Cost-benefit analysis (CBA)
Cost-benefit analysis compares all the costs and benefits of a project, expressed in money, to decide whether it is worthwhile. For environmental decisions, it should include external costs and benefits (pollution, loss of forest, health gains) and not only private ones.
Because money now is worth more than money later, future values are discounted to a present value (PV): PV = future value ÷ (1 + r)ⁿ where r is the discount rate and n the number of years. For example, ₹110 received after one year at 10% is worth 110 ÷ 1.1 = ₹100 today.
A project is acceptable when the net present value (PV of benefits − PV of costs) is positive, or when the benefit–cost ratio (PV of benefits ÷ PV of costs) is greater than 1.
Limitations: it is hard to put a money value on biodiversity, cultural values or human life; a high discount rate makes long-term damage (like climate change) look small; and the analysis may ignore who gains and who loses (equity). Environmental Impact Assessment (EIA) is often used alongside CBA.
Extended Producer Responsibility (EPR)
Extended Producer Responsibility is a policy approach in which producers are made responsible for their products through the whole life cycle, especially the post-consumer stage: collection, take-back, recycling and safe disposal. It applies the polluter pays principle to products such as electronics, batteries, tyres and plastic packaging. EPR gives firms an incentive to design products that last longer, contain fewer toxic materials and are easy to recycle. India applies EPR in its rules on e-waste, plastic waste and battery waste, under which producers must meet collection or recycling targets, often through registered recyclers or producer responsibility organisations.
Key points
- CBA compares discounted benefits and costs; accept if NPV > 0 or B/C > 1.
- PV = FV ÷ (1 + r)ⁿ.
- High discount rates undervalue long-term environmental harm.
- EPR shifts end-of-life responsibility to producers.
Exam tips
- In numericals, discount each year's value before adding.
- EPR questions usually describe a company taking back used products.