# Presentation: 814400

## Economic & Environmental Analyses Relationships & Challenges

**Daniel Sulzer**
**Army Corps of Engineers**
- Los Angeles District

## Economic vs. Environmental Analysis

**Discussion Topics**
**Incremental Cost Analysis**
**Tradeoff Analysis**

## Incremental Analysis
General Observations	
Experience/Example
Suggestions
Conclusion

**General Observations****	**
**Experience/Example**
**Suggestions**
**Conclusion**

- Economic vs. Environmental Analysis

## Trade Off Analysis
Definition & Applicability
Regulations
Evaluation Process
Examples

**Definition & Applicability**
**Regulations**
**Evaluation Process**
**Examples**

- Economic vs. Environmental Analysis

## What Is Trade-Off Analysis?

- Applicability
- Planning studies which include National Economic Development (NED) and National Ecosystem Restoration (NER) outputs
- NED outputs measured monetarily ($$) vs. NER outputs measured non-monetarily (e.g. Habitat Units)
- Increases in one type of output result in reductions in the other type of output (e.g. Flood Control vs. Ecosystem Restoration)
- Hence, Planners must analyze the _trade-offs_ between NED and NER outputs when formulating and evaluating plans

## ER 1105-2-100, Section 2-3 (f.) (Planning Process)
The Combined NED/NER Plan. Projects which produce both National Economic Development (NED) benefits and National Ecosystem Restoration (NER) benefits will result in a “best” recommended plan so that no alternative plan or scale has a higher excess of NED benefits plus NER benefits over total project costs.  This plan shall attempt to maximize the sum of net NED and NER benefits, and to offer the best balance between two Federal objectives.  Recommendations for multipurpose projects will be based on a combination of NED benefit-cost analysis, and NER benefits analysis, including cost effectiveness and incremental cost analysis.
Formerly referred to as the “Optimum Tradeoff Plan”. 

- _The Combined NED/NER Plan_. Projects which produce both National Economic Development (NED) benefits and National Ecosystem Restoration (NER) benefits will result in a “best” recommended plan so that no alternative plan or scale has a higher excess of NED benefits plus NER benefits over total project costs.  This plan shall attempt to maximize the sum of net NED and NER benefits, and to offer the best balance between two Federal objectives.  Recommendations for multipurpose projects will be based on a combination of NED benefit-cost analysis, and NER benefits analysis, including cost effectiveness and incremental cost analysis.
- Formerly referred to as the “Optimum Tradeoff Plan”.

- Trade-Off Analysis Regulations

## Regulations, Cont.

- ER 1105-2-100, Appendix E, (E-61,E-62).
- When a project has both NED benefits and NER effects (multipurpose) the recommended plan should be “best” in the sense that no alternative plan or scale has a higher excess of NED benefits plus NEQ effects over total project costs.  This plan should be called the “combined NED/NER plan”.
- In some cases more of one output (say, NER) can only be obtained by accepting less of another (say, NED).  Formulating NED - NER tradeoffs are permissible, and should be made as long as the value of what is gained exceeds its implementation cost plus the value of what is foregone.** **

## Evaluation Process

- Trade NED benefits in favor of NER outputs as long as the incremental (subjective) value of the NER outputs exceeds the sum of NED benefits foregone plus incremental costs.
- Incremental costs equal added cost necessary to realize added environmental outputs less reduced cost permitted by reduced NED outputs.
- Make all such trades of one output for another until it is not possible to make further trades improving the total project.** **

## Simple Example

## Simple Example, Cont.

**Alt 1 -- No Trade-Offs**
**Alt 2 -- Same Net Benefits, Increased Restoration Costs/Benefits**
**Alt 3 -- Trade Off NED Benefits for NEQ Benefits -- Are the additional 7 Habitat Units “Worth” an Incremental Cost of $2.14 (which includes a $10 Reduction in NED Benefits)?**
**Answer is Subjective**

## Conclusion

**We Must Continue to Improve our Analysis Procedures for Environmental Projects and Attempt to Quantify Environmental Outputs Where Possible**
**Incremental Cost Analysis & Tradeoff Analysis Provides a Framework for Formulating & Evaluating Projects with Multiple Purposes**
**Answers May Still Come Down to Subjective Judgment**
**Questions/Comments**

## Environmental Operating Principles