIA study. The EIA is elaborated and financed by the license applicant, which could be a private or public entity, and reviewed by the National Authority of Environmental Licenses, ANLA, an administrative agency of the government. Based on the EIA the ANLA decides whether to grant the license and under what conditions. As we elaborate in the discussion section, this institutional arrangement gives rise to a principal-agent problem.
In this paper we examine the role that CBA has played in the environmental licensing decision. Our premise is that an ex-ante CBA exercise informs and affects a decision if it helps the decision maker to know whether the project is likely to be welfare/efficiency enhancing. This is possible if the decision maker accepts the CBA results as being correct before deciding. Therefore, the aim of this paper is to determine if CBA has contributed to better decisions in Colombia. By better we mean decisions that consider the benefits and costs of a project's environmental impacts.
To this end we answer the following research questions. First (RQ1), what are the factors determining the acceptance of the ex-ante CBA results the environmental authority? Second, because some projects get the license even if they are required to make adjustments to the ex-ante CBA study and present the revised ex-ante CBA once the project is running, our next research question is (RQ2): what are the main adjustments required by the environmental authority? An analysis of those adjustments allows us to infer how often the authority grants the license even if the proponent has overestimated the project net benefits. Third (RQ3), are the adjustments required in past licensing processes considered by the applicant when presenting the CBA for another project? In this way, this article offers an overview of the gap between the rhetoric on which CBA has been justified, at least in the Colombian context, and its actual use, and discusses the main challenges to the effective implementation of the method.
The data for this research come from the content analysis of the legal document through which the environmental agency grants or denies an environmental license in Colombia – known as a Resolution. This article is organized as follows. The next section provides an overview of the literature examining how technical knowledge is used in the decision-making process. Section 3 describes the data and methods while Section 4 presents the results. In Section 5 we discuss the results through the lens of the use of technical knowledge by government agencies in decision making, and principal-agent theory. Section 6 presents the conclusions of the study.
Section snippets
Literature Review
As a policy assessment tool, the purpose of CBA is to provide decision-makers with advice on whether a project or policy is justified on efficiency grounds. The implicit assumption being that CBA somehow would exert influence on the final decision. However, there is concern about the little effect that assessment tools have on public decisions (Owens, 2005; Nilsson et al., 2008).
This problem is often attributed to shortcomings in communication in the science/policy interface due to
Environmental License and CBA in Colombia
The environmental license is an authorization that allows the running of projects, works or activities that may produce serious deterioration in renewable natural resources or the environment, or considerable modifications to the landscape. According to legislation,1 large projects of infrastructure (roads, dams), hydrocarbons (oil & gas), energy (power lines) and mining (e.g. coal mines, gold mines) require the license.
Data and Methods
Our methodological approach is based on document analysis since it is an efficient an effective way of gathering data to conduct a systematic examination of the use CBA in the licensing process. However, the limitation of this approach is that we cannot capture other ways in which CBA influence the decision maker but that are not evident in the document.
Our primary source of information is the administrative act, Resolution, through which the ANLA issues the decision on the environmental
Results
A total of 355 Resolutions for the period 2011–2018 were found and analysed. More than 90% of the Resolutions are for infrastructure and oil and gas projects, in line with the Colombian government priorities of improving transport infrastructure and increasing hydrocarbon reserves and production. Almost all licenses were granted, i.e. 349 or 98%, to 136 proponents (2.6 Resolutions per proponent on average).
CBA does not Seem to Contribute to Better Decisions
Our results indicate that CBA has limited influence on the final decision. In other words, that its use has not been instrumental. This claim is based on the following. First, in 85% of the instances where a license is granted the authority requires the applicant to revise and adjust the ex-ante CBA. Questioning and asking for more information is not a problem as long as the revised CBA is sent to the authority before it makes a final decision, as is the practice in the Chilean case (
Concluding Remarks
CBA is a useful decision procedure that can help agencies to evaluate projects according to their contribution to overall well-being if it enables agencies and interested parties to compare the advantages and disadvantages of projects in a clear a systematic way. In practice, however, that greatly depends on how CBA is integrated into the decision process.
As we showed for the Colombian environmental licensing process, CBA is an administrative procedure with limited material incidence. This is
Declaration of Competing Interest
The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.
Acknowledgments
We thank the attendees of the session of the 2018 Conference of the International Society for Ecological Economics where a previous version of this work was presented. This work was supported by Universidad del Norte, Colombia (grant number 2017-11). Also, comments from four anonymous reviewers helped to significantly improve the paper.
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