Economic appraisal vademecum 2021-2027 : general principles and sector applications.
Date: 2022-10-06
Institutions: Directorate-General for Regional and Urban Policy
Subjects: EU Member State, EU regional policy, cost-benefit analysis, economic and social cohesion, financing, investment project, project evaluation, regional development, small and medium-sized enterprises, user guide

Economic Appraisal Vademecum 2021-
Economic Appraisal
2027
Vademecum 2021-2027 
General Principles and Sector Applications

General Principles and Sector Applications

Regional and
Urban Policy

1

Economic Appraisal Vademecum 
EUROPEAN COMMISSION

Directorate-General for Regional and Urban Policy
Directorate F - Better implementation, Closure and Programme Implementation III
Unit F1 — Better Implementation and Closure

Contact: Sabine Vandermotten, deputy Head of Unit

E-mail: 

REGIO-F1-HOU@ec.europa.eu

REGIO-CBA-FORUM@ec.europa.eu

European Commission 
B-1049 Brussels

 
FOREWORD

Elisa Ferreira
Commissioner for 
Cohesion and Reforms

In 
the  aftermath  of 
COVID-19  pandemic,  the 
European Union mobilised 
unprecedented funding to 
cope  with  the  economic 
and  social  consequences 
of 
to 
the  crisis  and 
for  a  green, 
prepare 

digital and resilient recovery. Cohesion Policy 2021-27 
remains the main investment arm of the EU, ensuring 
that no region and no person is left behind. 

In  our  path  to  a  more  innovative,  sustainable  and 
cohesive growth model, the role of economic appraisal 
is  more  important  than  ever.  Our  projects  need  to 
provide  the  best  value  for  money  and  offer  the  best 
return for the society by providing services and goods 
in an effective and efficient manner. In order to achieve 
that  we  need  evidence-based  analysis,  intellectual 
integrity and investment decisions based on objective 
and  verifiable  methods.  At  the  same  time,  we  aim 
to  make  Cohesion  Policy  rules  simpler  and  leaner, 
to  reduce  administrative  burden  for  beneficiaries, 
especially  for  SMEs  and  promoters  of  small  projects. 

Several  analytical  methods 
including  cost-benefit 
analysis,  cost-effectiveness,  least-cost  and  multi-
criteria analysis, can be used to verify whether projects 
achieve  relevant  objectives  of  our  programmes  in  an 
effective and efficient manner. 

This Vademecum presents all these methods, based on 
vast experience that has been gathered in 2014-2020 
by the Commission  and JASPERS. The Vademecum is 
based  on  internationally  recognised  standards  and 
good  practices.  Member  States  can  now  tap  into  this 
experience when preparing their national selection and 
appraisal systems in 2021-27. 

I am thrilled to see how Cohesion Policy can positively 
change the lives of our citizens! Through the Cohesion 
policy  trademarks  of  genuine  partnership,  multi-level 
governance  and  bottom-up  approaches,  Member 
States and the Commission should be prioritising those 
projects that will turn our inclusive, green and digital 
vision  into  reality  in  every  region,  ensuring  the  more 
resilient and competitive Europe that we want for our 
children and for ourselves.

3

Economic Appraisal Vademecum   
CONTRIBUTORS

This Economic Appraisal Vademecum (EAV) was prepared by DG REGIO with the support of JASPERS experts involved in project 
economic appraisal. The EAV team included:

Project management and supervision 

DG REGIO - Unit F1 Better Implementation and Closure: 

Sabine Vandermotten (Deputy Head of Unit) 

Camelia Mihaela Kovács (Administrator) 

Witold Willak (Deputy Head of Unit, 02 Coordination of Programmes)

Lead author 

Davide Sartori (EIB/JASPERS)

Coordination, peer review and co-author

Massimo Marra (JASPERS)

The following experts from JASPERS authored the document:  

PART I – General principles  

Introduction 

1. Role of economic appraisal

2. Cost benefit analysis 

3. Other economic appraisal tools

PART II – SECTOR APPLICATIONS

Research and Innovation infrastructure

Renewable energy

Energy efficiency

Municipal waste management

Transport

Broadband

Water and wastewater

Healthcare

Davide Sartori

Massimo Marra, Davide Sartori

Davide Sartori

Davide Sartori

Robert Swerdlow

Francesco Angelini

Francesco Angelini

Sarunas Bruzge, Nickolay Danev
Patrizia Fagiani, Paul Riley, Fergal Trace, Andreea Raducu, 
Marko Kristl
Joanna Knast-Braczkowska, Michael Schaller

Michal Marcincak, Christine Mertens, Kenneth Valentine

Adam Kozierkiewicz, Ana Maria Lupascu, Davide Sartori

Information and Communication Technologies
Optimising programmes for territorial and urban 
development

Joanna Knast-Braczkowska, Michael Schaller

Teresa Calvete, Gwendolyn Carpenter

The authors are grateful to colleagues who reviewed earlier drafts of the document, including: Julien Bollati from the European 
Climate,  Innovation  and  Networks  Executive  Agency  (CINEA);  Anna–Leena  Asikainen,  José  Doramas  Jorge  Calderon,  Christian 
Milhan, Andre Oosterman, Christian Schempp and Isidoro Tapia from the European Investment Bank. 

The authors benefited from the advice of Prof. Massimo Florio (University of Milan) who acted as external academic advisor for 
the Part I – General Principles. No errors or omissions should be attributed to him. 

4

Economic Appraisal VademecumProject management and supervision 

DG REGIO - Unit F1 Better Implementation and Closure: 

Sabine Vandermotten (Deputy Head of Unit) 

Camelia Mihaela Kovács (Administrator) 

Witold Willak (Deputy Head of Unit, 02 Coordination of Programmes)

Lead author 

Davide Sartori (EIB/JASPERS)

Coordination, peer review and co-author

Massimo Marra (JASPERS)

The following experts from JASPERS authored the document:  

PART I – General principles  

Introduction 

1. Role of economic appraisal

2. Cost benefit analysis 

3. Other economic appraisal tools

PART II – SECTOR APPLICATIONS

Research and Innovation infrastructure

Renewable energy

Energy efficiency

Transport

Broadband

Healthcare

Massimo Marra, Davide Sartori

Davide Sartori

Davide Sartori

Davide Sartori

Robert Swerdlow

Francesco Angelini

Francesco Angelini

Municipal waste management

Sarunas Bruzge, Nickolay Danev

Patrizia Fagiani, Paul Riley, Fergal Trace, Andreea Raducu, 

Marko Kristl

Joanna Knast-Braczkowska, Michael Schaller

Adam Kozierkiewicz, Ana Maria Lupascu, Davide Sartori

Information and Communication Technologies

Joanna Knast-Braczkowska, Michael Schaller

Optimising programmes for territorial and urban 

development

Teresa Calvete, Gwendolyn Carpenter

The authors are grateful to colleagues who reviewed earlier drafts of the document, including: Julien Bollati from the European 

Climate,  Innovation  and  Networks  Executive  Agency  (CINEA);  Anna–Leena  Asikainen,  José  Doramas  Jorge  Calderon,  Christian 

Milhan, Andre Oosterman, Christian Schempp and Isidoro Tapia from the European Investment Bank. 

The authors benefited from the advice of Prof. Massimo Florio (University of Milan) who acted as external academic advisor for 

the Part I – General Principles. No errors or omissions should be attributed to him. 

This Economic Appraisal Vademecum (EAV) was prepared by DG REGIO with the support of JASPERS experts involved in project 

B/C 

             benefit/cost

economic appraisal. The EAV team included:

CAPEX 

capital expenditures

ACRONYMS

CBA 

CEA 

CEF 

CF 

CO2e 

CPR 

EA 

EAV 

EBRD 

EIB 

ENPV 

cost–benefit analysis

cost-effectiveness analysis

Connecting Europe Facility

conversion factor

carbon dioxide equivalent

common provisions regulation

economic appraisal

Economic Appraisal Vademecum

European Bank for Reconstruction and Development

European Investment Bank

economic net present value

ENTSO-E 

European Network of Transmission System Operators for Electricity

ENTSOG 

European Network of Transmission System Operators for Gas

ERR 

FDR 

GHG 

economic rate of return

financial discount rate

greenhouse gas

Water and wastewater

Michal Marcincak, Christine Mertens, Kenneth Valentine

JASPERS 

Joint Assistance to Support Projects in European Regions

LCA 

MCA 

MFF 

O&M 

OPEX 

least-cost analysis

multi-criteria analysis

multiannual financial framework

operation and maintenance

operating expenses

PLMCA 

policy-led multi-criteria analysis

RI-PATHS 

Research Infrastructure Impact Assessment Pathways

SDR 

SE 

SRTP 

WACC 

social discount rate

stakeholder engagement

social rate of time preference

weighted average capital cost

5

Economic Appraisal VademecumTABLE OF CONTENTS

Part I - General Principles

INTRODUCTION 

1. 
1.1 
1.2 
1.3 
1.4. 

2. 
2.1 
2.2 
2.3 
2.4 
2.5 

ROLE OF ECONOMIC APPRAISAL 
Economic appraisal in the EU 2021–2027 policy framework 
Economic appraisal and the project cycle 
Choice of tool 
Difference from financial appraisal 

COST–BENEFIT ANALYSIS 
Introduction 
Simplified cost–benefit analysis 
Parameters 
Topics not (fully) addressed in the 2014 CBA guide 
Updates and developments 

OTHER ECONOMIC APPRAISAL TOOLS 
Least-cost and cost-effectiveness analyses 

3. 
3.1 
3.2  Multi-criteria analysis 

APPENDIX I. Overview of existing cost–benefit analysis national guidance 

BIBLIOGRAPHY 

Part II - Sector Applications

ANNEX I. Research and innovation 

ANNEX II. Renewable energy 

ANNEX III. Energy efficiency 

ANNEX IV. Municipal waste management 

ANNEX V. Transport 

ANNEX VI. Broadband 

ANNEX VII. Water and wastewater 

ANNEX VIII. Healthcare 

ANNEX IX. Information and communication technologies: e-services 

ANNEX X. Optimising programmes for territorial and urban development 

BIBLIOGRAPHY 

6

8

10
10
13
16
18

20
20
20
20
21
22

25
25
26

28

31

35

41

46

50

54

64

67

72

79

83

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Economic Appraisal VademecumEconomic Appraisal

Vademecum 2021-2027

Part I - General Principles

7

Economic Appraisal VademecumINTRODUCTION

Background

The common provisions regulation for the 2014–2020 programming period included an obligation for major projects to undertake 
a cost–benefit analysis (CBA) in line with the methodology described in legislation (Commission Implementing Regulation (EU) 
No 207/2015) (1), supported by the European Commission Guide to Cost–Benefit Analysis of Investment Projects published in 
2014 (2) – hereinafter referred to as the 2014 CBA guide.

The methodology and the 2014 CBA guide strengthened several aspects of the concrete application of CBA in project preparation, 
notably in relation to economic analysis. The Joint Assistance to Support Projects in European Regions (JASPERS) initiative, which 
supported the European Commission in the development of the last two editions of the European Commission CBA guide, was 
strategically positioned to ensure quality standards across projects with proven benefits in terms of both consistency of approach 
and optimisation of public spending across sectors. The requirement for CBA has contributed significantly to ensuring good value 
for money and has encouraged rigour in the project selection process.

Through the application of CBA to major projects in the 2014–2020 programming period, EU Member States gained a lot of 
experience in using CBA as a tool to support decision-making on EU-funded investments. In many Member States, the use of 
CBA in project appraisal extended beyond major projects, confirming the growing appreciation of the benefits of carrying out 
economic appraisal (EA) to ensure an optimal allocation of available funding. On the other hand, the conduct of CBA in certain 
sectors  and  certain  projects  appeared  overly  complex  and  time-consuming,  implying  that  simpler  methods  that  offer  similar 
explanatory value are required. Building on the experience gained, a more flexible, yet rigorous, analytical framework for project 
EA is proposed for the 2021–2027 programming period, for voluntary use. This framework reflects the principle of delegation of 
approval to the national authorities to better take into account specific and national project contexts.

In the context of the European Green Deal and Europe’s commitments to fighting climate change, it is more important than ever 
to use a methodology that offers a wider perspective than looking only at financial cash flows between stakeholders of European 
projects and policies, including quantifying and monetising the effects on those stakeholders that are indirectly affected by those 
policies.

EU and national recovery plans that have been developed to mitigate the economic recession triggered by the COVID-19 crisis 
provide Member States with funding and financing opportunities for investments in several sectors. Public grants and loans will 
be used in combination with regulatory measures and public fiscal interventions to promote the recovery from the crisis in the 
long term, including addressing the infrastructure backlogs observed in the EU. In this context, it will be important to secure the 
sound selection and prioritisation of projects – based on, among other criteria, the results of EA.

In recognition of the above, and considering the exclusive responsibility of national authorities to assess and approve cohesion 
policy projects in the 2021–2027 programming period, the Directorate-General for Regional and Urban Policy has launched, with 
the support of JASPERS, the preparation of this Economic Appraisal Vademecum (EAV), for possible wider voluntary use across 
EU funding sources in the 2021–2027 programming period. This EAV is based on established good practices at both EU and 
national levels and it is consistent with the approach to EA followed by the European Investment Bank and other international 
financing institutions.

The EAV aims to provide methodological insights and tools to use EA methods in support of the early screening of investments 
and for the assessment of projects for which a more detailed CBA might not be necessary.

To  complement  the  EAV,  the  Directorate-General  for  Regional  and  Urban  Policy  developed  a  spreadsheet  template  with  the 
objective of standardising how to structure the cash flows underpinning EA. The use of a standardised template is considered 
useful, as it provides project promoters with some practical guidance on the format of the content of a CBA or other EA tool. At 
the same time, this template helps evaluators to assess project proposals faster. This template is a tool that is complementary 
to both the 2014 CBA guide and the EAV (3).

Objective and scope

The  objective  of  this  EAV  is  to  further  promote  and  simplify  the  voluntary  use  of  EA  for  EU  co-financed  investments  in  the 
2021–2027 programming period. Carrying out EA is good practice for any EU-supported project, as it helps to ensure the optimal 
allocation of available funding and to verify that the projects supported are good value for money.

In this document, EA is defined as the process aimed at assessing if a project will contribute to overall social welfare and to 
economic growth. It takes into account benefits and costs to society and gauges the value that the project generates for all 
stakeholders, to determine if society will gain from the investment.

The EAV intends to ensure that appraisal is ‘fit for purpose’ and provides the necessary information for decision-makers at various 
decision points throughout the project cycle, while reducing the administrative burden not only for beneficiaries but also for those 
bodies involved in the management of EU funds.

1 See: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015R0207&from=EN 

2 See: https://ec.europa.eu/regional_policy/sources/docgener/studies/pdf/cba_guide.pdf  

3 The spreadsheet template was prepared by Dr. Linas Jasiukevičius under a consulting assignment led by the European Commission and also benefitted from advice of experts from JASPERS and from Julien Bollati 

of CINEA.

8

Economic Appraisal VademecumFor the 2021–2027 programming period and the cohesion policy funds, the use of CBA is not a legal requirement, and the 2014 
CBA guide is not a legally binding document. It is recommended, however, to keep following its provisions to assess the economic 
viability of large infrastructure investments. Starting from this basis, the EAV does not replace the 2014 CBA guide, but instead 
complements it in the following ways:

- 

- 

- 

it introduces the principles of proportionality and flexibility to EA, in particular for projects on a small scale or simple 
projects for which developing a fully fledged CBA might be unnecessarily burdensome or costly;

it facilitates the practical application of the EA methodologies through the identification of established good practices;

it covers additional sectors deemed to be relevant in the multiannual financial framework (MFF) for 2021–2027.

CBA remains the recommended appraisal tool, but other tools are suggested in specific circumstances based on sector, project 
type and scale.

The EAV is not prescriptive and should not be understood as an enforcement tool of EU legislation. Member States can draw 
on the information presented to set up a framework for both project appraisal and selection that is in line with international 
good practices. In particular, they can use it to better define their methods and criteria to approve investments in a context of 
transparency and accountability of public expenditure.

As  EA  tools  can  be  used  across  different  EU/national  policy  sectors  and  institutions,  the  EAV  is  not  linked  exclusively  to  the 
cohesion policy and is a resource that can be used across different funds in the 2021–2027 financial perspective.

Finally,  it  is  worth  underlining  that  the  EAV  covers  economic  (and  to  some  extent  financial)  appraisal  only.  Other  important 
aspects of project appraisal (e.g. demand; technical, environmental, legal and procurement aspects; and risk assessments) are 
not discussed in this document. This is not to say that these aspects should not be assessed, but they would be better dealt 
with within a project preparation guide than within a guide for EA. Where relevant, the EAV makes reference to existing guidance 
documents and methodologies that help in dealing with these aspects in a sound manner.

Structure

The EAV is structured in two parts.

Part I – general principles

- 

- 

- 

- 

- 

Chapter 1 discusses why it is important to carry out an EA and how this should be proportional to the project’s type 
and flexible enough to account for the specificities of the project’s context. A simplified approach for the screening 
of investment options is presented in this chapter.

Chapter 2 illustrates CBA as the recommended EA voluntary tool. It complements the guidance provided in Chapter 2 
of the 2014 CBA guide with additional/updated information, clearly stating when this represents a development or 
a further specification compared with that guide. The text promotes a more flexible approach to setting some of the 
parameters relevant for CBA than the requirements of the 2014–2020 programming period.

Chapter 3 presents the guiding principles, key features and scope of application of alternative EA tools such as 
least-cost analysis (LCA), cost-effectiveness analysis (CEA) and multi-criteria analysis (MCA). This chapter updates 
and expands upon Annex IX of the 2014 CBA guide.

Appendix I provides a non-exhaustive overview of existing CBA national guidance.

Finally, a bibliography of relevant references is provided.

Overall, Part I provides the general analytical framework for using EA during the 2021–2027 MFF.

Part II – sector applications

- 

- 

Annexes  I  to  VII  set  out  good  practices  in  EA  in  the  following  sectors  to  complement  the  corresponding  chapters  of  the 
2014 CBA guide: research and innovation, renewable energy, energy efficiency, municipal waste management, transport, 
broadband, and water and wastewater. The focus is on topics in which the state of the art (in terms of data sets or guidance) 
has developed since the 2014 CBA guide or conclusions have been drawn from the lessons learned in 2014–2020.

Annexes VIII to X present methodologies for EA in sectors that were not covered in the 2014 CBA guide but are considered 
relevant in the 2021–2027 MFF, namely healthcare, ICT and urban development.

These annexes are structured as follows: an introduction presenting the policy context, a discussion of what EA tool to use and 
what simplifications to apply at the different stages of the project cycle, and guidance on the key aspects featuring EA for the 
relevant projects in the sector.

These annexes align with and further develop the general principles illustrated in Part I.

Even though they have some obvious connections and synergies, these annexes are intended as relatively independent sectoral 
good practice guidance (‘living documents’) that can be updated over the course of the MFF once additional sources of information 
or empirical data become available. Also, new sectors might be added at a later stage.

9

Economic Appraisal Vademecum1. ROLE OF ECONOMIC APPRAISAL

1.1 Economic appraisal in the EU 2021–2027 policy framework

The  use  of  economic  appraisal  (EA)  methodologies  is  relevant  to  several  proposed  sources  of  EU  funding  in  the  financial 
perspective for 2021–2027. The key linkages between EA and the EU 2021–2027 policy framework are described in this section.

The policy framework for the cohesion policy outlines five main objectives in 2021–2027:

1.  a  more  competitive  and  smarter  Europe,  by  promoting  innovative  and  smart  economic  transformation  and  regional  ICT 

connectivity;

2.  a greener, low-carbon transition towards a net-zero carbon economy and resilient Europe, by promoting a clean and fair 
energy transition, green and blue investment, the circular economy, climate change mitigation and adaptation, risk prevention 
and management, and sustainable urban mobility;

3.  a more connected Europe, by enhancing mobility;

4.  a more social and inclusive Europe implementing the European Pillar of Social Rights;

5.  a Europe closer to citizens, by fostering the sustainable and integrated development of all types of territories and local 

initiatives.

The Just Transition Fund shall support the specific objective of enabling regions and people to address the social, employment, 
economic, and environmental impacts of the transition towards the Union’s 2030 targets for energy and climate and a climate-
neutral economy of the Union by 2050, based on the Paris Agreement.

According  to  the  common  provisions  regulation  (CPR)  (4)  approved  in  June  2021,  there  are  no  legal  requirements  for  ‘major 
projects’ with EU ex ante approval, nor does the regulation explicitly mention the need to perform a CBA (5).

However, the CPR calls for managing authorities to ensure proper value for money for the selection of operations to be financed, 
with a major shift of responsibilities from the EU to Member States. The rationale for such a shift is based on the acknowledgement 
that, over the years, best practices in the field of project preparation and EA were systematically promoted and developed at the 
national level in line with EU requirements. At the same time, the CPR aims to foster the promotion of national quality standards 
and practices.

At the national level, establishing and enforcing a methodology and related criteria for the selection of operations falls within the 
responsibilities of managing authorities and of monitoring committees (6). The results of EA can be used as, among other things, 
selection criteria to verify that projects are good value for money (i.e. to verify the maximisation of the ratio between resources 
used and expected achievements).

Table 1 at the end of this section provides an overview of the main simplifications introduced in the approach to EA for cohesion 
policy-funded investments in the 2021–2027 programming period, compared with 2014–2020.

EA in general and CBA in particular are becoming increasingly relevant in other investment contexts beyond the cohesion policy.

CBA remains a requirement for most projects applying to the Connecting Europe Facility (CEF). According to the regulation 
laying down the next CEF long-term budget (2021–2027) (7), CBA is among the criteria for the eligibility and awarding of grants 
for cross-border projects in the field of renewable energy. For other sectors such as transport and energy transmission, CBA 
requirements are specified in the work programmes and calls for proposals. Information included in CBAs will be assessed in the 
framework of the selection process for Projects of Common Interest (PCIs). The European Climate, Infrastructure and Environment 
Executive Agency has designed and made available to its beneficiaries a spreadsheet template to present the CBA results in the 
submission of project proposals in the field of transport (CEF-T). In addition, a dedicated section of the spreadsheet template that 
is complementary to this EAV and provides unit values of benefits and costs at the country level is being considered for smaller 
projects applying to the CEF transport call for proposals for 2021–2027. In the field of energy (CEF-E), it is recommended that 
the CBA methodology drawn up by the European Network of Transmission System Operators for Electricity (ENTSO-E) (8) and 
forGas (ENTSO-G) (9) is followed.

4  Regulation (EU) 2021/1060 of the European Parliament and of the Council of 24 June 2021 laying down common provisions on the European Regional Development Fund, the European Social Fund Plus, the 
Cohesion Fund, the Just Transition Fund and the European Maritime, Fisheries and Aquaculture Fund and financial rules for those and for the Asylum, Migration and Integration Fund, the Internal Security Fund and 
the Instrument for Financial Support for Border Management and Visa Policy. 

5  According to Article 100 of Regulation (EU) No 1303/2013, a major project is an investment operation comprising “a series of works, activities or services intended in itself to accomplish an indivisible task of a 

precise economic or technical nature which has clearly identified goals and for which the total eligible cost exceeds EUR 50 000 000 […]”. 

6  In some Member States, methodologies are also centrally adopted at the coordinating body level, to be applied consistently by the various managing authorities.

7  Regulation (EU) 2021/1153 of the European Parliament and of the Council of 7 July 2021 establishing the Connecting Europe Facility and repealing Regulations (EU) No 1316/2013 and (EU) No 283/2014. (http://

data.europa.eu/eli/reg/2021/1153/oj). 

8  ENTSO-E  (2020),  3rd  ENTSO-E  guideline  for  cost  benefit  analysis  of  grid  development  projects,  draft  version,  28  January  2020  (https://eepublicdownloads.blob.core.windows.net/public-cdn-container/tyndp-

documents/2020-01-28_3rd_CBA_Guidleine_Draft.pdf). Final draft pending European Commission approval.

9    ENTSOG  (2019),  2nd  ENTSOG  methodology  for  cost-benefit  analysis  of  gas  infrastructure  projects  2018  (https://www.entsog.eu/sites/default/files/2019-03/1.%20ADAPTED_2nd%20CBA%20Methodology_
Main%20document_EC%20APPROVED.pdf).

10

Economic Appraisal VademecumThe InvestEU regulation (10) introduces climate, environmental and social sustainability of investments as crucial elements in 
the decision-making process when approving the use of the EU guarantee. These sustainability aspects should be verified for 
the financing of investment operations under all windows of the InvestEU Fund, in particular in the area of infrastructure, also 
taking into consideration the principle of proportionality. Operations with a significant climate, environmental or social impact 
must  be  subject  to  a  sustainability  proofing  assessment  following  the  methodology  developed  in  the  InvestEU  sustainability 
proofing guidance (11). The assessment, quantification and, where feasible, monetisation of environmental and climate change 
impacts (costs and benefits) delivered by the project fit into the more comprehensive EA that is usually carried out by InvestEU 
implementing partners as part of their due diligence process. The results of EA should be reported to the InvestEU Investment 
Committee and taken into account, among other elements, when deciding on granting the EU guarantee. For those implementing 
partners that do not (yet) have an established approach or procedure, this EAV (together with the 2014 CBA guide and the other 
EU and national manuals mentioned in this section 1.1 and in Annex I) can provide a useful reference framework.

The  Recovery  and  Resilience  Facility  will  make  EUR  672.5  billion  in  loans  and  grants  available  to  support  reforms  and 
investments undertaken by Member States by 2026. The aim is to mitigate the economic and social impact of the coronavirus 
pandemic and make European economies and societies more sustainable, more resilient and better prepared for the challenges 
and opportunities of the green and digital transitions. The Commission guidance to Member States on recovery and resilience 
plans (12) specifies the following.

When preparing their plans, Member States should consider an investment as an expenditure on an activity, project, or 
other action within the scope of the Proposal that is expected to bring beneficial results to society, the economy and/or 
the environment. The Proposal aims at promoting measures that, if taken now, would bring about a structural change 
and have a lasting impact on economic and social resilience, sustainability and long-term competitiveness (green and 
digital transitions), and employment.

A  simplified  EA  (as  discussed  later  in  this  document)  can  be  adopted  in  this  context  to  assess  the  overall  impacts  of  the 
investments included in the recovery plans financed by the facility, while at the same respecting the need for timely decision-
making.

CBA will also remain a requirement in the framework of the preparatory phase of European Strategy Forum on Research 
Infrastructures projects (the priority roadmap for research infrastructures in the EU). A Guidebook for socio-economic impact 
assessment of research infrastructures was recently published by the Research Infrastructure Impact Assessment Pathways (RI-
PATHS) project funded by Horizon 2020 (13).

In terms of international financing institutions, the European Investment Bank (EIB) conducts an EA of projects considered 
for financing. The EIB uses CBA as the default methodology to estimate a project’s economic rate of return (ERR) that accounts 
for broader project benefits and costs to society, including environmental externalities. It also applies CEA and, more recently, 
MCA, taking into account the evolving circumstances of each sector. The results of the EA are entered into the overall evaluation 
framework  of  projects  applying  for  a  loan  from  the  EIB  (additionality  and  impact  measurement  framework).  The  economic 
appraisal of investment projects at the EIB (EIB, 2013a) presents the methodologies that the EIB uses to assess the economic 
viability of projects. The EIB is currently updating this manual (14).

The European Bank for Reconstruction and Development (EBRD) undertakes an economic assessment of projects with high 
greenhouse gas (GHG) emissions (15). When applying the economic assessment, a CBA is conducted, unless a CEA is deemed more 
appropriate in some specific circumstances, as described in the Methodology for the economic assessment of EBRD projects with 
high greenhouse gas emissions (2019) (16).

The use of CBA has also gained much ground for the appraisal of investment projects at the national level, as reflected in 
several manuals that were published for different sectors. Appendix I provides a non-exhaustive overview of existing CBA national 
guidance. Some examples include the following: for France, Quinet et al. (2013); for Sweden, ASEK (2016) and Kriström and Bonta 
Bergman (2014); for Poland, the experience of the Centre for EU Transport Projects (CUPT; Archutowska et al., 2014); and for the 
United Kingdom, the Green Book (last update in 2018; UK Treasury, 2018).

CBA is also used to appraise relatively small investments in smaller economies. For example, in Lithuania, CBA is required for 
investment projects larger than EUR 300 000. In Malta, the requirement for CBA becomes mandatory for any project proposal 
with a total project cost of over EUR 5 million.

10 Regulation (EU) 2021/523 of the European Parliament and of the Council of 24 March 2021 establishing the InvestEU Programme and amending Regulation (EU) 2015/1017 (http://data.europa.eu/eli/reg/2021/523/
oj). 

11 European Commission (2021), Technical guidance on sustainability proofing for the InvestEU Fund, C(2021) 2632 final, European Commission, Brussels (https://europa.eu/investeu/investeu-fund/about-investeu-
fund_en). 

12 European Commission (2021), Commission staff working document guidance to Member States recovery and resilience plans, SWD(2021) 12 final, European Commission, Brussels (https://ec.europa.eu/info/sites/
default/files/document_travail_service_part1_v2_en.pdf).

13 For more information, see the RI-PATHS website (www.ri-paths.eu).

14 EIB (2013a), Economic appraisal of investment projects at the EIB (https://www.eib.org/attachments/thematic/economic_appraisal_of_investment_projects_en.pdf).

15 That is, projects where the proceeds increase emissions by 25 000 tonnes of carbon dioxide equivalent (CO2e) per year relative to a baseline or increase emissions by 100 000 tonnes of CO2e per year in absolute 
terms.

16 EBRD (2019), Methodology for the economic assessment of EBRD projects with high greenhouse gas emissions (https://www.ebrd.com/news/publications/institutional-documents/methodology-for-the-economic-
assessment-of-ebrd-projects-with-high-greenhouse-gasemissions.html).

11

Economic Appraisal VademecumSince 2007, JASPERS (17) has been supporting the development of national CBA guidelines in several EU Member States, as 
well as providing extensive capacity building on the subject, also at the EU level (18). Based on these activities over the last two 
programming periods, the practice of using EA tools for decision-making on EU co-financed projects has become well established 
across the Member States and is likely to continue in 2021–2027.

Table  1.  Approaches  to  EA  for  cohesion  policy-funded  investments  –  differences  between  2014–2020  and 
2021–2027

Topic

2014–2020

Major projects

2021–2027

Projects

Legal basis 
for EA

According to Article 101(e) of Regulation 
No 1303/2013, a CBA – including an economic 
and a financial analysis, and a risk assessment – 
is mandatory in order to get approval for the 
co-financing of major projects

EA tool

CBA is mandatory for major projects in any 
sector

Results of EA

As set out in Article 101 of Regulation 
No 1303/2013, an economic analysis must be 
included in the CBA to compute the project’s 
economic performance. The calculation of 
economic net present value and ERR indicators 
is requested to verify that the project is worth 
co-financing

The use of EA will be left to the discretion of the 
managing authority and of the monitoring committee 
that will set up a framework for project appraisal 
and selection that is compliant with the requirements 
of Article 73 of the CPR. EA tools can be used and 
adapted to the size and complexity of EU-funded 
projects

A more flexible and proportional framework will be 
implemented; other tools such as CEA and MCA – in 
addition to CBA – are proposed for voluntary use, 
based on sector and/or project type and scale (see 
Section 1.3)

It is good practice to use the results of EA as one 
of the criteria in assessing and selecting project 
proposals in order to verify that the selected project is 
good value for money (as requested by Article 73(c) of 
the CPR)

Option 
analysis

According to Annex III to Regulation No 
2015/207, for major projects, the option 
analysis should be carried out in two steps. 
The first step looks at basic strategic options 
and is based on MCA. Once the strategic 
option is identified, the second step consists 
of a comparison of the specific technological 
solutions based on quantitative methods 
(simplified CBA or CEA). A fully fledged CBA is 
then carried out on the selected technical option

A simplified EA (CBA, CEA or MCA) is an established 
good practice for screening and ranking options. 
When the project is limited in size, this is normally 
sufficient to identify a preferred option and justify 
approval for its co-financing. When the project is large/
strategic, or when the results of the simplified EA are 
inconclusive, a fully fledged EA should be carried out 
at subsequent stages of development of the proposal 
(see Section 1.2)

Analysis of 
financial 
performance

As set out in Article 101 of Regulation 
No 1303/2013, a financial analysis must be 
included in the CBA to compute the project’s 
financial profitability. The calculation of financial 
rate of return of the investment and financial 
rate of return of national capital indicators is 
requested (by Annex III to Regulation 2015/207) 
to verify that the project is in need of co-
financing

No provisions are made in the CPR to assess the 
project’s financial performance. Member States are 
free to set up their methods and criteria to verify that 
the project is in need of co-financing. For most cases, 
State aid rules will apply

17 JASPERS is a major joint technical assistance initiative of the European Commission and the European Investment Bank that provides advisory and capacity-building support to all EU Member States and pre-
accession countries for the preparation of projects to be co-financed by EU structural and cohesion funds, by the instrument for pre-accession assistance and by the Connecting Europe Facility. JASPERS helps 
beneficiary countries to absorb EU funds intended to achieve greater cohesion in Europe through sound programmes and projects, which are planned, prepared, procured and run to the highest technical, social and 
environmental standards possible. For further information, visit the JASPERS website (http://jaspers.eib.org/).

18 For more information about the EU level, see in particular the cycle of joint JASPERS / Directorate-General for Regional and Urban Policy CBA forum meetings implemented between 2015 and 2019 
(www.jaspersnetwork.org)

12

Economic Appraisal VademecumAnalysis of 
financial 
sustainability

Annex III to Regulation No 2015/207 requires 
an analysis of financial sustainability based on 
undiscounted cash flow

Financial 
discount rate

According to Article 19 of Regulation 
No 480/2014, a 4 % discount rate will be used 
as the single reference parameter for all sectors 
in all Member States, except for projects falling 
under State aid rules

Article 73(d) of the CPR gives a requirement to ‘verify 
that the beneficiary has the necessary financial 
resources and mechanisms to cover operation 
and maintenance costs for operations comprising 
investment in infrastructure or productive investment, 
so as to ensure their financial sustainability’

If a financial analysis with a calculation of 
performance indicators is carried out, Member States 
are free to assess their own country- and/or sector-
specific financial discount rate(s). In the absence of 
national guidelines, adherence to State aid rules is 
recommended

EU support
intensity 

In accordance with Article 61 of Regulation 
No 1303/2013, Annex V to Regulation 
No 1303/2013 and Section III of Regulation 
No 480/2014, the outcomes of the financial 
analysis in the CBA are used to calculate the 
funding gap rate and, in turn, the intensity/level 
of EU support (unless State aid rules prevail)

According to Article 73(c) of the CPR, the managing 
authority need to ‘ensure that selected operations 
present the best relationship between the amount of 
support, the activities undertaken and the achievement 
of objectives’. This implies, amongst other, that 
self-financing and/or the bankability potential of an 
operation should be taken into account where relevant

Reference 
period of the 
analysis

Annex I to Regulation No 480/2014 provides a 
list of mandatory reference periods to be used 
per sector

There will be no mandatory fixed parameters. An 
indication of typical reference periods per sector is 
provided as indicative guidance, but project promoters/
managing authorities can adjust them in accordance 
with the project’s economically useful life (see 
Section 2.3 and Part II of the EAV)

Social 
discount rate

According to Annex III to Regulation No 
2015/207, a social discount rate of 5 % will be 
used for major projects in cohesion countries 
and 3 % for the other Member States

Member States are free to establish and use their own 
country-specific social discount rate (see Section 2.3); 
3 % can be used in the absence of a national 
approach

Type of 
benefits

Annex III to Regulation No 2015/207 provides a 
list of the minimum main economic benefits per 
sector to be considered in the economic analysis

Compliance-
driven 
projects

National
methodol-
ogies and 
tools

In a major project, CBA is mandatory

Member States are encouraged to establish 
their own national methodological frameworks 
for EA

There will be no mandatory list of benefits. 
Recommendations for typical benefits per sector are 
provided as indicative based on good practices (see 
Part II of the EAV)

CEA is deemed to be sufficient to assess the economic 
viability of the project, regardless of its scale (see 
Section 1.3)

Member States are encouraged to follow or establish 
their own national methodological frameworks for EA. 
As a complementary instrument to the EAV (the use of 
which is voluntary), a spreadsheet template has been 
made available to the Member States. The template 
provides project promoters with practical guidance on 
the format of the content of CBA (or other EA tools). At 
the same time, it can be used by evaluators to assess 
projects

1.2 Economic appraisal and the project cycle

EA is a key component in project development that aims to support the economic case for EU funding and project approval. 
It can help both project promoters and evaluators by:

- 

- 

- 

- 

providing useful information to decision-makers at key decision milestones throughout the project development cycle;

prioritising or ranking projects to meet a set of intended objectives with constrained resources;

scoping out and shortlisting both strategic and technical options in the early programming and project development phase;

enhancing transparency and accountability in project selection by using a consistent method that allows assumptions to be 
tested.

13

Economic Appraisal VademecumFor EA to inform decision-making, it should be supported by robust and objectively verifiable evidence and should consider a 
range of options to achieve a well-defined objective or range of objectives. This will lower the risk that the analysis is used as a 
mere compliance tool that justifies a decision already taken.

The EA can be used in a variety of situations during the different stages of the project life cycle. During project preparation, it is 
used to identify and develop, in an iterative manner, the best project option to pursue the intended objectives and, ultimately, to 
decide whether to proceed or not with a specific investment. During implementation, it can be useful as a reference to check the 
actual rolling out of the investment against the intended objectives and targets for monitoring purposes. Ex post, it can be used 
to guide evaluations and extract lessons learned for future projects, in particular on the causes of possible deviations from the 
ex ante estimations and on the main drivers underlying the project’s economic performance. In other words, EA should be seen 
as an iterative process throughout the whole life of a project.

EA is particularly important at the early planning stage, when a range of alternatives are being considered, to inform decision-
makers on whether an investment is worthwhile (see Box 1 for good practices in option analysis). 

Box 1. Option analysis: good practices

Based on an analysis of a sample of around 250 major projects in 2014–2020, JASPERS has identified the most frequent 
shortcomings of option analyses and formulated good practice examples.

A well-conceived option analysis:

- 

- 

- 

- 

- 

- 

- 

is drafted early enough in the project preparation stage (strategic level), continuously verified and adjusted as 
the preparation advances;

is based on plausible criteria, set preferably by the relevant authorities for the entire sector to enable a level 
playing field for all projects (e.g. least-cost or highest benefit approach); these criteria should be formulated in 
a way that enables selection of the best option among relevant and feasible alternatives;

applies these criteria in a transparent, verifiable and objective manner;

is founded on a plausible demand analysis and based on reliable and verifiable historical demand and 
reasonable forecast demand;

focuses on proper scoping out and scaling of the project, ensuring the best value for money;

avoids gold plating of investments (i.e. the inclusion of physical elements and related expenditure that is not 
necessary to achieve the project objectives);

includes a technological option analysis, particularly in sectors where technology is relevant for selection of 
the final option (water, wastewater, waste treatment, research and development and productive investments) 
or where technology has a major impact on cost (transport).

Figure 1 and the text below describe, concisely, the role of EA in the development of a project proposal.

14

Economic Appraisal VademecumFigure 1. Project proposal development

Needs assessment, 
problem definition and  
objectives

• Definition of the service needs and problems
• Definition of project objectives and strategic context 
• Identification of expected benefits and risks

t
n
e
m
p
o
l
e
v
e
d

l
a
s
o
p
o
r
p

t
c
e
j
o
r
P

Preliminary screening/
option analysis

• Definition of investment options 
• Simplified EA:
         - Include all financial costs and benefits (economic costs only when relevant)
         - Based on rough cost estimates and preliminary demand outputs

• Identification of preferred option (shortlist of options)

s
t
c
e
o
r
p

j

e
g
r
a
L

Detailed business 
case

• Fully fledged EA:
          - Further analysis (option selection)

Project (ranking) selection and approval 

s
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c
e
o
r
p

j

l
l

a
m
S

Source: Authors.

Step 1 – needs assessment, problem definition and project objectives
Project objectives are defined based on an assessment of the project context and an analysis of the service needs and problems.

The project objectives should be defined with an explicit link to the needs identified and, if possible, should be quantified through 
indicators and targets. A clear definition of the objectives is necessary to identify the intended effects of the project, which will 
be further evaluated in the EA, and to verify the relevance of the project vis-à-vis the needs identified.

This  process  is  instrumental  in  further  identifying  potential  investment  options  and  their  expected  benefits  and  risks  and  in 
providing the first high-level cost estimates.

Step 2 – preliminary screening / option analysis: simplified economic appraisal (all projects)
At the preliminary stage, the EA of an investment would typically assess a broad set of options with high-level or indicative costs 
and effects/benefits. In this regard, the EA can be regarded as ‘simplified’.

A simplified EA implies focusing on first estimates from demand analysis of the outputs (goods/services) rendered by the project 
(19) and rough estimates of the investment and operating costs.

Rough cost estimates are generally understood as being based on unit prices obtained from limited (regional) market surveys (i.e. 
quotations from different suppliers) or from similar projects in the same (best if regional) context. It should be ensured, however, 
that cost estimates are all-inclusive (i.e. that no important cost component is missing, e.g. asset replacement or decommissioning 
costs). Overhead costs for planning and supervision, as well as contingencies, may be excluded, but then this should be applied to 
all assessed options. If included, overheads should be calculated similarly for all options (e.g. as a percentage of net investment 
cost).

Section 2.2 provides more information on what defines a simplified CBA.

The  major  outcome  of  the  preliminary  screening  /  option  analysis  is  the  identification  of  a  technically  feasible  option  (or  a 
shortlist of feasible options) that is in line with relevant strategies, policies and legislative requirements.

When  the  project  is  small  –  or  when  it  is  ‘simple’  because  similar  projects  have  already  been  carried  out  many  times  and 
benchmarks of typical economic performance are available – a preliminary, simplified, EA is generally sufficient to be able to 
select from the list of feasible alternatives a single preferred option that will be subject to evaluation for financing (20). Based 
on the results of this analysis, project evaluators should have enough information to take the decision with a good degree of 
confidence (see step 4).

It is the responsibility of Member States to define at the national level what the financial threshold is that qualifies a project as 
small.

19 This may not apply to all sectors/cases. For example, large transport infrastructures usually require the use of complex demand models that are already available at the option selection stage.

20 Or, if only one investment option is considered, to assess its economic viability and propose it for EU co-financing.

15

Economic Appraisal Vademecum 
 
 
 
 
 
Step 3 – detailed business case: fully fledged economic appraisal (large/strategic projects only)
When the project is large and/or strategic (or when the initial results of the EA are not conclusive), the EA must be updated and 
detailed at subsequent stages of development of the proposal, as more information becomes available.

In other words, as the project proposal is developed further and its estimated impacts are refined, project promoters are normally 
expected to develop a more detailed EA as part of their business case. This could include:

-  more accurate cost estimates resulting from additional detailed engineering work, more definitive project specification and 

design, better information about conditions of planning approval or more detailed project scoping;

-  more  refined  effect/benefit  estimates  from  detailed  market  or  service  demand  studies  and  a  clearer  definition  of  target 

beneficiaries and other stakeholders;

- 

- 

if CBA is used, a conversion of financial costs into the economic costs based on shadow prices;

the inclusion of externalities (if not already quantified during the simplified EA).

A  detailed  business  case  is  often  used  to  assess,  in  depth,  the  merit  of  one  project  option,  selected  using  the  methodology 
described in step 2. However, in less frequent cases, more options can also be developed in parallel at this stage.

Appraisals  are  often  iterated  a  number  of  times  before  the  project  proposal  is  accepted  in  its  final  format  and  moved  to 
implementation (or a decision not to proceed to implementation is taken, as may be the case). In particular, it will usually be 
important to review the impact of risks, uncertainties and inherent biases as project preparation proceeds.

This information helps to provide a reasonable understanding of whether, in the light of possible changing circumstances, the 
proposed project is likely to continue to achieve net social benefit.

Step 4 – project (ranking), selection and financing
The results of the EA should be used by the project promoters to demonstrate the economic viability of the selected project 
option ultimately proposed for financing. A decision-making or financing body should use such results to assess the quality of the 
proposal and to instruct its decision on financing.

In addition, the results of the EA can be also used by a decision-making body to rank and prioritise competing projects in the 
context of budgetary constraints.

It is worth noting, however, that the results of the EA would not be the only factor taken into account when taking an investment 
decision (or when ranking and prioritising projects). Other aspects such as strategic relevance (national, regional, territorial or 
sustainable urban development perspectives), technical feasibility, affordability, environmental sustainability, climate resilience, 
legal compatibility, managerial capacity, etc., are also equally important (21).

1.3 

Choice of tool

As illustrated in Section 1.1, the European Commission finances projects in a broad range of sectors, mainly (but not exclusively) 
covering activities in which public (and private) investment is needed to enhance the supply of services in the context of ‘market 
failures’, stemming, for example, from public goods, natural monopolies or externalities.

Depending on the type and sector of the investment, a range of EA methodologies could be considered.

CBA  is  the  preferred  approach  for  assessing  public  investment  projects,  as  it  offers  a  robust,  objective  and  evidence-based 
analytical framework for project evaluation. In the EU, it has been and it continues to be widely used across different policy 
sectors and institutions as the main EA tool to identify welfare-maximising projects, subject to the resource constraints.

Conducting a CBA could be, however, a resource-intensive process and should be proportionate to the size, importance and/or 
risk profile of the investment. Depending on the project’s scale, nature and/or data availability, a comprehensive CBA may not 
always be recommended or even possible. In such cases, Least-Cost Analysis (LCA) or Cost-Effectiveness Analysis (CEA) could be 
adopted as an alternative. A Multi-Criteria Analysis (MCA) could also be used as an alternative, even though it is more often used 
as a complement to the other tools.

In brief, LCA and CEA are recommended when:

- 

- 

decision-makers have previously agreed on a specific objective and wish to compare only those options that aim to meet the 
same objective (e.g. the compliance-driven (22) projects in the environment sectors);

there is only one project outcome (or the outcomes and the possible associated externalities are considered equivalent) 
across options. For example when the project focuses merely on the choice of technology or is not a self-standing unit of 
analysis, but a component within a larger investment that has already been subjected to CBA (e.g. an upgrade of information 
technology systems) and performing another CBA would not provide any explanatory value.

In these cases, the project appraisal focuses on whether the project constitutes the cheapest (LCA) or the most cost-efficient 
(CEA) alternative to supply a given good or service and to achieve the intended objective.

21 These aspects should always be properly assessed from the perspective of their informative value and legitimacy in the given circumstances; in case of doubts, quantified methods should take precedence over 
more qualitative approaches.

22 Compliance-driven projects are those that aim to fulfil only the (minimum) technical standards and requirements specified in the EU legislation for certain types of activities. In the case of compliance-driven 
projects, the EA results do not identify if the project should be implemented, but how. 

16

Economic Appraisal VademecumMCA is typically used as an appraisal tool for structuring the option analysis during project preparation. MCA can be used to 
screen strategic options at the preliminary stage of the project cycle. Once the strategic option is identified, a comparison of the 
specific technical solutions can be carried out by means of a CBA or CEA/LCA. As discussed later in this document (Section 3.2), 
the MCA approach is also used in the context of investment programmes with multiple objectives, as a tool to show the relevance 
of project investments to overall strategic aims and policy objectives.

To sum up, the suitability of the tools for certain projects depends on the extent to which:

- 

- 

- 

the project produces multiple outputs (the greater the number of outputs, the more appropriate the application of CBA);

these outputs can be measured and monetised (the easier an output is to monetise, the more feasible the use of CBA);

the appraisal concerns a programme or an investment plan that includes several projects (this type of appraisal requires a 
clear relationship with existing polices, and MCA is suitable in this case).

Chapters 2 and 3 (as well as the annexes in Part II of the EAV) give more precise indications about the scope of application of 
the CBA (while remaining a voluntary option) and other tools.

Table 2 provides a framework for the potential use of EA tools across sectors/areas. The table is for guidance only and is not 
exhaustive, as other investment areas may be deemed to be relevant in future EU policies. The choice of EA method depends 
ultimately on specific circumstances and the data availability of each project.

17

Economic Appraisal VademecumTable 2. Suggested EA methods by investment area

Area

Investment area

Project type

Small projects

Large/strategic projects

Water and 
wastewater

Water and wastewater infrastructure 
(efficiency driven) (23)

Water and wastewater infrastructure 
(exclusively compliance driven)

LCA/CEA

LCA/CEA

Flood prevention

Simplified CBA

Transport infrastructure (all modes)

(Simplified) CBA

Transport

Transport infrastructure: compliance-driven 
project (all modes)

New technology in transport

CEA/MCA

CEA/MCA

Healthcare

Disease prevention / treatment programmes / 
new technology

CEA

Research, 
development 
and innovation

Healthcare infrastructure

Research infrastructure

Innovative manufacturing

Tertiary education

Simplified CBA

Simplified CBA

Simplified CBA/CEA

Simplified CBA

CBA

LCA/CEA

CBA

CBA

CEA/MCA

CBA/CEA/MCA

CEA

CBA

CBA

CBA

CBA

Electricity generation

Renewable 
energy

Heat generation

CEA with integration of 
externalities

CBA

CEA with integration of 
externalities

CEA with integration of 
externalities

CEA with integration of 
externalities

CBA

CBA

CBA

CBA

Depending on the area of 
application

Energy efficiency in buildings and plants

District heating

Broadband infrastructure

Simplified CBA

ICT services (data centres, e-services, etc.)

CEA

Collection, transport, recovery, recycling, 
treatment and disposal of solid waste

CEA

CBA

Integrated territorial investment schemes or 
community-led local development schemes, 
programmes in cluster development and 
urban regeneration programmes

MCA (including simplified 
CBA/CEA for individual 
large projects in given 
sectors)

MCA (including detailed 
CBA/CEA for individual 
large projects in given 
sectors)

Energy 
efficiency

Digital 
economy

Municipal 
waste 
management

Sustainable 
urban 
development

1.4 Difference from financial appraisal

Unlike EA, financial appraisal is carried out from the viewpoint of the project promoter and aims to assess the profitability of 
the investment (i.e. the extent to which the project net revenues (24) are able to pay back the initial investment), as well as the 
sustainability of the operations.

23 NB: Projects that have a mix of efficiency- and compliance-driven elements (in practice this is usual) should follow this line. 

24 Revenues are determined by the forecasts of the quantity of goods/services provided and their price, in the form of fees, tariffs or charges to users. The underlying concept defining a revenue is that ‘it is a 
payment against a service’. In turn, payments received from upper level institutions/authorities to cover operational deficits and to ensure operations’ sustainability are to be considered as subsidies and therefore 
not included in the calculation of the return on investment. 

18

Economic Appraisal VademecumThe building blocks of financial appraisal have many elements in common with EA, in particular project costs. In 
addition, when CBA is used as an EA tool, the assessment of the project’s financial profitability (return on investment) outlines 
the cash flows that underpin the calculation of the socioeconomic costs and benefits.

However, economic and financial appraisals differ in the scope, the basis for valuation of the costs and benefits (e.g. financial 
appraisal does not consider non-cash flow items such as externalities) and the discount rate used (see Box 2).

The financial net present value on investment and the financial rate of return on investment are two indicators used to measure 
the project’s profitability. When the former is positive and the latter is larger than the discount rate, the project is financially 
viable.

In general, a project that is not financially viable needs a redesign or additional sources of funding such as grants and subsidies. 
By contrast, a financially profitable project should preferably be supported with other forms of financing (e.g. loans).

As regards sustainability of operations, a project is financially sustainable if the cumulated cash flow (i.e. cash in hand at the end 
of the year) is positive (or nil) for all of the years considered for operations.

For the methodology on how to carry out the analysis of financial profitability within the CBA, see Section 2.7 of the 2014 CBA 
guide.

Box 2. Financial discount rate

The financial discount rate (FDR) defines the cost of capital and is used as a reference to decide whether the project is financially worth 
undertaking or not. Two main approaches exist in the practice of calculating the FDR.

A commonly used approach consists of estimating the actual cost of capital in a given industry/sector. Following this approach, the FDR 
is intended as an indicator of (minimum) expected profitability of a business and it can be estimated based on the weighted average 
capital  cost  (WACC)  approach.  The  use  of  WACC  as  the  FDR  is  considered  appropriate  because  it  integrates  a  risk  premium  into  the 
expected return for new investments in a given sector. That is, the WACC is taken as a reference for comparison with the return an investor 
would have if it invested in that business. As general rule, the WACC values to be used should be those officially set at the national level by 
the regulating authority for those (sub)sectors where this is available. In other cases (e.g. partial sector coverage and unregulated sectors), 
alternative rates can be proposed by other planning authorities on the basis of a robust justification and a clear methodology. When the 
nature of the investment is so specific that it can be considered a ‘self-standing sector’ with regard to the context in which it operates, 
company-specific WACCs can be proposed directly by project promoters.

Another  approach  consists  of  estimating  the  opportunity  cost  of  capital  for  an  economy  as  a  whole.  In  this  case,  the  FDR  can  be 
proxied by the latest long-term interest rates of national government bonds (or by the long-term returns of an international portfolio of 
investments).

In the context of EU co-financed projects, both approaches are acceptable. The WACC is more frequently used in private investments, and 
the opportunity cost of capital in the public ones. Member States can assess their own country-specific FDR(s), provided that adherence to 
State aid rules is respected. It is Member States’ responsibility to provide clear indications of what FDR applies to their beneficiaries in order 
to ensure a consistent application to all sectors and projects concerned.

19

Economic Appraisal Vademecum2. COST-BENEFIT ANALYSIS

1  2.

2.1 Introduction

CBA is an analytical tool used to assess the economic advantages or disadvantages of an investment decision by quantifying the 
welfare changes attributable to its implementation. It aims to quantify all benefits and costs for society in monetary terms. These 
include economic, social and environmental impacts. It was a compulsory tool in the 2014–2020 programming period for major 
projects financed by the European Regional Development Fund or the Cohesion Fund and is a voluntary tool in the 2021–2027 
programming period with the necessary contextual adjustments.

Chapter 2 of the 2014 CBA guide discusses in detail the CBA general analytical framework, its working rules and operational 
steps. The EAV focuses, therefore, only on the new or specified provisions compared with what is stated in the 2014 CBA guide. 
This concerns the following:

- 

- 

- 

- 

what defines a simplified CBA;

parameters: a more flexible approach to setting the reference period than the requirements of the 2014–2020    
programming period and the proposal for a social discount rate (SDR);

topics not specifically/fully addressed in the 2014 CBA guide: how to treat wider, induced and indirect effects,  
sunk costs and in-kind contributions, as well as how to reduce the risk of overestimating operating costs and how   
climate change vulnerability assessment fits into EA;

new developments/updates compared with the 2014 CBA guide: residual value, shadow prices of selected   
inputs, climate change mitigation, ranking of projects based on the performance indicators and stakeholder engagement.

2.2 Simplified cost–benefit analysis

As discussed in Section 1.2, at the preliminary stage the EA can be regarded as ‘simplified’, as it is based on rough, indicative 
estimates of costs and benefits.

If CBA is adopted as the EA method, a typical simplification at this stage consists of the use of financial costs (based on market 
prices) instead of economic costs (based on shadow prices). As the calculation of economic costs can be resource intensive, the 
conversion of market prices is not always necessary in a simplified CBA (25).

In addition, when the project options are  expected  to have similar externalities,  in  terms  of  both  typology  and  volume, their 
inclusion in the analysis can be skipped and replaced by a descriptive, qualitative assessment (26).

2.3 Parameters

Reference period
The number of years for which cost and benefit forecasts are provided corresponds to the project’s reference period.

The CPR for 2021–2027 no longer includes binding reference periods per sector, as was the case in the past regulation (see 
Annex I of Commission Delegated Regulation (EU) No 480/2014)(27).  

The reference period should correspond to the project’s economic life to allow its likely long-term impacts to unfold. In other 
words, CBA projections must be long enough to capture all significant costs and benefits of the project. The project’s economic life 
is defined as the expected time during which the project remains useful (i.e. capable of providing goods/services) to the promoter.

The economic life of an asset could be different from its actual physical life. For example, a technology product can be in optimal 
physical condition but not anymore economically useful to the promoter as it became obsolete.

When a project includes assets with different economic lives, a good practice is to set the reference period as the value-weighted 
average lifetime of these assets. This, however, should generally be restricted to a reasonable time limit of future forecastability 
of the net future economic cash flows, usually no longer than 50 years. 

The reference period should include the years of both investment and operations (and decommissioning, when relevant).

Since the choice of the reference period affects the EA results (usually, the longer the reference period, the higher the economic 
performance),  the  project  evaluators  should  check  that  the  assumptions  made  on  the  project’s  economically  useful  life  are 
realistic and justified. In this regard, it might be helpful to refer to standard benchmarks that are nationally or internationally 
accepted, and differentiated by sector. The sector annexes in Part II of the EAV provide some useful indications in this regard.

25 However, when predefined conversion factors per cost item are made available in national guidelines, the conversion process is smooth and can already be adopted in a simplified CBA. Or, if VAT on construction 
cost is already known at the preliminary stage, it can be easily simply dropped off in the simplified CBA. 

26 However, when unit values are made available in the economic literature, as this is the case particularly for the transport sector, the valuation of externalities can be already integrated in a simplified CBA.

27 Commission Delegated Regulation (EU) No 480/2014 of 3 March 2014 supplementing Regulation (EU) No 1303/2013 of the European Parliament and of the Council laying down common provisions on the 
European  Regional  Development  Fund,  the  European  Social  Fund,  the  Cohesion  Fund,  the  European  Agricultural  Fund  for  Rural  Development  and  the  European  Maritime  and  Fisheries  Fund  and  laying  down 
general  provisions  on  the  European  Regional  Development  Fund,  the  European  Social  Fund,  the  Cohesion  Fund  and  the  European  Maritime  and  Fisheries  Fund  (https://eur-lex.europa.eu/legal-content/EN/TXT/
PDF/?uri=CELEX:02014R0480-20150511&from=EN). 

20

Economic Appraisal Vademecum 
 
 
 
Social discount rate
Costs and benefits occurring at different times should be discounted using the SDR.

The SDR reflects the long-term opportunity cost of resources for society as a whole. The SDR is used in EA to recognise that 
consumers have an intertemporal preference to consume goods and services from the use of resources that are scarce and often 
competing. In other words, the resources allocated to one project have other potential uses, which are forgone.

Different approaches have been proposed in the literature to estimate the SDR. The approach recommended here is the social 
rate of time preference (SRTP) (28).

The Member States can assess their own country-specific SDRs following the formula presented in Annex II of the 2014 CBA 
guide (29) and taking into account the following recommendations.

- 

- 

Issues  related  to  systemic  risk  and  optimism  bias  should  be  reflected  not  in  the  SDR  but  in  the  risk 
assessment. Systemic risks lead to a reduction in the value of the expected benefits if these benefits are positively 
correlated with a macroeconomic scenario. Rather than adjusting the discount rate, systemic risks can be handled in the 
EA by accounting them directly into the net benefits’ streams and testing the robustness of the project’s performance 
against changes in the main assumptions. This can be done by using base case values to be further tested in sensitivity 
analysis. Additional project risks including option bias should be addressed in a (qualitative and/or quantitative) risk 
assessment in line with Section 2.8 of the 2014 CBA guide.

The  SDR  can  decline  over  the  reference  period  in  projects  with  very  long-term  impacts.  In  the  economic 
literature,  there  is  some  empirical  support  for  the  view  that  constant  discounting  is  inconsistent  with  consumers’ 
preferences. That is, in facing the decision between a smaller reward soon and a larger reward later, individuals would 
apply a lower discount rate in the long term. Time-inconsistent preferences would therefore justify using an SDR that 
declines over time. While the rationale for such an assumption is clear, the approach suggested here is that the SDR 
remains stable over the reference period. In most cases, the benefits and the costs arise during a limited number of 
years. That is, the reference period is ‘short’ enough to justify the use of a single SDR and to calculate the economic net 
present value (ENPV) with a negligible margin of error. Only projects with very long-term impacts (e.g. beyond 50 years), 
involving intergenerational equity considerations, should adopt declining discount rates.

- 

The SDR should not vary across sectors based on policy considerations. Sector-specific rates would imply that 
one project or sector has a higher opportunity cost than another, which is not consistent with the social rate of time 
preference-based approach.

In this regard, a forthcoming publication (Catalano et al., 2021) presents estimations of the SDR at the national level for a sample 
of countries and can be a useful reference. Based on their calculations with updated data (including forecasts of economic growth 
rates), the SDR would currently range from a maximum of 8.13 % for Estonia to 0.80 % for Italy (calculated following the SRTP 
method), with an EU average of 3.6 % and a median value of 2.8 %.

As a matter of simplification, in the absence of national values, 3 % SDR can be taken as a reference point for EU-funded projects 
in 2021–2027.

Finally, it is worth noting that the EA is usually carried out in constant (real) prices (i.e. with prices fixed at a base year). When the 
analysis is carried out at constant prices, the SDR should be expressed in real terms.

2.4 Topics not (fully) addressed in the 2014 CBA guide

Wider, induced and indirect effects
CBA  is  typically  a  microeconomic  approach  enabling  the  assessment  of  the  project’s  first-level  impacts  on  users  and  other 
stakeholders of a given catchment area. This implies that:

-  wider impacts achieved through the multiplier effect (e.g. contributions to regional gross domestic product or unemployment 
rates) should be excluded from the analysis because they are usually transformed, redistributed and/or capitalised forms of 
the direct effects already captured in the CBA;

- 

- 

induced  impacts  on  local  economies  should  also  be  excluded  because  of  possible  displacement  effects;  for  example,  an 
increase of business activities in the project area can be matched by an equal decrease elsewhere (30);

indirect impacts on complementary markets (e.g. cost savings achieved by the promoter’s suppliers, distributors, etc.) can be 
included, when relevant and provided that they are not already captured in the shadow prices of the project’s inputs and/or 
outputs.

Historical costs
The  initial  investment  cost  consists  of  capital  expenditures  (CAPEX)  for  all  fixed  and  non-fixed  assets  occurring  during  the 
implementation  period.  In  the  case  of  historical  costs  (i.e.  expenditure  already  incurred  before  the  start  of  the  analysis),  the 
approach recommended in the EAV is to include them in the analysis (i.e. they should not be considered sunk costs). Historical 
costs should be capitalised (using an average inflation rate based on the consumer price index) and included in the first year of 
the reference period.

28 This is defined as the rate at which the consumers are willing to postpone a unit of current consumption in exchange for more future consumption. 

29 SRTP = p + e × g, where p is the pure time preference, e is the elasticity of the marginal utility of consumption (i.e. the percentage change in individuals’ marginal utility corresponding to each percentage change 
in consumption) and g is the expected growth rate of per capita consumption. As an example, evidence of the empirical estimation of the SDR for 20 European countries is presented in Florio (2014).

30 Unless boosting a given geographical area/region is itself an objective of the project.

21

Economic Appraisal VademecumThe rationale is that, in the context of EU co-financed projects, the main question is not ‘should the project be continued?’, as 
this would matter in, for example, the case of purely private investments. Instead, the question is ‘do the expected net benefits 
justify an investment that is paid with EU taxpayers’ money?’. In this regard, to protect EU taxpayers’ interests, the analysis of a 
project’s economic viability should focus on the whole investment cost (31).

In-kind contributions
In-kind contributions supplied during either implementation or operation periods should be included in the analysis at (at least) 
their market value, even if they do not correspond to an actual financial cash flow.

Operating costs benchmarking
Whenever the investment is operated in house (i.e. there is no competition for selecting the operator), there is a major risk that 
the operation and maintenance (O&M) costs are overdue. This, in turn, reduces the economic performance of the project. To 
reduce this risk, the proposed O&M costs should always be checked against sectoral ‘best benchmarks’, which can be effectively 
reached  through revised concession contracts  between  the  public entities and  the  in-house  operators,  built  on  performance-
based provisions.

Climate risk assessment and adaptation to climate change
The climate risk assessment provides a structured method of analysing relevant climate hazards and their related impacts to 
provide information for decision-making in relation to the proposed investment. Any potential significant risks to the project due 
to climate change should be managed and reduced to an acceptable level by relevant and commensurate adaptation measures.

Different adaptation measures should be assessed to find the right measure or mix of measures or even to consider deferred 
implementation timings (flexible/adaptive measures) that can be implemented to reduce the risk to an acceptable level. The 
selected measure(s) should then be integrated into the project design and/or its operation to enhance its climate resilience. Their 
costs (either CAPEX or operating expenses (OPEX)) are entered as inputs (outflows) into the EA of the project.

The  European  Commission’s  technical  guidance  on  the  climate  proofing  of  infrastructure  in  2021–2027  provides  detailed 
guidance on how to carry out a climate risk assessment (32).

2.5 Updates and developments

Shadow prices for selected projects’ inputs
According to the CBA guiding principles, cost items should be valued at their opportunity cost. The suggested approach is to 
convert them into shadow prices. The method generally used is to apply a set of conversion factors (CFs) to the project financial 
costs. In principle, CFs should be made available at the national level by a planning office and not calculated on a project-by-
project basis.

In practice, however, distortions in investment projects in Europe are not so substantial; therefore, for most elements, it can be 
assumed that their shadow pricing corresponds to market prices.

Thus, when national parameters are not available, the default rule is that market prices equal shadow prices (i.e. CF = 1), with 
the exception of the items illustrated in Table 3. Labour, land, utilities and commodities are those items most frequently affected 
by market distortions, which an analysis of their opportunity cost is always recommended for.

Table 3. Shadow prices for selected projects’ inputs

Item

Why?

Shadow price method

Labour

Land

Utilities

In the presence of unemployment, without the project, unskilled 
workers could remain unemployed or employed in worse 
economic conditions

Shadow wage

Land can be expropriated by the public sector at a price different 
from the market value or given for free to project promoters

Market value

To boost a given industry/sector or to attract investments, 
businesses can profit from subsidised prices to purchase 
electricity, gas and water. Energy prices are also frequently 
distorted by taxes and externalities

Long-run marginal cost

Commodities imported 
from outside the EU

Duties or quotas on imports can be introduced to protect 
domestic markets

Border price

31 Some (marginal) exceptions may apply in the case of minor investment items that occurred in the very distant past, for instance feasibility studies that become outdated or the purchase of land that cannot be 
recovered and therefore its opportunity cost is close to zero.

32 European Commission (2021), Technical guidance on the climate proofing of infrastructure in the period 2021-2027, C(2021) 5430 final, European Commission, Brussels (https://ec.europa.eu/clima/sites/default/
files/adaptation/what/docs/climate_proofing_guidance_en.pdf). 

22

Economic Appraisal VademecumResidual value
When the reference period is set equal to the project’s economic life the residual value is normally zero. However, in cases in 
which, at the end of the reference period, some assets/components are still economically useful or there is a market for their 
resale, a residual value benefit may be included in the last year of analysis.  

As regards the estimation of the residual value, unlike in 2014–2020, the method of using the remaining cash flow after the end 
of the reference period is no longer suggested as the preferred option. This is because of the current recommendation to set the 
reference period equal to the total economically useful life of the project (the two approaches are mutually exclusive, as they 
generate the same result). 

The  recommended  approach  is  therefore  to  calculate  the  remaining  value  of  the  assets/components  based  on  a  standard 
accounting depreciation formula (book value).

In the case of projects with a very long economically useful life, however, it might not be convenient to show forecasts for their 
entire economic life (e.g. if this exceeds 50 years). In this case, the reference period can be shortened for the convenience of 
presentation and the residual value can be added and estimated as the (discounted) remaining cash flow of costs and benefits.

Climate change mitigation
The methodology for the quantification of a project’s impact on climate remains the one that was recommended in the 2014 
CBA guide. The methodology consists in estimating, through appropriate emission factors, the net GHG emissions generated or 
avoided by the project compared with a baseline scenario. The resulting amount of generated/avoided GHG emissions in tonnes 
of carbon dioxide equivalent (CO2e) should be valued in monetary terms with a shadow price of carbon (in Euro per tonne of 
CO2e) (33).

In line with the EC technical guidance on the climate proofing of infrastructure in 2021–2027 (34), it is recommend to use as 
shadow cost of carbon the values recently established by the EIB as the best available evidence on the cost of meeting 
the temperature goal of the Paris agreement (i.e. the 1.5 ⁰C target) (35) (Table 4).

Year

2050

EUR / t CO2e

800

Table 4. Recommended shadow cost of carbon for 2020–2050 (*)

Year

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

EUR / t CO2e

80

97

114

131

148

165

182

199

216

233

(*) Prices in Euro 2016 

Source: DG CLIMA (2021) 

Year

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

EUR / t CO2e

250

278

306

334

362

390

417

444

471

498

Year

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

EUR / t CO2e

525

552

579

606

633

660

688

716

744

772

Project ranking
The project’s overall socioeconomic performance is measured by the following indicators:

-  ENPV  –  this  is  the  difference  between  discounted  total  social  benefit  and  social  cost,  valued  at  shadow  prices,  and  is 

expressed in monetary values;

-  ERR – this is the SDR producing a zero value of the ENPV and is expressed in percentage points;

-  benefit/cost (B/C) ratio – this is the ratio between discounted economic benefits and costs.

The project is economically viable when the ENPV is positive, the ERR is larger than the SDR and the B/C ratio is greater than 1.

33 In case of projects that offset emissions through the purchase of emission permits, including cap and trade (such as the European Emission Trading System), care should be paid to avoid any double counting. 
For example, increase of emissions can be offset by purchasing emission permits, which result in net zero emissions. In other words, CBA has to discriminate between situations where there are offsets and where 
there are not.

34 See footnote 30. 

35 In 2020, the EIB was engaged in a review of the latest evidence on the cost of carbon, in particular drawing from modelling results that formed the basis of the Intergovernmental Panel on Climate Change Special 
Report on Global Warming of 1.5 ⁰C. In the light of the Paris Agreement, the review of the EIB’s carbon pricing approach focused on the full cost of the marginal measure required to drive the economy to meet the 
1.5 ⁰C global temperature target (abatement cost approach; see https://www.eib.org/en/publications/the-eib-group-climate-bank-roadmap).

23

Economic Appraisal VademecumAs illustrated in Annex XI of the 2014 CBA guide, each indicator has its own particular merit, pros and cons. In this respect, the 
choice of economic indicator to be used for selecting options (or when ranking alternative projects) depends on the circumstances.

When comparing options within a single investment proposal, usually the better performing option has both a larger ENPV and a 
larger ERR than the option performing less well. There might be, however, some (infrequent) cases in which, owing to the different 
scales of the options, one has a larger ENPV but a smaller ERR than the other. In such a case, it is suggested that the ERR is used 
because it would (usually) allow the promoter to save resources that could be reused for additional investments (36).

In ranking alternative projects from a group, if there is a constraint on the number of projects that can be financed, then the ENPV 
should be used as the default indicator. By contrast, in the more frequent case of projects competing under budget constraints, 
the ENPV becomes less relevant (because it is biased towards more expensive projects) and the ERR is the preferred option, 
provided that it can be calculated for all projects.

Owing to its limitations, it is not recommended to use the B/C ratio to rank options/projects (37).

Stakeholder engagement
Stakeholder  engagement  (SE)  is  the  process  of  identifying  and  incorporating  stakeholder  concerns,  needs  and  values  in 
the  decision-making  process.  The  overall  goal  is  to  achieve  a  transparent  decision-making  process  with  greater  input  from 
stakeholders  and  their  support  on  the  decisions  that  will  be  taken.  To  secure  successful  project  implementation  and 
operations, stakeholders should be involved during the process of project preparation following a participatory 
approach. The advantages of SE include an increase in the reliability and legitimacy of the public administration, an increase 
in the sense of social responsibility among local communities related to the project, an increase in social equity and a decrease 
in barriers.

As discussed in Section 2.8.10 of the 2014 CBA guide, stakeholder identification and an analysis of the distributional effects of the 
project are useful complements to the results of the CBA, helping to meet the objective of putting into practice a clear decision-
making process with a strong involvement of stakeholders to support the project decision. In operational terms, a matrix can be 
developed, linking each project impact with the sectors and the stakeholders affected by such impacts.

While  traditional  CBA  does  not  explicitly  consider  SE  in  its  computation,  there  are  some  recent  developments  in  this  field 
attempting to monetise the costs and benefits of SE (e.g. the cost of engaging stakeholders (events, negotiations, etc.) and the 
benefits of their participation) (38).

36 The option with the larger ERR, usually, has a smaller investment cost than the option with the larger ENPV.

37 As discussed in Annex XI of the 2014 CBA guide, the B/C ratio is sensitive to the classification of the project effects as benefits rather than costs. It is relatively common to have project effects that can be treated 
both as benefits and as cost reductions and the converse. As the B/C ratio rewards projects with low costs, considering a positive effect as a cost reduction rather than a benefit would result in only an artificial 
improvement of the indicator.

38 One of the first attempts proposed in the international literature related to the introduction of SE within CBA was that of Pagliara and Di Ruocco (2018). In this paper, the authors recomputed all of the costs and 
benefits of the Turin–Lyon high-speed rail project following an ex post approach. They demonstrated how the monetisation of the costs and benefits of SE could provide a way  forward in project evaluation.

24

Economic Appraisal Vademecum3. OTHER ECONOMIC APPRAISAL TOOLS

2  OTHER ECONOMIC APPRAISAL TOOLS

3.1 Least-cost and cost-effectiveness analyses

CEA is used to compare two or more project options in relation to their effectiveness and life-cycle costs in accomplishing a 
single policy-specific objective. By combining information on effectiveness and costs, the project promoter can determine which 
investment option provides the best effect at the lowest cost (or, conversely, which option provides the highest effect for a given 
cost). In this respect, CEA can take the forms of cost minimisation or effect maximisation.

Like CBA, CEA is a method used for the evaluation of a project’s effects at the microeconomic level. CEA differs from CBA because 
it  does  not  evaluate  the  benefits  in  monetary  terms.  This  is  based  on  the  assumption  that  all  options  considered  are 
technically and economically viable and deliver the same single typology output (or process the same single type 
of input) even if in different intensities/volumes.

Table 5 reviews the differences between CBA and CEA in terms of the inclusion and treatment of the main project’s cash flow 
items.

Table 5. Differences between CBA and CEA

Cash flow items

CBA

CAPEX

OPEX

Residual value

Revenues

Yes (shadow price)

Yes (shadow price)

Yes (shadow price)

No (*)

CEA

Yes (market price)

Yes (market price)

Yes (market price)

Yes (market price) (**)

Outputs / direct effects

Yes (in monetary terms)

Yes (in quantitative terms only)

Externalities

Yes

(*) Unless not used as a proxy of willingness to pay for the services rendered by the project. 

No (***)

(**) However, when there is only one revenue and this reflects cost-based fees following regulatory considerations, its inclusion can be omitted as not affecting 
the results of the comparison.  

(***) In the energy sector, however, it is common practice to quantify in monetary terms air pollutants and GHG emissions and include them in the CEA ratio.

If the options achieve the same output with the same intensity/volume, they differ only in costs, and the CEA can be simplified to 
an LCA, whereby options are compared based only on the present value of their life-cycle costs.

CEA usually aims to identify the possible alternatives for achieving a set goal and the related costs, and to choose the most 
effective  option.  That  is,  it  allows  us  to  choose  which  one  among  several  alternatives  is  most  cost-effective,  but  it  does  not 
tell us if an alternative is worthwhile in some absolute sense. In other words, unlike CBA, CEA cannot indicate if the preferred 
option provides a net benefit to society. Therefore, it is always useful to compare the results of the analysis with established 
benchmarks to verify that the chosen option meets the generally acceptable cost performance criteria.

When an option is both more effective and less costly than the alternative, it is said to ‘dominate’ the alternative. In this situation, 
there is no need to calculate cost-effectiveness ratios, because the decision on the strategy to choose is obvious.

However, in most circumstances, the option under examination is simultaneously more (or less) costly and more (or less) effective 
than the alternative(s). In this situation, cost-effectiveness ratios allow appraisers to rank the options, eliminate those 
whose cost-effectiveness ratio is higher than others and then identify the optimal option.

The ‘levelised cost’ concept is often used to assess the project’s cost-effectiveness.

The levelised cost is a life-cycle cost indicator, commonly used to gauge long-run unit costs. It is calculated as the ratio of 
the present value of the total (capital, operating, replacement and decommissioning, if relevant) costs over the entire project 
reference period to the present value of the total amount of output produced over the same time horizon (39).

When the project does not generate revenue, and all options have the same economic lifetime, the levelised cost can be used 
directly as a cost-effectiveness ratio. This is the most common application of the CEA for EA.

On the other hand, when the project options are revenue generating, and when the reference period is not equal to the economic 
lifetime of the asset, revenues and residual value must be calculated and included in the analysis.

39 This is the simplest and most commonly used definition of levelised cost based on financial items (market prices). In some cases, in particular in the energy sector, it is possible to calculate levelised costs based 
on economic items (shadow prices), which are also a factor in the margin cost of externalities. 

25

Economic Appraisal VademecumThe cost-effectiveness ratio can therefore be calculated by the following formula:

𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 =  

𝑅𝑅
𝑅𝑅

𝑅𝑅= 𝑅𝑅
𝑅𝑅= 𝑅𝑅
𝑅𝑅= 𝑅𝑅
𝑅𝑅= 1

( 𝑅𝑅𝑅𝑅 𝑅𝑅)
( 𝑅𝑅 𝑅𝑅)

where:

CFi is the discounted sum of CAPEX + O&M (40) – revenue – residual value

Qi is the discounted changes in outputs (quantity).

Finally, this indicator can also easily be adapted to incorporate key economic externalities (e.g. carbon dioxide and air pollutant 
emissions), when these differ substantially between the options appraised. When this indicator is negative, externalities can be 
included as costs in the numerator of the formula (41).

The CEA methodology is often used in the economic evaluation of healthcare programmes, but it can also be used to assess 
some education and environmental projects. For these examples, simple CEA ratios are used, such as the cost per student, 
cost per unit of emission reduction, cost per unit of water, wastewater or waste treated, and so on.

CEA is less helpful when a money value can also be given to the benefits, not just to the costs. In addition, CEA cannot be used 
to compare projects or programmes with several different outcomes or objectives that are not directly comparable.

To sum up, CEA is a practical tool for project comparison when the following conditions apply:

- 

- 

- 

- 

the project produces only one output that is homogeneous and easily measurable;

the aim of the project is to achieve the output at minimal cost;

costs can be completely assessed for each alternative (i.e. hidden costs are more or less irrelevant);

there is a wide range of benchmarks to verify that the chosen technology meets the minimum cost performance requirements.

3.2 Multi-criteria analysis

The MCA methodology can be useful at both programme and project levels.

At the project level, it is recommended to consider the MCA as a tool to complement CBA, CEA and/or LCA, for example to compare 
project strategic options (see Section 1.3). This practice was already recommended and used during the 2014–2020 MFF for 
the appraisal of major projects. The use of simple MCA as a tool for the analysis of options in project appraisal is described in 
Annex IX of the 2014 CBA guide, as well as in Chapter 9 of The economic appraisal of investment projects at the EIB (EIB, 2013a), 
and is not repeated here.

This section provides additional practical indications on how to perform an MCA at the programme level, where it is advisable to 
use a policy-led MCA (PLMCA) (42).

A  PLMCA  could  be  used  to  assess  multisectoral  territorial  programmes  (e.g.  regional  transition  and  urban  development 
programmes) or to prioritise and select projects within a given policy area or projects that have multiple sites/objectives (e.g. 
smart specialisation or integrated programmes dealing with climate change). At such programme levels, PLMCA can provide a 
clear record of the decision-making process, which is particularly useful when projects need to be prioritised from a larger pool of 
alternatives. PLMCA assigns scores based on a process that starts with the highest level objectives informed by existing policies, 
and it illustrates the steps taken to reach the final decision. Annex X of Part II of the EAV provides an example of a PLMCA used 
to assess an urban regeneration programme.

PLMCA aims to provide a sound basis for programme/investment plan evaluation by referencing an explicit set of objectives that 
decision-makers have identified on the basis of existing policies (at local, regional, national, EU and other international levels). 
Decision-makers establish both measurable criteria and proxy indicators to assess the extent to which the objectives are likely 
to be met. 

There are many ways to design a PLMCA exercise. However, a ‘typical’ approach (e.g. the one shown in Annex X of Part II of the 
EAV) usually comprises some standardised steps:

-  Problem structuring. This step defines the context in which the programme takes place, the stakeholders’ standpoints that 
are to be considered and the definition of the overarching policy framework and associated objectives to enable decision-
making. These objectives should not be redundant, but could be competing (the achievement of one objective could partly 
preclude the achievement of another). The decision-makers should assign a weighting to each objective in order to reflect its 
relative importance. It is highly desirable that the definition of the policy objectives is guided by reference to international, 
national and local policy goals alongside secondary information sources. Within a given policy area (transport, environment, 
urban development, etc.), typical objectives refer to institutional, social, territorial, environmental, technical, financial and 

40 This includes replacement costs.

41 In this case, the CEA embraces some aspects typical of CBA (i.e. the monetary evaluation of externalities) and can be regarded as an ‘in between’ methodology or a simplified CBA. This approach applies in particular 
to energy investments.

42 The PLMCA tool represents the output of a holistic and consistent approach to the appraisal of programmes  by aligning programme objectives with policy and identifying qualitative and quantitative criteria/
indicators for measuring performance objectives.

26

Economic Appraisal Vademecum 
economic dimensions.

-  Model building. Once the policy framework and the set of objectives have been determined, a technique should be defined 
to aggregate information and to make an informed choice. This step focuses on defining, for each objective, a number of 
appraisal criteria or indicators. Appraisal criteria or indicators can be qualitative or quantitative and they can refer to the 
priorities pursued by the different parties involved or to particular evaluation aspects. When relevant, minimum thresholds 
can be set for some criteria for the programme to be accepted.

-  Analysis of impact and programme performance. This step involves forecasting, for each of the objectives, the impact 
produced by the programme. All of the decision-makers must decide by consensus the scores that determine the performance 
in relation to each objective. It is important to note that application of the model is likely to include the consideration of both 
quantitative and qualitative aspects of performance, including, where feasible, outputs from CBAs (43). This process requires 
that the decision-makers review together how the programme delivers under each aspect represented by the columns in the 
PLMCA model.

-  Reporting results. Scores under each objective are then aggregated to give a total score for the proposal as a whole (all 
dimensions considered). The results of the appraisal may either inform a decision directly or result in the need for further 
iteration (e.g. to adjust problem definition or the nature and weights applied to the objectives) and/or sensitivity testing.

To sum up, MCA is particularly suitable at the programme level to evaluate different investment configurations/scenarios, which 
may need to be supplemented with further economic analysis at the project level (CBA or CEA/LCA). Its key benefit is the appraisal 
of territorial investment programmes including those with cross-cutting objectives, such as smart specialisation plans, to set the 
framework for the individual investment projects. Such programmes pose a challenge if appraised using CBA/CEA methodologies 
because they cut across sectors and involve many dimensions (economic, technological, territorial, etc.).

The main limitation of MCA arises when assigning weights and allocating scores because of the potential discretion/subjectivity. 
Rules and good practices can be established to mitigate these shortcomings. For example, one good practice involves setting up 
focus groups to bring together the project’s stakeholders in order to achieve a consensus on weightings and scores to be assigned 
to the objectives (as well as the programme objectives themselves). 

Annex X of Part II of the EAV lists risks and potential remedies in the context of MCA.

43 For example, the B/C ratio may be one criterion and a minimum value may be required. In this way, the CBA result is fully integrated into the MCA. Where CBA is not part of the MCA, capital and operating costs 
are important criteria. Similarly, not only policy objectives but also technical feasibility and risk criteria are often set, which may also have minimum thresholds.

27

Economic Appraisal VademecumAPPENDIX I. Overview of existing cost–benefit analysis national guidance

Country

Sector

Subsector

Title of the guidance document

Source

Bulgaria

Transport

Requirements for Preparation of CBA in Transport 
Sector

http://www.rail-infra.bg/

Croatia

Transport

Road, rail

Smjernice za CBA za projekte prometnica i željeznica

Cyprus

General

Czechia

Transport

Road, rail, Inland 
Waterways

Denmark

Topic specific

Manual for pre-selection and appraisal of public 
investment projects
Rezortní metodika pro hodnocení ekonomické 
efektivnosti projektu dopravních staveb – schváleno 
Ministerstvem dopravy dne 31.10.2017, aktualizace 
CBA tabulek schválena 24.9.2019
Practical Tools for Value Transfer in Denmark – 
Guidelines and an example

Denmark

Transport

Cycling

CBA of Cycling

France

General

Guide de l’évaluation socioéconomique des 
investissements publics

http://www.dgepcd.gov.
cy/dgepcd/dgepcd.nsf/

https://www.sfdi.cz/pravidla-
metodiky-a-ceniky/metodiky/

https://www2.mst.dk/udgiv/

https://norden.diva-portal.org/
smash/get/diva2:702237/
FULLTEXT01.pdf
https://www.strategie.gouv.
fr/sites/strategie.gouv.fr/
files/atoms/files/fs-guide-
evaluation-socioeconomique-
des-investissements-
publics-04122017_web.pdf

France

Transport

All

Fiches outils du référentiel d’évaluation des projets 
de transport

https://www.ecologie.gouv.fr/
evaluation-des-projets-transport

France

Transport

Public transport

Recommandations pour l’évaluation socio-
économique des projets de TCSP

Germany

Energy 
efficiency

Kosten-/Nutzen-Analyse von Instrumenten zur 
Realisierung von Endenergieeinsparungen in 
Deutschland

Germany

Environment

Legislation impact 
assessment

Leitfaden zur Kosten-Nutzen-Abschätzung 
umweltrelevanter Effekte in der 
Gesetzesfolgenabschätzung

Germany

Transport

Regional/local PT

Standardisierte Bewertung von 
Verkehrswegeinvestitionen im schienengebundenen 
ÖPNV – Version 2016 – Intraplan Consult GmbH

Germany

Transport

Major transport 
projects

Methodology manual for the federal transport 
infrastructure plan 2030

Hungary

General

Módszertani útmutató TOP és VEKOP területi 
kiválasztási eljárásrendű projektek költség-haszon 
elemzéséhez

https://it.scribd.com/
document/243815417/CERTU-
Recommandations-pour-l-
evaluation-socio-economique-
des-projets-TCSP-pdf
https://www.bmwi.de/Redaktion/
DE/Publikationen/Studien/
kosten-nutzen-analyse-von-
instrumenten-zur-realisierung-
von-endenergieeinsparungen-
deutschland.pdf?__
blob=publicationFile&v=7

https://www.ecologic.eu/
de/11154

https://www.intraplan.de/

https://www.bmvi.de/
SharedDocs/EN/Documents/G/
methodology-manual-for-the-
ftip-2030.html

https://www.ozd.hu/content/

Hungary

Transport

Road, rail

Módszertani útmutató egyes közlekedési projektek 
költség-haszon elemzéséhez

https://www.palyazat.gov.hu/
node/54834

Ireland

General

Ireland

Topic specific

Public Spending Code – A guide to economic 
appraisal: carrying out a cost benefit analysis

Public Spending Code Supplementary Guidance – 
Measuring & valuing changes in greenhouse gas 
emissions in economic appraisals

Ireland

Topic specific

Central Technical Appraisal Parameters

https://www.gov.ie/en/
publication/public-spending-
code/
https://www.gov.ie/en/
publication/public-spending-
code/
https://igees.gov.ie/wp-content/
uploads/2019/07/Parameters-
Paper-Final-Version.pdf

Ireland

Transport

Roads

Project Appraisal Guidelines for National Roads

https://www.tiipublications.ie/

28

Economic Appraisal VademecumIreland

Transport

All

Common Appraisal Framework

Ireland

Transport

All

2016 guidelines on a common appraisal framework 
for transport projects and programmes

Italy

General

Guida all’analisi costi-benefici dei progetti 
d’investimento

Italy

Transport

All

Linee guida per la valutazione degli investimenti 
in opera pubbliche nei settori di competenza del 
Ministero delle Infrastrutture e dei Trasporti

Italy

Transport

Urban

Tabelle di sintesi dell’analisi della mobilità urbana/
ACE/ACB

https://www.gov.ie/
en/organisation-
information/800ea3-common-
appraisal-framework/
https://www.gov.ie/
en/organisation-
information/800ea3-common-
appraisal-framework/
https://www.invitalia.it/
chi-siamo/area-media/
notizie-e-comunicati-stampa/
fondi-europei-online-la-guida-
all-analisi-costi-benefici-dei-
progetti-di-investimento
https://www.mit.gov.it/
sites/default/files/media/
notizia/2017-07/Linee%20
Guida%20Val%20OO%20
PP_01%2006%202017.pdf
https://www.mit.gov.it/
sites/default/files/media/
documentazione/2018-10/
Appendice%20
all%27ADDENDUM.pdf

Lithuania

General

Metodikos ir modelio, skirto įvertinti investicijų, 
finansuojamų europos sąjungos struktūrinių fondų 
ir lietuvos nacionalinio biudžeto lėšomis, socialinį- 
ekonominį poveikį, sukūrimas galutinė ataskaita

http://www.ppplietuva.lt/wp-
content/uploads/2015/06/SNA_
metodika_galutine_ataskaita.
pdf

Malta

General

Guidance manual for cost benefit analysis (CBAs) 
appraisal in Malta

Netherlands

General

General Guidance for Cost-Benefit Analysis

Northern 
Ireland

General

Northern Ireland guide to expenditure appraisal and 
evaluation (NIGEAE)

Norway

General

Cost-Benefit Analysis

Norway

Transport

Transport for NSW Cost-Benefit Analysis Guide

Poland

Transport

Road

Niebieska Księga Infrastruktura drogowa (Blue Book 
Road Infrastructure)

Poland

Transport

Railways

Niebieska Księga Sektor kolejowy Infrastruktura 
kolejowa

Poland

Transport

Public transport

Niebieska Księga Sektor Transportu Publicznego w 
miastach, aglomeracjach, regionach

https://eufunds.gov.mt/en/
Operational%20Programmes/
Useful%20Links%20and%20
Downloads/Documents/
Guidance%20Manual%20
for%20CBAs%20Appraisal_
May2013.pdf
https://www.pbl.nl/sites/default/
files/downloads/pbl-cpb-2015-
general-guidance-for-cost-
benefit-analysis_01512.pdf
https://www.finance-ni.gov.uk/
topics/finance/northern-ireland-
guide-expenditure-appraisal-
and-evaluation-nigeae

https://www.regjeringen.no/

https://www.transport.nsw.gov.
au/projects/project-delivery-
requirements/evaluation-and-
assurance/transport-for-nsw-
cost-benefit
https://www.pois.gov.pl/
strony/o-programie/dokumenty/
niebieskie-ksiegi-dla-projektow-
w-sektorze-transportu-
publicznego-infrastruktury-
drogowej-oraz-kolejowej
http://www.pois.gov.pl/
strony/o-programie/dokumenty/
niebieskie-ksiegi-dla-projektow-
w-sektorze-transportu-
publicznego-infrastruktury-
drogowej-oraz-kolejowej/
http://www.pois.gov.pl/
strony/o-programie/dokumenty/
niebieskie-ksiegi-dla-projektow-
w-sektorze-transportu-
publicznego-infrastruktury-
drogowej-oraz-kolejowej/

29

Economic Appraisal VademecumPoland

General

Guidelines on issues relating to the preparation of 
investment projects, including revenue generating 
projects and hybrid projects for the period 2014–
2020

https://www.
funduszeeuropejskie.gov.pl/
media/5193/NOWE_Wytyczne_
PGD_PH_2014_2020_
podpisane.pdf

Romania

Environment

Water and 
wastewater

Metodologie de analiză cost-beneficiu pentru 
investiţiile în infrastructura de apă și canalizare 
finanțate din fonduri publice

https://www.fonduri-structurale.
ro/stiri/18389/poim-
metodologie-de-analiza-cost-
beneficiu-pentru-investitiile-
in-infrastructura-de-apa-si-
canalizare

Romania

Environment

Solid waste

Romania

Transport

All

Slovakia

Environment

Waste, water, 
air, prevention of 
risks, remediation 
of polluted areas

Guidelines for cost benefit analysis of solid waste 
projects to be supported by the Cohesion Fund and 
the European Regional Development Fund in 2007–
2013
Romania general transport master plan, national 
guide for transport project evaluation, Vol. 2 – 
Appendix A: guidance on economic and financial cost 
benefit analysis and risk analysis

http://www.mt.gov.ro/web14/
documente/master_plan/
Volume%202_Appendix%20A_
CBA%20Guidance_En.pdf

Príručka k analýze nákladov a prínosov 
environmentálnych projektov

https://www.minzp.sk/files/iep/
cba_metodika.pdf

Slovakia

Transport

Road, rail

Metodická príručka k tvorbe analýz výdavkov a 
príjmov (CBA)

Spain

Transport

Sweden

Transport

All

All

Economic evaluation of transport projects

Economic principles and calculation values for the 
transportation sector: ASEK 6

United 
Kingdom

General

The Green Book – Central government guidance on 
appraisal and evaluation

https://www.opii.gov.sk/
metodicke-dokumenty/prirucka-
cba
http://www.
evaluaciondeproyectos.es/
EnWeb/Results/Manual/PDF/
EnManual.pdf

https://assets.publishing.service.
gov.uk/government/uploads/
system/uploads/attachment_
data/file/938046/The_Green_
Book_2020.pdf

30

Economic Appraisal VademecumBIBLIOGRAPHY

Archutowska, J., Kiwiel, A., Giziński, D., Żbikowska, E., Witaszek, W. and Adamczuk, M. (2014), Best practices in cost-benefit analyses of transport 
projects co-funded by the European Union, CUPT, Warsaw (https://www.cupt.gov.pl/images/zakladki/analiza_koszt%C3%B3w_i_korzysci/CBA_
CUPT_2014_ang.pdf). 

ASEK (2016), Samhällsekonomiska principer och kalkylvärden för transportsektorn: ASEK 6.0, Trafikverket, Borlänge, Sweden.
Asian Development Bank (2017), Guidelines for the Economic Analysis of Projects, Asian Development Bank, Mandaluyong City, Philippines.

Beria, P., Maltese, I. and Mariotti, I. (2012), ‘Multicriteria versus cost benefit analysis: a comparative perspective in the assessment of sustainable 
mobility’, European Transport Research Review, Vol. 4, pp. 137–152.

Boardmand, A. E., Greenberg, D. H, Vining, A. R. and Weimer, D. L. (2018), Cost-Benefit Analysis, Concept and Practice, 5th edition, Cambridge 
University Press, Cambridge, UK.

Catalano, G. et al. (2021, forthcoming) The Social Cost of Capital – Recent estimates for selected countries, CSIL working paper.
De Rus, G. (2010), Introduction to Cost-Benefit Analysis – Looking for reasonable shortcuts, Edward Elgar Publishing.

Dodgson, J. S., Spackman, M., Pearman, A. and Phillips, L. D. (2009), Multi-criteria Analysis – A manual, Department for Communities and Local 
Government, London.

EBRD (2019), Methodology for the economic assessment of EBRD projects with high greenhouse gas emissions, EBRD, London (https://www.
ebrd.com/news/publications/institutional-documents/methodology-for-the-economic-assessment-of-ebrd-projects-with-high-greenhouse-
gasemissions.html).

EIB  (2013a),  The  economic  appraisal  of  investment  projects  at  the  EIB  (https://www.eib.org/attachments/thematic/economic_appraisal_of_
investment_projects_en.pdf).

EIB (2013b), Induced GHG Footprint – The carbon footprint of projects financed by the Bank. Methodologies for the assessment of project GHG 
emissions and emission variations, version 10.

EIB  (2020),  EIB  Group  Climate  Bank  Roadmap  2021–2025  (https://www.eib.org/attachments/strategies/eib_group_climate_bank_roadmap_
en.pdf) 

European Commission (2014), Guide to Cost-Benefit Analysis of Investment Projects – Economic appraisal tool for cohesion policy 2014–2020 
(https://ec.europa.eu/regional_policy/sources/docgener/studies/pdf/cba_guide.pdf).

European  Commission  (2017),  A  social  multi-criteria  framework  for  ex-ante  impact  assessment  operational  issues,  JRC  technical  reports, 
Publications  Office  of  the  European  Union,  Luxembourg  (https://publications.jrc.ec.europa.eu/repository/bitstream/JRC107899/jrc107899_
smce-ia-operational.pdf).

European Commission (2018), Cost Development of Low Carbon Energy Technologies, JRC technical reports, Publications Office of the European 
Union, 
(https://publications.jrc.ec.europa.eu/repository/bitstream/JRC109894/cost_development_of_low_carbon_energy_
Luxembourg 
technologies_v2.2_final_online.pdf). 

European  Commission  (2019),  The  Costs  of  Not  Implementing  EU  Environmental  Law,  Publications  Office  of  the  European  Union, 
Luxembourg 
(https://op.europa.eu/en/publication-detail/-/publication/2c05c9e6-59aa-11e9-a8ed-01aa75ed71a1/language-en/format-PDF/
source-115844964). 

Florio, M. (2014), Applied Welfare Economics: Cost-benefit analysis of projects and policies, Routledge.

Griniece, E., Angelis, J., Reid, A., Vignetti, S., Catalano, J., Helman, A., Barberis Rami, M. and Kroll, H. (2020), Guidebook for Socio-Economic Impact 
Assessment of Research Infrastructures, Zenodo.

Johansson, P.-O. and Kristrom, B. (2016), Cost-Benefit Analysis for Project Appraisal, Cambridge University Press, Cambridge, UK.
Kriström, B. and Bonta Bergman, M. (2014), Samhällsekonomiska analyser av miljöprojekt – en vägledning, Naturvårdsverket Rapport 6628.

Pagliara, F. and Di Ruocco, I. (2018), ‘How public participation could improve public decisions on rail investments?’, Regional Science Policy & 
Practice, Vol. 10, pp. 383–403.

Quinet, É., Baumstark, L., et al. (2013), Cost Benefit Assessment of Public Investments – Summary and recommendations, Commissariat général 
à  la  stratégie  et  à  la  prospective,  Paris  (https://www.strategie.gouv.fr/sites/strategie.gouv.fr/files/atoms/files/cgsp-calcul_socioeconomique_
english4.pdf).

UK Treasury (2018), The Green Book – Appraisal and evaluation in central government, HMSO, London, UK (https://assets.publishing.service.gov.
uk/government/uploads/system/uploads/attachment_data/file/685903/The_Green_Book.pdf).

World  Bank  (2005),  Where  to  use  cost  effectiveness  techniques  rather  than  cost  benefit  analysis,  transport  note  No  TRN-9,  World  Bank, 
Washington DC (https://assets.publishing.service.gov.uk/media/57a08c6b40f0b652dd001300/C21-trn-9-EENote2.pdf).

31

Economic Appraisal VademecumEconomic Appraisal

Vademecum 2021-2027

Part II - Sector Applications

33

Economic Appraisal VademecumACRONYMS

CAPEX 

capital expenditures

CBA 

CEA 

CO2 
DALY 

EA 

EAV 

EIB 

EPBD 

ERR 

ERTMS 

ETCS 

GDP 

GHG 

GJ 

cost–benefit analysis

cost-effectiveness analysis

carbon dioxide

disability-adjusted life year

economic appraisal

Economic Appraisal Vademecum

European Investment Bank

energy performance of buildings directive

economic rate of return

European rail traffic management system

European train control system

gross domestic product

greenhouse gas

gigajoule

GSM-R 

global system for mobile communications for railway

GWh 

IPTV 

gigawatt-hour

internet protocol television

JASPERS 

Joint Assistance to Support Projects in European Regions

LCOE 

LCOH 

LRMC 

LUC 

Mbps 

MCA 

Mtoe 

MWh 

MWhel 
NOx 
NPV 

O&M 

OPEX 

levelised cost of electricity

levelised cost of heat

long-run marginal cost

levelised unit cost

megabits per second

multi-criteria analysis

million tonnes of oil equivalent

megawatt-hour

megawatt-hour of electrical energy

nitrogen oxides

net present value

operating and maintenance

operating expenses

PLMCA 

policy-led multi-criteria analysis

particulate matter

renewable energy source

research and innovation

sulphur oxides

value of time

water framework directive

willingness to pay

PM 

RES 

RI 

SOx 
VOT 

WFD 

WTP 

34

Economic Appraisal Vademecum 
ANNEX I. RESEARCH AND INNOVATION

I.1. Introduction
This chapter discusses the use of CBA for investments in Research and Innovation (R&I), a sector that is at the core 
of the EU’s development policies and funding programmes in 2021–2027. The methodology presented was developed in 
the 2014–2020 programming period for the ex ante analysis of investments in infrastructure and applied to numerous types of 
projects, from science parks and innovative manufacturing facilities to university campuses. The focus was on basic and applied 
research facilities, which have a broad range of benefits that overlap with other types of infrastructure in the sector. This chapter 
retains this focus and is, therefore, likely to be most applicable for strategic infrastructure projects in R&I, including those that 
could be financed by the InvestEU fund. The methodology should also be relevant for research-funding programmes and other 
non-infrastructural investments financed from Horizon Europe and other funding mechanisms.

The information provided is complementary to the methodology presented in the 2014 CBA guide, which was further developed 
in the JASPERS staff working paper Economic analysis of research infrastructure projects in the programming period 2014–2020 
(JASPERS, 2017).

The economic appraisal of infrastructures and programmes engaging in research will, to varying extents, be subject 
to a common problem: the impact of the research can be difficult to predict, fully capture and monetise. While this 
is particularly true of fundamental research, the unpredictability of the economic benefits of R&I is inherent to the field. It is a 
factor that any quantitative method that attempts to predict the economic impact of research is likely to encounter.

For this reason, a promoter may judge CBA to be an inappropriate mode of assessment for certain investments in ‘blue sky’ 
research, namely where the research outputs and the eventual benefits realised by society are not immediately apparent. In 
these instances, it may still be useful to quantify the outputs of the research where possible (e.g. the number of publications) 
and describe their impact qualitatively instead of attempting to monetise the benefits.

I.2. Project development cycle and methods
The economic analysis of a project can be performed at various stages of the development cycle of R&I . The CBA 
model described in this document may be used by project promoters as part of a comprehensive ex ante analysis of the economic 
impact of a proposed investment or in a simplified form to compare the economic viability of alternative project configurations (1) 
(usually as part of a multi-criteria analysis (MCA) exercise) during the option analysis.

Promoters will need to carry out additional analyses to facilitate the CBA. As a minimum, beneficiaries should analyse 
the demand for the infrastructure and its outputs, consider the alternative options for reaching the objectives of the investment 
and  model  the  future  financial  performance  and  sustainability  of  the  infrastructure  and  beneficiary.  Each  of  these  analyses 
provides information and inputs that are required to perform a CBA. The 2014 CBA guide outlines these steps in detail.

Table 1 provides a summary of the questions and information that project promoters and decision-making bodies should consider 
when preparing or appraising the demand and options analyses.

I.3. Economic appraisal
A variety of methods are used in the economic appraisal of R&I depending on the scope of the analysis, the type of 
impacts that are assessed and the target users. The methods range from quantitative approaches, such as macroeconomic 
modelling or cost–benefit analysis (CBA), to more qualitative approaches such as narratives and case studies. While there is 
not a single methodological approach in its original formulation that can appropriately answer all of the questions that an EA 
addresses, the CBA is one of the most scientifically robust analytical frameworks for evaluating welfare changes attributable to 
R&I (see Giffoni and Vignetti, 2019).

Figure  1  illustrates  at  glance  the  common  economic  benefits  associated  with  the  different  types  of  infrastructure 
discussed in this chapter. Table 2 below provides a description of benefits, methods to calculate their value and potential sources 
of data to perfrom a CBA. Additional benefits should be considered depending on the objectives of the specific project (2).

1 Configurations of R&I infrastructure projects include aspects such as location, choice of technologies, operating model and size.

2 A full explanation of the methodologies can be found in JASPERS (2017). Readers should also consult Florio (2019).

35

Economic Appraisal VademecumFigure 1. The economic benefits of R&I infrastructure

NB: CO2, carbon dioxide.

Source: Authors.

36

Economic Appraisal VademecumTable 1. Information to be considered in the demand and option analyses, by infrastructure type

Analysis

Basic and applied research

Demand 
analysis

- 

- 

- 

- 

- 

- 

Has the need for investment 
been demonstrated? Is there 
a gap analysis of equipment, 
infrastructure and staff?

Is the equipment requested justified 
and reasonable in view of the 
intended research results?

Is there demand/buy-in from 
researchers for the project?

Is there a market for research 
outputs?

Is there demonstrated interest from 
industry for the infrastructure and 
its outputs?

Is the project aligned with national 
and/or regional strategies?

O p t i o n 
analysis 

- 

Is the scale of the infrastructure 
and equipment justified?

-  What impact will the investment 

have on regional development?

-  What are the alternatives to the 

investment? Could the beneficiary 
rent or share facilities or make 
use of existing facilities owned by 
another institution?

- 

- 

- 

- 

- 

- 

- 

- 

- 

Investments in innovative 
manufacturing

Are the sales forecasts justified 
by market analysis?

Has the competition been 
analysed?

How vulnerable is the project to 
regulatory changes?

How will the innovation help 
to retain or accelerate the 
company’s market share?

Does the company have a track 
record of introducing innovations 
into the market?

Is the whole value chain aligned 
(e.g. sufficient supply for 
production) with the offering of 
the new good/service?

Tertiary education

- 

- 

Do economic and demographic 
trends support the need for the 
investment?

Are tuition fees falling or rising 
nationally or being introduced?

-  What are the dropout and 
repetition rates of the 
institution?

-  What are the past and future 

enrolment rates?

-  What is the ratio of graduates 

to students enrolled?

- 

Is there evidence of demand for 
skilled labour in the academic 
disciplines concerned?

Is the choice of technology, 
suppliers, site, etc. sensible?

- 

Is the scale of the infrastructure 
justified?

Should a new plant be built 
or the existing one enlarged/
modernised?

Is the scale of the infrastructure 
justified?

-  What are the alternatives 
to the investment? Could 
the beneficiary rent or share 
facilities or make use of existing 
facilities owned by another 
institution?

37

Economic Appraisal VademecumTable 2. A summary of economic benefits, quantification methods, valuation calculations and data sources, 
by infrastructure type

Description

Benefit

Quantifica-
tion method

Value 
calculation

Potential data 
sources

Considerations and 
lessons learned

Infra-
structure 
type

RI, IM

Establishment 
of spin-offs 
and start-ups

Incremental 
shadow profits 
generated by 
spin-offs and 
start-ups

Number 
of jobs 

Number 
of newly 
established 
entities × 
average 
number of 
employees 
per entity × 
shadow profit 
per employee 

National accounts. 
Data should be 
available on 
gross operating 
surplus of one 
employee in the 
scientific research 
and development 
sector 
(Nomenclature 
of Economic 
Activities (NACE) 
sector M.72)

EIB (2013), 
European 
Commission and 
World Intellectual 
Property 
Organization

Beneficiary’s data

The estimated 
number of newly 
established entities 
should be based 
on the track record 
of the promoter 
or comparable 
institutions

The estimated 
number of patents 
should be based 
on the track record 
of the promoter 
or comparable 
institutions. On 
average, patents 
represent a cost; 
therefore, the 
estimated market 
value should be 
conservative

Beneficiary’s data

The estimated 
number of 
publications should 
be based on the 
track record of 
the promoter 
or comparable 
institutions, or 
averages for the 
discipline

RI, IM

Develop-
ment of new/
improved 
products and 
processes

Benefit 
attributed to 
patents granted

Market 
value as 
proxy for 
WTP

Market value of 
patent × num-
ber of patents 
granted

IM

Sales

Increases sales 
as a result of the 
investment

Incremen-
tal shadow 
profit

RI

‘New knowl-
edge’

Benefit to society 
of new scientific 
publications by 
researchers who 
are users of the 
facility

Marginal 
production 
costs (re-
muneration 
of authors) 

Net present 
value of 
incremental 
profit gross of 
depreciation, 
taxes and 
interest 
(assuming 
shadow prices 
equal market 
prices)

(Average gross 
annual salary 
of scientist ÷ 
average per-
centage of 
time researcher 
spends on one 
publication) × 
overall number 
of publications 
by project per 
year

38

Economic Appraisal VademecumRI, TE

Human capital 
formation

Benefit to 
society of an 
educated labour 
force

Market 
value as 
proxy for 
WTP

RI

Social capital 
development

Market 
value as 
proxy for 
WTP

Benefit from 
the creation 
of networks 
between 
researchers 
and between 
researchers 
and private 
companies 
(through 
conferences, 
networking 
events, etc.)

RI

RI

Reduction of 
health risks

Cultural 
effects for 
visitors

RI, IM, 
TE

Climate 
change 
benefits (or 
costs)

Benefits to the 
general public 
of research 
that leads to 
a reduction in 
health risks

Benefits from 
outreach 
activities to the 
general public 
(e.g. visitors, 
tourists)

Change in 
carbon footprint 
(if reduction 
then benefit, if 
increase then 
cost)

See 
Annex VIII

Travel cost 
method 
or benefit 
transfer 
approach

Incremental 
change in 
associated 
GHG 
emissions 
valued per 
tonne of 
CO2e

Economic 
benefit in year 
t = number 
of graduates 
in year t × 
(present value 
in year t of 
incremental 
gross salary 
÷ average 
number of 
years of 
working career 
ahead of 
graduates)

(Average 
travel costs + 
average event 
or conference 
fees paid by 
participants) 
+ (average 
daily wage of 
attendee × 
days at event) 
× (average 
number of 
attendees) 
× (number 
of events or 
conferences 
organised 
per year) 

See Annex VIII

Approach 
according 
to JASPERS 
working paper 
on cultural 
projects 
(JASPERS, 
2011)

GHG savings in 
CO2e × shadow 
price of CO2e

For the benefit to 
occur, there should 
be a bottleneck 
in the supply of 
courses so that, in 
the absence of the 
project, students 
do not receive it or 
have to go abroad 
bearing relocation 
costs

Market values for 
the salaries of 
MA, MSc and PhD 
graduates can 
be taken from 
the Organisation 
for Economic Co-
operation and 
Development 
statistics for the 
specific country 
and compared 
with statistics on 
average salaries

Beneficiary’s data

Commission 
notice on 
technical 
guidance on the 
climate proofing 
of infrastructure 
in 2021–2027 
(EC 2021)

39

Economic Appraisal VademecumRI, IM

Learning-by-
doing benefit

RI

Open access 
to RI

Economic 
benefit to 
firms supplying 
equipment 
for RDI 
infrastructure

The value of 
research carried 
out by visiting 
researchers with 
open access to 
the RDI facility

Incremental 
shadow 
profit

The same 
productivity 
is assumed 
for open 
access as 
for project 
promoters

RI

RI

Fee-paying 
access to RI

Benefits 
arising from 
academic 
consultancy 
or contract 
research

Market 
value as a 
proxy for 
benefit

Market 
value as 
proxy for 
WTP

Value of 
research carried 
out by paying 
users with 
access to the 
facility

Value of 
research carried 
out for public or 
private sector 
on the basis 
of contract 
research or a 
consultancy 
contract

Volume of 
high-tech 
procurement × 
sales multiplier 
× average 
profit margin 

Economic 
benefits per 
unit of capacity 
used by project 
promoter 
× units of 
capacity to 
be utilised 
by visiting 
researchers 
under open 
access policy 

Fees paid by 
private sector 
for access to 
the facility; 
alternatively, a 
WTP approach

Average 
financial 
revenues from 
contracts 
× number 
of research 
contracts 

Beneficiary’s data

The benefit should 
apply only when 
the suppliers are 
local; otherwise, 
the benefit is lost

Beneficiary’s data

Beneficiary’s data

Beneficiary’s data

The estimated 
value and number 
of contracts should 
be based on the 
track record of 
the promoter 
or comparable 
institutions

NB: CO2e, carbon dioxide equivalent; GHG, greenhouse gas; IM, innovative manufacturing; RI, research, development and innovation; RI, research infrastructure; 
TE, tertiary education; WTP, willingness to pay.

40

Economic Appraisal VademecumANNEX II. RENEWABLE ENERGY

Introduction

II.1. 
The EU has set itself an objective to reach carbon neutrality by the middle of the century. According to the pathways to reach 
‘net zero’ greenhouse gas (GHG) emissions by 2050 developed by the European Commission, the power sector will need to have 
almost fully decarbonised by 2040. Similarly, although at a somewhat slower pace, the decarbonisation of the heating sector is 
also required to reach net zero emissions by 2050.

In the medium term, the EU climate and energy framework had initially set a target of a 40 % reduction in GHG emissions 
(compared with 1990 levels) by 2030; this includes a binding target of renewable energy sources (RESs) making up 32 % in EU 
final consumption by 2030.

Following a proposal from the European Commission, however, the European Council has recently endorsed a more ambitious 
binding EU target of a net domestic reduction of at least 55 % in GHG emissions by 2030 (compared with 1990). Higher RES 
penetration targets for 2030 will accordingly be required. The country-specific targets and the measures put in place to achieve 
them are presented in the national energy and climate plans of the Member States. The legal framework for the promotion of 
RESs in the EU is set out by the ‘recast’ of the renewable energy directive (Directive (EU) 2018/2001).

Several  instruments  in  the  EU  budget  (e.g.  the  ‘greener,  carbon  free  Europe’  policy  objective  of  the  European  Structural  and 
Investment  Funds,  the  Just  Transition  Fund  and  the  Modernisation  Fund)  can  support  investments  in  renewable  energy.  In 
addition, in the context of its ‘climate bank roadmap’ (EIB, 2020), the European Investment Bank (EIB) is planning to strengthen 
its financial and advisory support for the decarbonisation of energy supply on the basis of the criteria set out in its energy lending 
policy (EIB, 2019).

The objective of this chapter is to provide an overview of the EA of investments in renewable energy generation in the electricity 
and heating sectors.

Project development cycle and methods

II.2. 
At  the  stage  of  prefeasibility/strategic  option  analysis,  the  assessment  of  the  ‘levelised  cost’  of  electricity  (LCOE)  or  of  heat 
(LCOH) is typically a good life-cycle, cost-effectiveness indicator to compare alternative technologies (see Box 1). This indicator 
can also easily be adapted to include the key economic externalities (e.g. carbon dioxide (CO2) emissions), as discussed in the 
next paragraphs.

41

Economic Appraisal VademecumBox 1. The levelised cost

The levelised cost is a commonly used concept in energy economics, particularly when comparing alternative technologies. 
This is calculated as the ratio between (i) the present value of the project costs over its life cycle and (ii) the present value 
of the supplied power/heat over the same reference period. Assuming that, in the long run, all production factors (including 
capital) are variable, the indicator can be used as a proxy for the long-run marginal cost of a given technology or a project. By 
adding to the project costs the shadow cost of ‘externalities’, the levelised cost can also be estimated in socioeconomic terms.

Here we will assume, for example, that we want to estimate the LCOH generation from the installation and operation of 
a  new  20  thermal  megawatt  (MWt)  biomass  hot-water  boiler  in  a  district  heating  system  with  an  initial  investment  cost 
of EUR 9 million. Over the expected economic life (15 years of operations), the following costs, externalities (3) and heat 
generation are estimated:

Net pre-
sent value 
at 5%

2021

2022

2023

2024

2025

2030

2035

LCOH – biomass boiler (million EUR)

Investment cost

Fuel costs

Other operating and 
maintenance costs

Total costs (without 
externalities)

Shadow cost of CO2 
emissions

Shadow cost of airborne 
pollutants

Total socioeconomic cost

Heat produced (GWh)

LCOH – financial (EUR/
MWh)

LCOH – economic (EUR/
MWh)

8.4

25.6

2.5

36.5

—

4.6

41.2

1 089

34

38

4.5

—

—

4.5

—

—

4.5

—

4.5

—

—

4.5

—

—

4.5

—

2.7

0.3

3.0

—

0.5

3.5

2.7

0.3

3.0

—

0.5

3.5

2.7

0.3

3.0

—

0.5

3.5

2.7

0.3

3.0

—

0.5

3.5

2.7

0.3

3.0

—

0.5

3.5

115.6

115.6

115.6

115.6

115.6

NB: GWh, gigawatt-hour; MWh, megawatt-hour.

By dividing the net present value (NPV) of 
the single cost components by the NPV of 
the  energy  generated,  the  levelised  cost 
subcomponents can also be estimated. 

LCOH – biomass boiler (EUR/MWh)

Capital cost

Fuel cost

Other operating and 
maintenance costs

LCOH – financial

Shadow cost of CO2 emissions

Shadow cost of airborne pollutants

LCOH – economic

NB: MWh, megawatt-hour.

8

24

2

34

-

4

38

3 Direct CO2 emissions from the combustion of biomass are assumed to be zero if the fuel sourcing is done in compliance with the applicable sustainability criteria. Supply chain emissions (e.g. from biomass 
preparation and transportation) are not considered in the example. In addition to the emissions of airborne pollutants (e.g. sulphur oxides, nitrogen oxides and particulate matter), costs for externalities related to the 
security of supply of the required biomass could be considered if relevant to reflect, for example, availability or price volatility risks.

42

Economic Appraisal VademecumAt the stage of a full feasibility analysis, a fully fledged CBA is normally carried out for the selected option.

For certain RES technologies that are innovative but have not yet been developed on a commercial basis (e.g. floating wind farms 
and concentrated solar power), however, a cost-effectiveness/qualitative approach is usually more appropriate. As a matter of 
fact, for these technologies, the economic benefits estimated according to the methodology presented above would normally not 
outweigh the related project costs, so the resulting economic rate of return (ERR) would fall short of the social discount rate. A 
benefit related to the ‘learning curve’ of the specific technology would in this case need to be assessed. This would hinge on the 
analysis of the expected ‘learning rate’ (typically estimated as the expected percentage reduction in the unit investment cost at 
each doubling of the installed capacity) and the forecast pace of deployment of the technology in terms of cumulated installed 
capacity (see, for example, European Commission, 2018). A monetary valuation of the incremental learning effect associated 
with a specific project is challenging and might require rather subjective assumptions. A very rough estimate could be based on 
a share of future capital expenditures (CAPEX) reductions (inferred from the learning rate) proportional to the project capacity 
in the overall installed capacity over the reference period. However, given the high uncertainty related to such an estimation, it 
is advisable that the EA of innovative RES projects mainly relies on the estimation of the LCOE, complemented by a qualitative 
assessment of the market potential of the technology.

II.3.  Economic appraisal
Power generation
The  investment  and  operating  costs  to  be  considered  in  the  economic  analysis  of  RES  projects  are  typically  those  used  in 
financial analysis or feasibility studies. Adjustments of certain cost components to better reflect their social opportunity cost 
may be necessary, in particular for labour costs and land use. Further adjustments to the costs may be necessary for certain 
technologies in relation to fuel costs (i.e. to consider the relevant ‘border price’ plus transportation – excluding taxation) and/or 
possible negative externalities (e.g. airborne pollutants such as nitrogen oxides (NOx), sulphur oxides (SOx) and particulate matter 
(PM) – which are particularly relevant for biomass projects). In addition, it is important to verify that the grid connection costs are 
taken into account – in some cases (e.g. offshore wind) these costs can be significant and are not necessarily already included 
in the project investment cost.

On the benefits side, the CBA of a project to increase the supply of electricity from RES essentially hinges on the determination of 
an appropriate estimate of the economic value of the power generated by the project. The change in ‘social welfare’ associated 
with the project can in principle be gauged by the reduction in social marginal generation costs (including externalities) triggered 
by the investment (4). The price formed in the wholesale power market cannot typically be deemed to adequately reflect the 
social value of the avoided costs, because of certain distortions (e.g. subsidies to RES generators or incomplete internalisation 
of environmental externalities). A ‘shadow price’ should then be estimated for the economic value of power. For this purpose, a 
relevant LCOE can be taken as a starting point (5), to be adjusted to include the following elements, whenever relevant to the 
specific technology and market situation assumed to define the economic value of electricity generation.

- 

- 

A capital cost (CAPEX) component. Intuitively, the economic value of new generation capacity added to the system depends 
on the level of scarcity on the market. The system adequacy – as gauged, for example, by the expected evolution of the 
‘reserve  margin’  (6)  –  can  be  taken  into  account  to  possibly  adjust  downwards  the  value  of  this  component  in  case  of 
overcapacity (7).

A fuel cost component (if relevant). This is calculated on the basis of the plant’s efficiency and the cost of the delivered fuel 
(‘border price’ plus transmission/distribution costs – net of taxation) (8).

-  Other (fixed and variable) operating and maintenance (O&M) costs component, not including fuel and CO2 / air pollutant 
emissions, which are separately monetised. This typically includes, for example, personnel costs, insurance, maintenance, etc.

- 

The social cost of carbon. The shadow price to be used for the monetisation of the CO2 emissions component can be taken 
from the values used by the EIB (see Section 2.5 of Part I of this Economic Appraisal Vademecum (EAV)). Attention should 
be paid to excluding from other components of the LCOE the possible cost of European Union Emissions Trading System 
allowances to avoid double counting.

- 

The socioeconomic value of emissions of airborne pollutants (e.g. NOx) as unit damage values (e.g. from the Needs project) 
could be used (9). The values can be escalated over the reference period on the basis of the expected real gross domestic 
4 This means focusing on the changes associated with the project in the area underneath the social (e.g. externalities-adjusted) supply curve. For large investments (relative to the power system), where the project 
may also trigger an impact on power demand because of a price effect, the willingness to pay for the incremental demand would also have to be considered – which is possibly relevant for small, isolated systems.

5 In the absence of specific modelling allowing the identification of the mix of marginal generators displaced by the project and the related average time-weighted benefit, the following shortcut can be used: in a 
hypothetical system where investment in power generation is optimised on the basis of the social (as opposite to market) generation costs, the (distortions-adjusted) levelised cost of a base-load generator that 
operates at full technical availability would adequately reflect the socioeconomic long-run value of power (see, for example, Lamont, 2008).

6 The reserve margin is the ratio between the available generation capacity (with intermittent technologies such as wind and solar considered on a ‘de-rated’ basis) and the peak load to be covered, minus 1. The 
availability of intermittent technologies such as wind and solar needs to be considered on a ‘de-rated’ basis, expressing an equivalent firm (‘dispatchable’) capacity. Transmission constraints are ignored here. An 
estimation of reserve margin can be found in adequacy studies or from energy consultancy companies.

7 A rule-of-thumb approach could, for example, be (i) to include the full CAPEX component for cases in which the medium-term forecast of the reserve margin is lower than 30 %, (ii) to assume that a reserve margin 
above 50 % signals the presence of overcapacity and hence no CAPEX component is included in the shadow price, and (iii) for a reserve margin between 30 % and 50 %, to use a partial CAPEX component, declining 
linearly from the full value to zero as the value within the interval increases (e.g. for a reserve margin of 40 %, only half of the CAPEX value would be considered).

8 European Network of Transmission System Operators for Electricity (ENTSO-E) and for Gas (ENTSOG) scenarios prepared for the 10-year network development plan exercises include assumptions on fuel price 
developments that can, for example, be used. As regards gas transmission costs, where relevant, data from Eurostat can be used.

9 See the Needs project website for more information (http://www.needs-project.org/); in particular, see RS3a D 1.1, Report on the procedure and data to generate averaged/aggregated data.

43

Economic Appraisal Vademecumproduct (GDP) growth (10).

- 

A security-of-supply cost related to the use of (imported) fuels. The EIB uses, for example, a value equal to EUR 10/MWhel 
(megawatt-hours of electrical energy) for power generated from a gas-fired combined-cycle gas turbine.

The sum of those components would provide a reasonable estimate of the base economic value of electricity produced by the 
project.

However, if the technology assumed to define the economic value of electricity is firm (‘dispatchable’) generation, when evaluating 
the  value  of  power  from  a  project  installing  variable  (i.e.  intermittent,  non-dispatchable)  RES,  such  as  wind  and  solar,  two 
downward adjustments would need to be made to account for the following aspects (11).

- 

‘Profiling’  costs.  Power  demand  varies  over  the  day  (and  seasons)  and  so  does  its  value,  given  that  a  different  mix 
of  generation  sources,  with  different  generation  costs,  is  called  on  to  produce  power  at  different  moments  in  time 
(storage and demand-response are typically limited, and generation basically needs to meet demand in real time). So, 
for example, generation at times of peak demand has a higher value than in the middle of the night, when demand is 
low. Owing to the weather-dependent variability of generation of intermittent RES, RESs cannot extract value from the 
entire profile of power demand, as a baseload generator would. For this reason, a ‘profiling’ (or utilisation) cost would 
typically need to be deducted from the base value of the shadow price. This would depend on (i) the extent to which the 
expected generation profile of the specific project under appraisal correlates with the relevant demand profile and (ii) 
the current and expected overall penetration of variable RES in the system – the higher the share of intermittency, the 
higher the profiling cost.

- 

‘Balancing costs’. The uncertainty associated with the output variability may lead to mismatches between the scheduled 
RES generation (e.g. at the time of closure of the day-ahead market) and the power actually fed to the grid. This would 
lead to additional costs for the ‘balancing’ of demand and supply in the system.

In the estimation of the economic benefits, the different components of the shadow price can be singled out for presentation 
purposes (e.g. CO2 reduction benefit or security-of-supply benefit).

As regards the reference period over which the CBA is performed, an operational phase of 15 to 20 years (the latter for mature 
RESs, such as onshore wind and solar photovoltaic systems) is typically appropriate to adequately reflect the economic life of the 
project assets without the need to consider major replacement cost or residual value.

Heat generation

The CBA of RESs in heating can be based on a similar conceptual framework to that presented above for the case of power 
generation. The reference period can usually be taken to be 15 years, but a longer time horizon can be used for projects related 
to a district heating system, provided asset replacement costs are adequately taken into account.

As regards the economic investment and operating costs, the same considerations presented above for electricity projects apply. 
For generation investments in the context of district heating, it is important to also take into account the costs associated with 
heat distribution and the related losses.

As  regards  the  benefits,  the  economic  (i.e.  externalities-adjusted)  LCOH  (12)  from  the  next  best  alternative  to  the  RES  heat 
generated by the project can be used as a relevant shadow price.

The use of the LCOH can be particularly useful at the stage of option analysis, to compare different decarbonisation options, 
for  example  for  district  heating  systems.  Similarly  to  electricity,  two  types  of  levelised  cost  can  be  estimated:  financial  and 
socioeconomic. The financial levelised cost should be based on observed market prices and the related forecasts of future costs 
and prices that are going to be borne by the owner(s) of the heat generation/distribution assets. The socioeconomic levelised cost 
should be based on the financial levelised cost and complemented with the assessment of external costs that would be borne by 
society at large (e.g. the damage value of airborne pollutants, GHG emissions and security-of-supply considerations for certain 
fuels). For combined heat and power options, the value of power generation can be netted out from the heat generation cost, 
where appropriate. Table 3 summarises the elements typically considered in the financial and economic LCOH.

10 In the Needs project, evidence was found that monetary values for health risks for future years increase with an intertemporal elasticity to GDP per capita growth of 0.7 to 1.0.

11 A description of the methodological approach can be found in Hirth (2013). There are several studies on the valuation of those ‘system costs’. An overview of the literature and value estimations is, for example, 
available in OECD and Nuclear Energy Agency (2018) – see Section 3.3.

12 The LCOH can be considered a life-cycle average incremental cost or long-run marginal cost. This is calculated as the ratio of (i) the present value of all costs (CAPEX, operating expenses, fuel, etc.) associated 
with a given technology over the appropriate reference period and (ii) the present value of the heat supplied by the related plant(s) over the same time horizon.

44

Economic Appraisal VademecumTable 3. Levelised unit cost elements

Financial LCOH

Economic LCOH

+ CAPEX

+ O&M costs

+ CAPEX

+ O&M costs 

+ Fuel costs (if relevant)

+ Fuel costs (if relevant)

+ CO2 Emission Trading System allowance costs (if 
relevant)

+ Social cost of CO2 emissions
+ Social cost of SO2, NOx and PM 
+ Security-of-supply cost (13)

– Revenue from power sales (if relevant)

– Economic value of power sales (if relevant) (14)

= Net LCOH (financial)

= Net LCOH (economic)

Options should primarily be ranked on the basis of the socioeconomic LCOH (the lower the better), particularly if public support 
(e.g. EU financing) is foreseen. At the same time, it is important that the related financial cost can be deemed to be competitive 
and affordable. The financial LCOH can be considered as a rough approximation of a heat tariff regulated on a cost-plus basis (15).

13 This would, for example, be the case of imported fuels such as natural gas or possibly biomass. The consideration of this cost would (slightly) favour the use of locally sourced fuels over imported fuels, whose 
availability and price volatility may be more problematic.

14 To be estimated on the basis of the methodology presented in the ‘Power generation’ section above.

15 Differences could, for example, stem from (i) differences between the ex ante cost estimates and the actual costs incurred for the different alternatives, (ii) differences in average investment costs in the LCOH and 
the related depreciation included over the same reference period in the heat tariffs by the regulator, (iii) differences between the return on capital embedded in the discount rate used in the LCOH and the allowed 
profit included in the regulated tariffs, (iv) the fact that, if the investment is co-financed by public grants (e.g. EU funds), the capital component in the related heat tariffs is likely to be lower than in the financial 
LCOH estimated ex ante, and (v) in the case of co-generation assets, differences between the cost allocation method to transfer common heat and power costs to the heat tariff and the residual net LCOH after 
deduction of power sales revenue.

45

Economic Appraisal VademecumANNEX III. ENERGY EFFICIENCY

Introduction

III.1. 
Energy efficiency is expected to play an important role in the context of the ambitious decarbonisation targets of the EU and 
is one of the key elements of the European Green Deal. Buildings account for around 40 % of energy consumption in Europe. 
According to the European Commission, the renovation rate of the building stock will need to at least double compared with 
the current level to meet the relevant EU targets. The EU as a whole will have to reduce its energy consumption by at least 
32.5 % by 2030 (16), according to the amended energy efficiency directive (Directive (EU) 2018/2002). With a more ambitious 
decarbonisation target for 2030 agreed in December 2020 (i.e. an EU-wide 55 % reduction in GHG emissions instead of 40 % – 
both compared with 1990 levels), energy efficiency efforts will also need to be further increased.

In the case of buildings, as of 2021, all new buildings in the EU have to be nearly zero-energy buildings (17) in line with the 
requirements of the amended energy performance of buildings directive (EPBD – Directive (EU) 2018/844).

Each country’s specific targets and policy measures are set out in the national energy and climate plans, as well as the long-
term renovation strategies being prepared by Member States under the EPBD. EU funds can support the related (significant) 
investment needs (18), for example through the ‘renovation wave’ initiative of the EU Green Deal and the ‘greener, carbon free 
Europe’ policy objective of the European Structural and Investment Funds, the Just Transition Fund and the Modernisation Fund.

This chapter focuses on the EA methods for energy efficiency projects in buildings. A similar conceptual framework can also 
be applied to investments in other typologies of assets, for example for the evaluation of energy savings stemming from the 
refurbishment of district heating networks, industrial facilities or public lighting systems.

III.2. 

Project development cycle and methods

At  the  beginning  of  the  project  development  cycle,  national  energy  performance  standards  for  buildings  complying  with  the 
EPBD  –  in  line  with  the  cost-optimal  levels  –  define  the  (investment)  measures  to  improve  the  energy  performance  of  the 
buildings. For large projects, an energy audit is required to assess the building’s existing situation and to screen and define the 
investment measures. At this preliminary stage, the comparison of possible alternatives is typically done on the basis of a cost-
effectiveness analysis (CEA) and financial criteria, including the expected payback period of the measures. In the case of projects 
seeking to obtain financial support from the EU, the analysis can be complemented by including monetised externalities (e.g. CO2, 
airborne pollutants, security of supply). This can help define renovations measures going beyond the financial cost-optimal level, 
with a view to maximising the decarbonisation effect.

For large energy efficiency projects (or schemes) where a full feasibility analysis is developed, the EA should be based on a CBA 
that, in addition to the energy savings benefits and associated externalities, should also include other effects related, for example, 
to the extended life of the building or the reduced maintenance costs. (19)

At the stage of the selection and approval of projects to be financed by EU funds, it is important that the national authorities 
responsible for project evaluation base their decisions on an assessment of the expected economic benefits (e.g. the value of 
energy savings and associated CO2 emissions) relative to the project costs, to ensure efficiency and effectiveness (20). In this 
respect, a simplified CBA tool with a set of predefined unit benefit values could be developed by the national authorities to be 
used in call-for-project proposals to rank and select energy efficiency investments.

III.3. 

Economic appraisal

While the financial analysis is mainly done from the point of view of the owner of the building, the economic CBA attempts to 
evaluate  the  socioeconomic  impact  of  the  energy  efficiency  investments  on  society  as  a  whole.  The  cost  savings  monetised 
in  the  financial  analysis  do  not  necessarily  reflect  society’s  willingness  to  pay  (WTP)  for  the  avoided  energy  generation,  for 
example because energy tariffs may be subsidised and may not (fully) include the value of externalities such as CO2 emissions 
or the increased security of supply. For this reason, the economic analysis should be based on a shadow price reflecting the 
socioeconomic value of the energy saved thanks to the project – typically heat, but also electricity. Annex II (‘Renewable energy’) 
provides a detailed description of the different components of the shadow price of heat (and electricity) that can be used to 
monetise the energy savings associated with the project.

16 The target is set relative to the 2007 modelling projections for 2030.

17 Nearly zero-energy buildings are buildings that have very high energy performance and whose (limited) energy consumption is mostly covered by energy from renewable sources.

18 There are several market failures that prevent a socially optimal level of investment in energy efficiency and justify public intervention. Access to capital is one of those, with other examples from the literature 
being imperfect information, hidden costs, split incentives and bounded rationality. A recent EIB working paper found that the availability of favourable financing together with the provision of technical assistance 
increased by one third the probability of investment in energy efficiency (EIB, 2020).

19 For example, in the case of projects funded by EIB loans, the bank’s economic assessment is based on a CBA that includes energy savings and reductions in GHG emissions (tier 1 benefits), but also other economic 
benefits such as the extension of the economic life and a reduction in maintenance costs (tier 2 benefits), when they are measurable and quantifiable. In the case of bank-intermediated EIB operations, the economic 
case is assumed ex ante to be met for the individual measures on the basis of the cost optimality of the national standard measures. However, in the latter case, economic assessment is also required at an aggregate 
level, based on the expected energy savings of the overall operation and other quantifiable benefits.

20 According to the European Court of Auditors, the allocation of EU cohesion policy funds to energy efficiency projects in buildings was in most cases done on a first-come-first-served basis, without a proper 
consideration of the relative costs and benefits of the projects. The court recommends that, for the 2021–2027 period, improved selection procedures are used to ‘(i) set minimum and/or maximum thresholds for 
key parameters (e.g. the quantity of energy to be saved, the minimum energy rating the building should reach after project, the net present value, the simple payback time or the cost per unit of energy saved); (ii) 
assess the relative costs and benefits of projects and select those delivering higher energy savings and other benefits at lower cost’ (European Court of Auditors, 2020).

46

Economic Appraisal VademecumMoreover, owing to the existence of split incentives in building renovations, some benefits are appropriated by different individuals. 
For instance, tenants normally benefit from a reduction in energy bills, whereas property owners benefit from the extension of 
the economic life of the building elements. However, regardless of the beneficiary, all of the benefits contribute to the overall 
economic return of the project.

The reference period used in the CBA would depend on the project measures and the components and equipment replaced. In 
general, it can range from 10 to 25 years for projects also investing in the building’s envelope. For new construction, Article 2(14) 
of the EPBD defines the building life cycle as 30 years for residential buildings and 20 years for non-residential buildings.

On the costs side, only investment costs directly related to energy efficiency are usually included in the CBA. Changes in operating 
costs associated with the project are normally presented as part of the (energy) cost savings that underpin the economic benefits. 
Where relevant, costs taken from the financial analysis can be adjusted to better reflect social opportunity costs (e.g. using a 
‘shadow wage’ for the labour cost component).

On the benefits side, the International Energy Agency has identified no less than 15 different sources of benefits (International 
Energy Agency, 2014). Energy efficiency investments generate not only energy savings and reductions in GHG emissions, but also 
other economic benefits, such as the extension of the economic life of the replaced building elements, a reduction of maintenance 
costs and an increase in property values. In addition, energy efficiency investments in buildings improve the comfort and quality 
of the working and living environment. When these benefits are quantifiable, they should be incorporated into the CBA. However, 
the value of certain direct benefits (e.g. energy savings) may be partly embedded in some other indirect benefits (e.g. an increase 
in property values), so particular attention should be paid to not double counting benefits.

In general, the economic analysis of building refurbishments should aim to include the following two groups of benefits.

1.  Energy-related  cost  savings,  including  externalities  (21)  (Box  2).  The  following  benefits  should  be  included  in 
the CBA, as the methodology used to estimate these benefits is well documented (EIB, 2013) and the data needed to 
produce robust estimates are generally available.

-  Avoided  energy  (heat/electricity/cooling)  generation/transportation  costs,  including  capital  (where 
justified) (22), operating costs and fuel costs. Where data on local energy production are available, these should 
be used in the analysis (fuel costs should ideally be expressed at border price plus transportation cost, net of 
taxation).

-  Avoided emissions of GHGs. The shadow price to be used for the monetisation of the estimated changes in 
CO2 emissions can be taken, for example, from the values used by the EIB (see Section 2.5 of Part I of the EAV).

-  Avoided emissions of air pollutants (e.g. SOx, NOx and PM). Unit damage values (e.g. from the Needs project) 
can be used (23). The values can be escalated over the reference period using the expected real GDP growth (24).

-  Enhanced security of supply, in cases where the primary energy saved comes from imported fossil fuels, such 
as natural gas. For electricity from a gas-fired combined-cycle gas turbine, the EIB uses, for example, a value of 
EUR 10/MWhel – assuming a plant efficiency of 58 %, the value of the unit economic benefit can be estimated at 
approximately EUR 1.60/gigajoule (GJ) of natural gas saved by the project (25).

21 This group of benefits would typically also apply to projects for the refurbishment of district heating networks that result in a lower level of heat losses.

22 For example, in relation to the time deferral or capacity reduction of replacement investment
. 23 See the Needs project website for more information (http://www.needs-project.org/); in particular, see RS3a D 1.1, Report on the procedure and data to generate averaged/aggregated data.
24 In the Needs project, evidence was found that monetary values for health risks for future years increase with an intertemporal elasticity to GDP per capita growth of 0.7 to 1.0.

25 In the case of projects in district heating networks, security-of-supply benefits can also be related to a reduction in heating disruptions. They can, for example, be valued at the avoided economic cost associated 
with the use of individual electric heaters during periods of district heating disruptions.

47

Economic Appraisal VademecumBox 2. The economic value of energy savings

An investment programme for the thermal rehabilitation of residential dwellings is targeting an aggregate final energy (heat) 
saving  of  50  gigawatt-hours  (GWh)/year  (equivalent  to  some  55  GWh/year  of  avoided  primary  energy)  compared  with  a 
baseline scenario without the project. The following economic LCOH generation from a domestic condensing gas boiler is used 
to estimate the economic value of the annual benefit associated with the energy savings:

LCOH – domestic gas boiler (EUR/MWh)

Capital cost

Fuel cost

Other operating and 
maintenance costs

Shadow cost of CO2 emissions

Shadow cost of airborne pollutants

Security-of-supply external cost

16

55

2

40

0

6

LCOH – economic

120

NB: MWh, megawatt-hour.

The  total  economic  value  of  heat  savings  can  then  be  estimated  to  be  equal  to  EUR  120/megawatt-hours  (MWh).  The 
annual value of the corresponding benefit to be considered in the economic analysis is then forecast at 50 GWh × EUR 120/
MWh, which is equal to EUR 6 million a year. The LCOH breakdown can be used to calculate the annual value of the specific 
subcomponents of the energy-saving benefit.

2.  The  impacts  on  the  use  and  value  of  the  building  enabled  by  the  project.  Estimating  these  benefits  can  be 
more challenging. Therefore, they should be included only on a case-by-case basis, subject to the availability of reliable 
data and a robust estimate for the specific project. In addition, specific attention should be paid to not double counting 
benefits. The following are examples of such benefits.

-  Extension  of  the  economic  life  of  the  building  (elements).  The  related  annual  value  could,  for  example,  be 
estimated as the constant annuity over the operational phase of the reference period whose NPV equals the NPV of the 
project investment cost net of the residual value of the equipment replaced by the project (e.g. heating, ventilation and 
air conditioning equipment, electrical equipment).

-  Reduction in building maintenance costs. The benefit is more easily determined for commercial (and public) buildings, 
but can also apply to residential buildings. The possible reduction in costs relates to both preventive (i.e. scheduled) 
maintenance activities and estimated corrective maintenance (i.e. the repair of equipment when it breaks down) (26).

- 

- 

Improved thermal comfort, for cases where a comfortable room temperature can be achieved only after the building 
refurbishment. Where feasible, this benefit can be monetised on the basis of the value of hypothetical additional energy 
savings associated with a hypothetical higher energy consumption in the without-project scenario that would have been 
needed to reach the same new temperature in the with-project scenario (27). In certain cases, better comfort would be 
triggered by the improved affordability of heating enabled by the project cost savings (28).

Increase in property values associated with the improved aesthetics and comfort of buildings (in excess of what 
was possibly already accounted for in the previous benefits). Assumptions need to be made about the current average 
market price of buildings covered by the project and the expected increase in value following the thermal rehabilitation. 
However, the increase in property values should in principle also embed the value of avoided energy costs, which are 
already monetised separately. Therefore, to avoid double counting, the economic CBA should only include the difference 
between the expected increase in property value and the NPV of the energy cost savings as quantified in the financial 
analysis. The benefit can be distributed over the reference period by calculating the related equivalent constant annuity.

26 The reduction of maintenance and repair costs is also typically a benefit of investments in district heating networks.

27 See the numerical example provided in the European Commission’s Guide to cost benefit analysis of investment projects (European Commission, 2014) – see the box on p. 228 on the valuation of increased energy 
efficiency in buildings.

28 According to the European Commission, around 50 million consumers in Europe struggle to keep their homes adequately warm. Investment in energy efficiency can contribute to tackling energy poverty.

48

Economic Appraisal VademecumIII.4.  Other relevant information
The approach presented in this chapter can also be applied to the EA of new buildings, as opposed to the refurbishment of 
existing buildings. In this case, the appraiser would need to define an appropriate counterfactual scenario against which possible 
energy efficiency benefits could be identified and monetised. The EIB approach, for example, is to identify the project savings in 
relation to the minimum regulatory requirements applicable to the new construction based on the date of the building permits.

In the case of energy efficiency investments in public buildings that are used to provide services to the public (e.g. hospitals, 
schools and libraries), the project can also enable the continuation or even a quality improvement of the public service provision. 
In this case, the economic analysis may need to be complemented with the addition of indirect benefits for the relevant sectors 
concerned (e.g. health, education and culture).

49

Economic Appraisal VademecumANNEX IV. MUNICIPAL WASTE MANAGEMENT

Introduction

IV.1. 
In the framework of the cohesion policy for 2021–2027, municipal waste management projects will be developed as part of the 
Member States’ efforts to move towards a circular economy. These projects should be consistent with the Member States’ waste 
management plan(s) as stipulated in Annex IV of the common provisions regulation. However, the transition to a circular economy 
does not require a modification to the EA methods for municipal waste management projects.

In July 2018, the circular economy package entered into force. The circular economy package sets new and ambitious targets 
for recycling municipal waste: 55 % by 2025, 60 % by 2030 and 65 % by 2035 (29). Member States also have to ensure that, by 
2035, less than 10 % of the total amount of municipal waste generated is sent to landfill. Achieving these targets will require 
substantial legal, organisational and financial efforts in the Member States. Less advanced Member States, in particular, will 
need to try to catch up and build the basic infrastructure that they are currently missing. Essential changes and investments 
will be required in expanding separate waste collection, treatment and material recovery systems and in developing markets 
for the secondary raw materials recovered. Some of these investment projects will include circular economy components, which 
are consistent with the higher steps of the waste management hierarchy. Table 4 includes the circular economy categories in 
the waste management sector and typical projects/investments indicated in the Categorisation System for the Circular Economy 
(European Commission, 2020) published by the European Commission Expert Group on Circular Economy Financing.

Table 4. Circular economy categories of waste management activities and typical projects/investments

Circular economy categories

Examples of typical projects/investments

Separate collection and reverse logistics of waste, as well as 
redundant products, parts and materials, enabling circular 
value retention and recovery strategies

Recovery of materials from waste in preparation for circular 
value retention and recovery strategies (excluding feedstock 
covered under the next line)

Recovery and valorisation of biomass waste and residues 
as food, feed, nutrients, fertilisers, biobased materials or 
chemical feedstock

-  Movable equipment (bins, containers)

-  Waste collection and transport vehicles

- 

Supporting infrastructure for waste collection, 
transport and temporary storage (e.g. civic amenity 
centres, transfer and reloading stations, vehicle 
depots, facilities for refuelling/recharging, washing, 
maintenance and repair)

-  Material recovery facilities, process technology 
and mobile equipment, involving manual, semi-
automated and/or fully automated mechanical 
processes (dismantling, separation, sorting, 
crushing, shredding, cutting, post-treatment 
technologies, etc.)

- 

- 

- 

Chemical recycling plants involving various types of 
technologies and processes (e.g. depolymerisation, 
solvolysis, gasification, pyrolysis, etc.)

Biorefinery facilities and process technology for the 
extraction of biobased products and feedstock from 
biowastes and residual biomass, wastewater and 
sludge from organic origin

Anaerobic digestion and composting plants utilising 
the resulting digestates/composts as fertilisers/soil 
conditioners

Residual waste treatment projects/facilities (most importantly mechanical biological treatment, waste to energy / incineration 
facilities and landfills) are not included in the circular economy classification.

The objective of this chapter is to provide an overview of the now well-established EA methods for municipal waste management 
projects. These methods are usually applied to entire (integrated) waste management projects, which may consist of different 
components (some of them contributing to the circular economy and some of them not).

29 Specifically, according to Article 6(1), subparagraphs (f) to (i), of the packaging directive (Directive 94/62/EC): (f) no later than 31 December 2025 a minimum of 65 % by weight of all packaging waste will be 
recycled;
(g) no later than 31 December 2025 the following minimum targets by weight for recycling will be met regarding the following specific materials contained in packaging waste: i. 50 % of plastic; ii. 25 % of wood; iii. 
70 % of ferrous metals; iv. 50 % of aluminium; v. 70 % of glass; vi. 75 % of paper and cardboard;
(h) no later than 31 December 2030 a minimum of 70 % by weight of all packaging waste will be recycled;
(i) no later than 31 December 2030 the following minimum targets by weight for recycling will be met regarding the following specific materials contained in packaging waste: a. 55 % of plastic; b. 30 % of wood; c. 
80 % of ferrous metals; d. 60 % of aluminium; e. 75 % of glass; f. 85 % of paper and cardboard.

50

Economic Appraisal VademecumProject development cycle and methods

IV.2. 
Waste management investments are often complex integrated systems of collection, transport, recovery, recycling, treatment 
and disposal, which are interconnected with the rest of the economy and society through inputs and outputs. Identifying and 
quantifying waste and resource flows requires a good understanding of the interaction between the different components of 
the waste management system, the links with other economic sectors (e.g. energy production, manufacturing, construction and 
agriculture) and the broader socioeconomic context.

When  projects  are  compliance  driven,  it  is  suggested  that  the  project  options  be  assessed  based  on  the  cost-
effectiveness of investments. The levelised unit cost (LUC) (also called dynamic prime cost or dynamic generation cost) is the 
cost-effectiveness indicator normally used to analyse and compare options at the early stage of the project development cycle, 
when options have the same or similar objectives, expected outputs and benefits. It is usually expressed in EUR/tonne of waste 
treated. It is derived by dividing the NPV of the total project life cost in monetary terms – comprising CAPEX, operating expenses 
(OPEX) and replacement costs over the reference period – by the NPV of the treated waste in physical terms (weight).

Table 5. Example of calculation of the LUC (thousand EUR)

1

2

3

4

5–12

13

14–21

22

23–29

30

Years

Total investment cost

13 000

27 000

23 000

Operating cost

10 300

12 000

12 300

17 000

Replacement cost

0

0

0

0

Total costs

23 300

39 000

35 300

17 000

Revenues

Residual value

Total inflows

800

0

800

900

1 000

5 000

0

0

0

900

1 000

5 000

Net costs

22 500

38 100

34 300

12 000

Waste collected

150

150

150

145

…

…

…

…

…

…

…

17 000

5 000

22 000

5 000

0

5 000

17 000

145

…

…

…

…

…

…

…

17 000

6 000

23 000

5 000

0

5 000

18 000

145

…

…

…

…

…

…

…

17 000

0

17 000

5 000

20 000

25 000

– 8 000

145

NPV (*) of net costs
NPV (*) of waste 
collected (thousand 
tons)

271 361

2 622

LUC (EUR/ton)

103.49

(*) A financial discount rate of 4 % has been applied in the calculation.

Where there are significant differences between the various options appraised (e.g. in terms of GHG emissions), 
a simplified CBA (i.e. based on rough estimates of costs and outputs) should be seen as the preferred method for 
option analysis. For the selection of the location for project facilities, qualitative considerations are typically used based on 
MCA.

Only for non-compliance-driven projects, when there is a lack of benchmarks or there are significant changes in the expected 
externalities, the selected option should also undergo a detailed CBA at the stage of the feasibility study.

The results of CBAs are highly dependent on the quality of data used and the assumptions made, and need careful and nuanced 
interpretation to be used correctly. Historical data on waste flows and composition might not always be available at the required 
level of detail or reliability, which introduces uncertainty in long-term forecasts for waste generation, collection and treatment. 
The valuation of impacts is costly and time-consuming to carry out and, therefore, the results are often transferred from one 
study to another, adding another layer of uncertainty (i.e. regarding their transferability from one country or region to another). 
To address the uncertainties in the data and assumptions used, the CBA should be accompanied by a sensitivity analysis for 
key input parameters and assumptions, as well as a report elucidating the methodology and assumptions applied and the data 
sources used. Besides quantified economic costs and benefits, the report should also include a description of non-monetised 
environmental impacts. The large amount of resources and time needed for carrying out CBA explains why it is typically adopted 
mostly for large strategic investments.

The reference period for municipal waste management projects should take into account the economically useful life of the 
project and is typically up to 20 years (or at least 15 years of operation). In cases, when, for example, a public–private partnership 
contract  is  to  be  signed  with  an  operator,  the  reference  period  should  take  into  account  the  duration  of  the  public–private 
partnership contract.

Economic appraisal

IV.3. 
Key economic impacts of waste management projects are related to the reduction of GHG emissions, air and water pollution, land 
use and soil pollution, as well as health risks and disamenity effects such as noise, odour, litter, dust and vermin.

51

Economic Appraisal VademecumThe table in Section 4.2 of the 2014 CBA guide provides examples of quantifiable benefits and valuation methods in the economic 
assessment of EU-funded waste management projects. This section presents updates, clarifications and additional information 
for the calculation of economic benefits in the municipal waste management sector.

Material recovery and recycling
The economic benefits of material recovery and recycling could be estimated from the following elements.

-  Savings in landfill costs. For the purpose of the economic analysis of waste management projects, every tonne of 
waste that is diverted from landfill as a result of the project reduces the cost of landfilling and should therefore be 
credited with the unit cost of landfill per tonne of waste. The valuation of the unit cost of landfill should be based 
on the long-run marginal cost (LRMC), assuming that the benefits of diverting waste from landfill correspond to the 
avoided cost of a future landfill. The LRMC is obtained by plotting the capital and operating costs (including land cost) 
over the landfill’s lifetime and calculating its LUC, applying the discounted cash-flow method. The size of the landfill and 
thus its LRMC will depend on the total annual amount of waste that is diverted from landfill as a result of the project.

-  Market value of separately collected recyclable materials. The economic benefit of recovering secondary raw 
materials (e.g. plastic, glass and metals) and/or composts and other natural fertilisers from waste is typically approximated 
by the corresponding market value for each subproduct. The annual benefit can be calculated by multiplying the amount 
of recycled material expected to be recovered because of the project by its price. An assumption is made that the value 
captured  via  the  market  prices  of  such  products  reflects  the  full  social  value  of  avoided  extraction,  processing  and 
transport of virgin raw materials (30).

Energy recovery in the form of electricity and heat (or biofuel)
As illustrated in Section 4.2.7 of the 2014 CBA guide, this benefit arises when waste is used for the production of energy in the 
form of electricity or heat. In this case, the energy recovered (using waste as the source) replaces the use of energy from an 
alternative source/fuel (e.g. coal), which, in turn, leads to cost savings.

For projects involving energy recovery from waste, the opportunity cost of the substituted and substituting sources/fuels (oil, 
natural gas, biomass, nuclear, solar, wind, hydro, etc.) should be considered as valuing the variation of energy costs. For example, 
the avoided costs of alternative fuel can be computed by multiplying the amount of fuel required to produce the same amount 
of energy (electricity or heat) by the prices of fuels used in the without-project scenario. For more details, please refer to the 
economic value of electricity/heat described in Annex II (‘Renewable energy’).

The opportunity cost of energy recovered from waste should be based on the LRMC of alternative energy production, reflecting 
the total social cost incurred to produce an extra unit of energy, plus the transport cost of the energy source from the place where 
it is produced to the place where it is used, if applicable.

If the substituted source is fossil fuel, an additional benefit related to displaced GHG emissions is generated through energy 
generation from the renewable waste fraction.

Health and environmental hazards
To estimate the external cost of pollutant emissions, the usual approach consisting of quantifying the emissions avoided thanks 
to the project (measured in kg/tonne of waste) and valuing them with a unit economic cost (measured in EUR/kg of emissions) 
applies. For changes in emissions of airborne pollutants (e.g. PM, NOx and SOx), unit damage values (e.g. from the Needs projects) 
could be used (31). To estimate the expected annual benefit, the forecast reduction of pollution (calculated by comparing the 
emissions  of  the  pollutant  in  the  scenarios  with  and  without  the  project  and  expressed  in  tonnes/year)  is  multiplied  by  the 
economic cost of the pollutant (expressed in EUR/tonne).

Leachate control
The economic benefits of the avoidance and proper collection and treatment of leachate can be estimated using the avoided 
costs of not having to clean the affected areas and also using the marginal damage approach. These benefits would apply to 
projects  comprising  the  closure  and  remediation  of  dumpsites  and  non-compliant  landfills.  In  the  case  of  projects  diverting 
waste from landfills, such benefits would be internalised in the LRMC of landfill, assuming that such landfilling would meet the 
requirements of the landfill directive.

Greenhouse gas emissions
Generally, the largest GHG emission reductions are obtained at the higher levels of the waste hierarchy. However, GHG emission 
reductions can vary quite significantly for different materials and technological processes within the same level of the waste 
hierarchy (Ballinger, 2015).

The highest reduction in GHG emissions is achieved when waste is (in order of importance):

- 

- 

prevented in the first place (e.g. through refuse, reduce, repair and reuse strategies);

recovered in the form of secondary raw materials and sent for recycling, replacing virgin materials, which have a 
larger carbon footprint;

30  A  possible  source  for  the  price  of  recyclable  materials  can  be  found  at  the  Eurostat  website  (https://ec.europa.eu/eurostat/statistics-explained/index.php/Recycling_%E2%80%93_secondary_material_price_
indicator#Price_and_trade_volumes).

31 See the Needs project website for more information (http://www.needs-project.org/); in particular, see RS3a D 1.1, Report on the procedure and data to generate averaged/aggregated data.

52

Economic Appraisal Vademecum- 

- 

- 

recovered in the form of compost or other natural fertilisers for beneficial use (e.g. in agriculture) in the case of 
biowaste;

used for energy generation as a substitute for fossil fuels (in the case of non-recyclable waste);

treated to reduce and stabilise the biodegradable components before being properly disposed of (in the case of 
biowaste fractions in mixed residual wastes).

In the first and second cases, the decrease in GHG emissions results from the reduction of virgin raw material consumption (i.e. 
avoided emissions from raw material extraction, transport and processing). In the third and fifth cases, the decrease in GHG 
emissions, mainly methane, originates mainly from a reduction in untreated biodegradable waste deposited in landfills. In the 
fourth case, energy recovery from waste enables a reduction in GHG emissions that would have been produced by alternative 
energy sources using fossil fuels.

Normally, the calculations should also take into account the prevention and reuse of waste, which avoid energy-related emissions 
generated for the production of goods from raw materials.

As good practice, the estimation of the project economic benefits resulting from the reduction of GHG emissions 
requires two parameters: standard specific emission factors to quantify the reduction of emissions and standard 
values to monetise them. By comparing the situation with and without the project (in tonnes/year) it is possible to estimate 
the change in terms of emissions due to the project. The shadow price to be used for the monetisation of the CO2 emissions 
component can be taken from the values used by the EIB (see Section 2.5 in Part I of the EAV).

53

Economic Appraisal VademecumANNEX V. TRANSPORT

V.1. 

Introduction

This chapter focuses mainly on standard methods for appraising transport projects with an emphasis on updating, standardising 
and simplifying (where possible) the transport appraisal approach and sources of the 2014 CBA guide, while ensuring that project 
benefits and costs are well captured and presented in a proportionate but meaningful way.

Acceleration of the process of CBA preparation is promoted below, for example by reference to pre-prepared sets of updated 
country  unit  values  at  the  European  level  such  as  the  Handbook  on  the  External Costs  of  Transport  (Directorate-General  for 
Mobility and Transport, 2019; the 2019 handbook).

The voluntary guidance applies to projects in all transport sectors eligible for funding from EU-funded sources (both passengers 
and freight).

In the context of the 2021–2027 cohesion policy funding, the voluntary guidance could be applied to transport projects meeting 
the specific objectives of policy objective 3, ‘A more connected Europe by enhancing mobility’, of the common provisions regulation 
for 2021–2027. The specific objectives directly relevant to transport are objectives 3.2, ‘Developing a climate resilient, intelligent, 
secure,  sustainable  and  intermodal  TEN-T’,  and  3.3,  ‘Developing  and  enhancing  sustainable,  climate  resilient,  intelligent  and 
intermodal national, regional and local mobility, including improved access to TEN-T and cross border mobility’.

The guidance also applies to actions meeting the specific transport objectives set out by the European Commission mainly to 
contribute to the development of projects of common interest relating to efficient and interconnected networks and infrastructure 
for smart, sustainable, inclusive, safe and secure mobility.

V.2. 

Project development cycle and methods

A transport project should ideally find its strategic justification in the framework of a comprehensive transport plan, set up at the 
appropriate territorial level, which should in turn be in line with climate mitigation plans.

EA tools such as CBA (with a simplified level of detail of underlying analysis) and MCA can be used/combined in a strategic way at 
the level of transport plans to consider alternative solutions, but always in the context of a prior thorough analysis demonstrating 
basic strategic issues and a clear related statement of strategic objectives.

Similarly, at the level of assessing investment programmes of projects (usually derived from a transport plan), CBA and MCA are 
commonly used as prioritisation tools to indicate the projects in the pipeline offering the most value for money (which is then 
consolidated with considerations of maturity).

The impacts of transport on GHG reduction are most achievable at strategic level, where there is greater scope to influence unit 
emissions of vehicles and shifts to lower emission modes. The scope for GHG reduction at the level of project option analysis is, 
however, also important, allowing further optimisation of the strategic choices.

The appraisal of significant individual project investments in the transport sector traditionally uses CBA, which is the primary 
public policy tool used to assess if a proposed project is socioeconomically viable or to compare the value for money of different 
project options.

MCA is used in transport for project option analysis when a project has multiple key objectives/impacts for assessment, which 
cannot be comprehensively or practically assessed using CBA (e.g. when key effects such as certain environmental impacts cannot 
be monetised or when a large set of project options are being shortlisted). Outcomes or elements of CBA can be integrated into 
an MCA assessment as part of the criteria set.

CEA  is  intended  for  use  when  a  specific  outcome  or  objective  is  already  defined  and  decision-makers  wish  to  compare  how 
efficiently  different  options  meet  such  an  objective.  An  example  in  transport  might  be  achieving  compliance  with  the  tunnel 
safety directive (Directive 2004/54/EC) or the mandatory implementation of European traffic management systems such as the 
European rail traffic management system (ERTMS) / European train control system (ETCS).

Economic appraisal

V.3. 
Standardised and simplified treatment of the project impacts in economic appraisal

Table  6  summarises  the  impacts  of  investments  that  are  typically  assessed  in  the  EA  of  transport  projects  and  the  primary 
appraisal methodology for each impact.

54

Economic Appraisal VademecumTable 6. Transport projects: impacts

Impacts

Primary evaluation 
method

New content provided in this document regarding transport CBA 
simplification and standardisation

Perceived passenger 
time

Monetisation

Freight time

Monetisation

Vehicle operating 
costs

Monetisation

Safety

Monetisation

New recommended methods/sources for unit values of value of time 
and detailed advice on door-to-door perceived time treatment

Reference to a recent JASPERS rail freight guidance document 
providing a standardised approach and EU country unit values of time 
and operating costs (see section ‘Costs and benefits of rail freight 
enhancements’)

More detailed guidance and references to new EU country unit values for 
accident costs

Environmental 
emissions / local 
health

Monetisation

Specific updated reference to sources of EU country unit external cost 
values per mode

Climate change

Monetisation

Updated references for evaluating the unit cost of carbon (see 
Section 2.5 in Part I of the EAV)

Noise

Monetisation

Other environmental 
impacts

Qualitative 
assessment

Wider economic 
benefits

Mainly qualitative 
assessment

O&M costs

Monetisation

Specific updated reference to sources of EU country unit external cost 
values

Explanation of the need for qualitative assessment

References to literature and recommendations on evaluation method

Specific advice related to the set-up of the without-project scenario and 
related O&M costs

Perceived passenger time

Passenger time savings are often the dominant benefit calculated in transport CBA and thus care must be taken in their calculation 
and monetisation.

For setting of basic unit in-vehicle values of time, a number of approaches/sources can be recommended.

- 

- 

Ideally, new unit values of time should be set at the national level based on stated and/or revealed preference 
surveys.

An alternative approach would be to set values of business time in line with official (Eurostat) data on average 
hourly labour costs (including a mark-up for overheads), with commuting estimated at approximately 25–40 % of 
business time and other/leisure trips estimated at approximately 20–35 % of business time.

In  line  with  the  advice  of  the  2014  CBA  guide,  it  is  not  generally  recommended  that  values  presented  in  the  IER  Germany 
(2006) study be adopted for passenger value of time sets in national methodologies, primarily because that study contains an 
increasingly out-of-date data set, and national-level surveys represent a superior method.

Countries may opt to select different values for different modes (e.g. because of differences in user income levels) or simply 
select one set of values to be applied to all modes.

At least for urban and regional public transport projects, it is good practice to consider the value of door-to-door time savings: 
differentiating at least between walk access/egress, in-vehicle time and wait time / headway penalties, with different weightings 
or functions applied to each category. This is best assessed through national stated and revealed preference surveys; however, 
there is a wide body of international evidence available on door-to-door elements of perceived travel time.

Table 7 displays an approximate range of typical weights applied to in-vehicle unit value of time based on the international 
literature of stated preference survey outcomes (Wardman and Hine, 2000; Wardman et al., 2012) (32).

32 See also units A1.3 and M3.2 of Department for Transport (2021).

55

Economic Appraisal VademecumTable 7. Time elements 

Common perceived time 
elements

Weighting on in-
vehicle unit value 
of time or fixed 
penalty

Comment

Door-to-door trip elements

Walk time

Wait time (actual time spent 
waiting for a PT vehicle)

PT service headway (average 
time interval between 
services)

1.5–2

1.5–2

0.4–1

Not to be combined with the PT service headway approach and 
to be used only for turn-up-and-go services with high frequency 
(more than four vehicles per hour)

Lower weightings are applied to services with lower frequencies 
(usually longer distance) and can be expressed as a function of 
service frequency

PT transfer penalties

4–15 minutes fixed 
penalty

Intrinsic discomfort value after taking into account walking and 
waiting at interchanges. Lower in high-frequency well-integrated 
local PT services and higher for longer distance trips

PT late arrival

Congested time (in car)

Travel time standard 
deviation (car)

NB: PT, public transport.

Reliability and congestion

2.5–4

1.5

Weight applied to lateness / delayed part of travel time

Applied to time spent in congestion

0.4–1.2

Applied to the standard deviation of travel time

Regarding passenger travel time reliability, there is a body of evidence available evaluating the higher value of time related to 
delay (lateness) and the additional significance of delay risk (usually expressed as the standard deviation of travel time).

Assessments of the perceived time value of comfort are best made using local stated preference surveys (e.g. the comfort of 
different aspects of increasing comfort in a rolling stock project).

Benefits are most commonly calculated by applying unit values of time to estimated time savings derived from a transport traffic 
model, where time savings can be calculated using (i) aggregate modelled estimates of time savings, (ii) a link-by-link approach 
or (iii) demand model skims on an origin–destination basis.

When travel time savings are not derived from detailed integrated network transport models, care must be taken when calculating 
for users transferring between modes, ensuring that the full impact on door-to-door perceived travel times is taken into account, 
not just the time spent in vehicles.

Safety

Avoided accidents typically constitute a significant project benefit, especially in road projects, for public transport projects involving 
a significant mode shift from road, for railway crossings and cycling infrastructure projects. Section 3.8.4 of the 2014 CBA guide 
contains a detailed description of relevant concepts (e.g. direct/indirect costs and the value of a statistical life).

Road accidents

Projects involving, for example, a shift of traffic from single-carriageway roads (with uncontrolled accesses and no safety barriers 
between  opposing  traffic  flows)  to  motorways  or  dual  carriageways  (with  restricted  accesses  and  barriers  between  opposing 
traffic  flows)  can  substantially  reduce  accident  risk  (33).  Public  transport  projects  involving  a  mode  shift  (from  cars  to  public 
transport modes) may also generate large accident savings.

A good practice in project appraisal is for countries to produce data on national accident rates (in terms of number of accidents 
per million vehicle-km), severity splits (the percentage of accidents involving fatalities, serious injuries, minor injuries or material 
damage accidents only) and casualties (average number of fatalities, serious injuries and minor injuries per fatal, serious or 
minor injury accident) for each carriageway type. These estimates are produced by combining information from national accident-
reporting  sources  (e.g.  police  accident  report  forms)  with  data  from  traffic  volumes  on  each  section  of  the  road  network.  To 
account for the phenomenon of accident underreporting and/or underrecording, correction factors may be applied to the number 

33 See Chapter 4 of Transport Infrastructure Ireland (2020).

56

Economic Appraisal Vademecumof fatal, serious and minor injury accidents (34).

Estimates  of  the  monetary  value  of  each  accident/injury  (differentiated  by  severity),  from,  for  example.,  stated  or  revealed 
preference  studies,  are  also  needed.  When  such  surveys  are  not  available,  suitable  estimates  can  be  taken  from  adjacent 
countries with similar levels of per capita GDP, or values may be taken from Table 7 of the 2019 handbook (Directorate-General 
for Mobility and Transport, 2019).

In the event that the abovementioned data are not available at the country level, or if link type information was not available 
from the demand model, accident savings can be incorporated into CBA in a relatively rudimentary manner by the application 
of estimates of the per km cost of road accidents - from Table 8 of the 2019 handbook ꟷ to modelled changes in vehicle-km of 
travel on the road network.

Rail, air and public transport accidents

Country-specific estimates of accident rates and costs per mode may be available from national appraisal guidelines. If these are 
not available, default accident costs per passenger-km, for each mode of transport, are available from Tables 8–10 of the 2019 
handbook. These may be applied to modelled changes in vehicle-km for relevant transport modes to calculate accident savings 
that are the result of transport interventions.

Environmental emissions and local health impacts

The local health impacts of environmental emissions constitute a significant project benefit, especially in road projects and public 
transport projects involving a significant mode shift from roads.

The recommended methodology to calculate the external costs caused by air pollution remains unchanged from the 2014 CBA 
guide (see Section 3.8.6 of that guide).

To calculate the total air pollution costs, quantities of air pollutants additionally emitted or avoided are estimated using suitable 
emission factors (tonnes of pollutant per vehicle-km) and available transport performance data (e.g. vehicle-km) derived from 
the transport model. The estimated emission quantities are then multiplied by the unit costs per air pollutant.

Updated unit costs for air pollutants, per country, emitted in road, rail, inland waterway and maritime transport are available from 
Tables 14 and 15 of the 2019 handbook.

Air pollutants – road transport

A  good  practice  in  the  estimation  of  quantities  of  air  pollutants  for  road  projects  would  be  for  countries  to  produce  specific 
emission factors as a function of the vehicle type, road type, road condition and average speed. The vehicles are differentiated 
by  vehicle  type,  capacity  or  weight,  fuel  and  emission  standard  in  order  to  consider  the  country-specific  fleet  composition. 
Calculations of the air pollutant quantities could be done on a link-by-link basis or by using aggregate modelled estimates of 
vehicle-km,  where  possible  broken  down  by  vehicle  type  and  by  road  type.  Technical  guidance  to  prepare  national  emission 
inventories is provided in the European Environment Agency air pollutant emission inventory guidebook (European Environment 
Agency, 2019). The same source can be used for default emission factors if country-specific data are not available.

If only aggregated modelled estimates of vehicle-km are available, where possible differentiated by vehicle category, average 
country-specific air pollution costs per vehicle-km for road transport are provided in the annex entitled ‘Complete overview of 
country data’ accompanying the 2019 handbook (35).

Air pollutants – rail, air and public transport

Country-specific estimates of emission factors per vehicle type and mode may be available from national appraisal guidelines. If 
these are not available, marginal air pollution costs per passenger-km and tonne-km, for each mode of transport, are available 
from  Tables  20–23  of  the  2019  handbook.  These  may  be  applied  to  modelled  changes  in  passenger-km  and  tonne-km  for 
relevant transport modes to calculate air pollution impacts of transport interventions.

Climate change impact

The accuracy of the assessment of the increase/decrease in GHG emissions due to a project largely depends on the availability 
of local data on road vehicles (cars and buses), speed and road conditions, as well as energy consumption for rail-based modes 
(railways, tramways and metro). This allows the relevant emission factors to be properly selected. In the absence of project-
specific data, the European Environment Agency (2019) air pollutant emission inventory guidebook can provide default emission 
factors for transport and energy production.

A unit cost of carbon in EUR/tonne of CO2 equivalent must be applied to monetise the impact for use in an economic assessment 
in line with the values suggested in Section 2.5 of Part I of the EAV.

34 See Table 5 of Directorate-General for Mobility and Transport (2019).

35 The values are also included in a dedicated section of the spreadsheet template complementary to the EAV that is currently being considered by Innovation and Networks Executive Agency for smaller projects 
applying to the Connecting Europe Facility transport call for proposals for 2021-2027. 

57

Economic Appraisal VademecumIn the framework of the efforts of the Member States to evolve towards carbon-neutral transport systems, an accurate assessment 
of  the  quantity  of  generated/avoided  GHG  emissions  using  the  principles  stated  above  provides  important  information  for 
assessing the progress made towards the achievement of GHG reduction targets set at the national/regional level in sector-
specific strategies or in overall climate change mitigation strategies.

Noise impact

The recommended methodology to calculate the external costs caused by noise pollution remains unchanged from the 2014 CBA 
guide (see Section 3.8.5 of that guide).

Tables 37 and 38 of the 2019 handbook and the accompanying annex entitled ‘Marginal costs air pollution, climate, WTT, noise’ 
provide unit values of marginal cost of noise for road and rail transport, differentiated by vehicle type, time of day, traffic situation 
(dense or thin) and area type (metropolitan, urban, suburban or rural). The unit costs are EU-28-specific values and they are 
provided in EUR/passenger-km, EUR/tonne-km or EUR/vehicle-km. To calculate noise pollution costs, they are applied to modelled 
changes  in  passenger-km,  tonne-km  or  vehicle-km  for  relevant  transport  modes.  If  only  aggregated  modelled  estimates  of 
vehicle-km are available, where possible differentiated by vehicle category, average country-specific noise pollution costs per 
vehicle-km for road and rail transport are provided in the annex entitled ‘Complete overview of country data’ accompanying the 
2019 handbook.

Other environmental impacts

Other  environmental  impacts  (e.g.  the  impact  on  Natura  2000,  namely  biodiversity)  are  assessed  qualitatively;  owing  to  the 
difficulty of physically quantifying or attributing money values to such impacts, they are generally not monetised and thus are 
excluded from the project CBA. Impacts can, however, often be scored subjectively on a scale and, as required, included in a wider 
MCA process to compare options.

Operating and maintenance costs of infrastructure

The main comments here are related to the set-up of the without-project scenario and related O&M costs. As was discussed in 
the 2014 CBA guide, there are a number of valid ways of setting up the without-project scenario depending on the context (e.g. 
a business-as-usual scenario leading to further degradation of the infrastructure or a more do-minimum type of scenario with 
more aggressive replacement interventions in order to maintain the current operating conditions).

Whatever the approach chosen, it is very important that the operational parameters of the infrastructure (e.g. track speed) and 
the O&M elements in the without-project scenario are fully consistent with each other. In a number of cases seen in 2014–2020, 
this relationship was not always apparent or well documented.

Costs and benefits of rail freight enhancements

For many rail infrastructure development projects with strong elements of improvement for freight transport, a significant part 
of the economic benefits is attributable to improvements in freight travel time and travel time reliability, operating costs and 
external cost reduction from mode shift.

The method and parameters of appraisal of railway corridor enhancements that provide for enhanced freight operations are 
somewhat fragmented and often misunderstood in the wider appraisal community, often leading to double counting in CBA or 
underestimation of certain impacts. JASPERS therefore developed guidance on appraising rail freight measures, with the support 
of leading experts in the field (EIB and JASPERS, 2017) (36), to offer a state-of-the-art, logical and consistent framework for the 
appraisal of impacts of rail infrastructure projects with rail freight enhancement elements. The guidance separates freight costs 
into the time value of transport (the cost of crew, vehicle depreciation, overheads, etc.), the time value of goods (capital costs and 
degradation of the value of the goods during transport) and purely distance-related operational costs of transport (e.g. traction 
and track access costs). The guidance further includes reference unit values for time and operating costs per EU country with 
advice on escalation if countries do not have their own unit sets.

Wider economic benefits

These are induced benefits that arise because of the impact of improved transport infrastructure being transmitted into the wider 
economy. Research in the United Kingdom (UK Department for Transport, 2005; Venables, 2016) has highlighted a number of 
potential wider economic benefits including output changes in imperfectly competitive markets, agglomeration effects and the 
tax implications of a move to more productive jobs.

While there is robust literature supporting the existence of such benefits, the actual likelihood of these benefits occurring is very 
context specific. In fact, as the data requirements to establish such impacts are beyond what is normally available for CBA, they 
should generally only be addressed qualitatively, unless (exceptionally for very large projects) the potential impacts justify a 
quantitative approach.

Real growth in the unit value of benefits

Growing economies and income levels can increase the real unit value of the economic benefits (in addition to inflation effects). 
To  capture  real  increases,  unit  values  can  be  increased  proportionally.  The  following  provides  an  update  on  the  methods  for 
determining the real escalation elasticities of unit values of time and externalities.

36 http://www.jaspersnetwork.org/plugins/servlet/documentRepository/searchDocument?category=Rail%20and%20Public%20Transport

58

Economic Appraisal VademecumValue of passenger time. The escalation elasticity of the unit value of time to real income (GDP/capita) depends on the nature 
of the underlying data set. Values based on multi-country data should follow the elasticities inherent in the underlying meta-
equations (e.g. the Wardman et al. (2012) study data gave the real income elasticity between the value of time and GDP/capita 
as approximately 0.8 for business trips and 0.7 for other trips). For data sets based on official (Eurostat) data on average hourly 
labour costs, an elasticity of 1 may be used as a default for all trip motivations. In the case of countries developing their own sets 
of values based on national/local surveys, escalation elasticities should be considered consistently with the method of setting 
the unit values.

Value of freight time. This is covered in the EIB and JASPERS (2017) guidance and indicates that only the element of crew time 
would be expected to have a significant real elasticity to GDP/capita.

Externalities (including accidents). The 2019 handbook suggests escalating the unit values of the externalities (excluding 
CO2)  proportionally  to  GDP/capita  as  well,  with  an  elasticity  of  0.8  determined  based  on  an  extensive  meta-analysis  by  the 
Organisation for Economic Co-operation and Development, which concludes that the real income (GDP/capita) elasticity for the 
WTP of environmental and health-related goods falls between 0.7 and 0.9.

Reference period

The evaluation reference period for a transport project is ideally set to reflect the value-weighted average lifetime of the various 
elements of the asset. This, however, should generally be restricted to a reasonable time limit of future forecastability of the net 
future economic cash flows, usually no longer than 50–60 years, which is much shorter than the lifetime of tunnels and some 
bridges, for example.

An equivalent (and often simpler) approach is to have a fixed maximum evaluation period, for example of 30 years, but allowing 
projects with a shorter lifespan to have a shorter evaluation period. Added to this is any residual value of net economic cash 
flows over the remaining project lifetime, usually with simplified forecast assumptions and again up to a reasonably forecastable 
time limit.

Other economic appraisal tools to simplify analysis and improve decision-making

V.4. 
Use of cost-effectiveness analysis (or multi-criteria analysis) in the transport sector for compliance-driven 
projects

CEA is used to demonstrate solution optimality by comparing the ratio of the quantified level of accomplishment of a particular 
singular objective (output) with life-cycle costs between two or more project options.

In the transport sector, its main usage in the 2014–2020 funding period was for national elements of European-level projects, 
which represent legal compliance objectives such as the implementation of the ERTMS in the railway sector, where the output 
has  been  defined  in  terms  of  simple  physical  outputs  such  as  length  in  kilometres.  Where  such  simple  physical  outputs  are 
considered, CEA is generally advisable only when the outputs of the options have the same quality and functionality, otherwise 
the CEA is not a fair comparison. Two examples follow.

1. CEA is generally appropriate as a decision-making tool when, for example, two technical options of the global 
system for mobile communications for railway (GSM-R) (37) are proposed (with a different solution architecture or using different 
technology) that, however, offer the same (required) quality and functionality. In this case, the discounted lifetime costs for each 
option can be divided by the output in kilometres and the resulting CEA values can be compared.

2. CEA is not generally appropriate when, for example, two different GSM-R options are considered and one option 
has a higher level of signal reliability (e.g. by using double coverage of radio base station transmitters) corresponding to higher 
operational needs of ETCS (38) level 2 and the other option is cheaper and less reliable (with only single base station transmitter 
coverage). CEA is not a suitable tool here, as it would automatically favour the cheaper option, which is of worse quality and may 
not meet the operational needs of reliability.

In the latter case, option selection may be better guided by MCA, taking into account the quality, functionality and/or risks of 
different solutions as the main impact criteria together with the lifetime cost as a balancing criterion. This might take place 
after a prior assessment of minimum operational requirements in terms of quality and functionality as a threshold for option 
acceptability.

The two examples above are not mutually exclusive, and a CEA (used to decide between two shortlisted options of comparable 
quality) might follow an MCA (used to identify the optimal balance of quality and price) in the appropriate circumstances (39).

International unit price benchmarking (for the type of solution chosen) and tender outcomes (when there is more than one bidder) 
are recommended in all cases as a complementary check on the absolute value for money.

37 GSM-R is a standard digital railway radio communication technology, which is an element of the ERTMS and underpins the ETCS.

38 The ETCS is part of the ERTMS.

39 Compliance-driven projects requesting the financial support of the Connecting Europe Facility are generally not subject to the requirement of submitting a CBA (detailed requirements depend on each particular 
call for proposals). However, applicants are free to reinforce the economic case of their project with any type of EA approach or combination of approaches.

59

Economic Appraisal Vademecum 
 
Use of multi-criteria considerations in decision-making

While  CBA  plays  or  could  play  a  very  important  role  in  the  appraisal  of  most  transport  projects,  there  are  normally  impacts 
(such as those on Natura 2000 sites) where monetary values are less readily available but nonetheless relevant for decision-
making purposes. For this reason, a multi-criteria approach is useful in bringing together information on impacts in a variety of 
different formats (i.e. monetised, non-monetised quantitative or qualitative assessment). This information can be compiled into a 
predefined format with clear rules for non-monetised quantitative or qualitative assessment and presented to decision-makers 
at key milestone stages to aid the decision-making process.

In some cases, a formal MCA is performed, with scoring and weighting of different criteria (taking care to avoid double counting) 
leading to a single MCA score; in other cases, the outcomes are simply presented against various criteria without weighting to 
inform a consensual political decision. Finally, the multi-criteria approach can be a hybrid of both approaches.

For major political decisions, a single-value MCA outcome is often considered too opaque and subjective an indicator and is at 
risk of being marginalised in practice. Clear presentation of the main quantified and unquantified outcomes of various options is, 
in such a case, not just a presentational exercise but a fundamental input for real-life decision-making.

Examples of actual processes used in Ireland and Germany for major scheme decision-making and plan prioritisation, respectively, 
are described below.

Irish major project scheme appraisal approach

For major transport schemes in Ireland (similar to UK practice), an overall appraisal table is required as a key input for decision-
making. Table 8 is a simplified example of an appraisal summary table.

Table 8. Simplified version of appraisal summary table for transport projects

Impacts

Summary of key 
impacts

Assessment

Quantitative

Qualitative

Monetary (EUR, NPV)

Overall 
economic 
impacts

Summary of 
economic impact

Investment cost 
estimate
Usage of project 
(number of daily 
vehicles/passengers)

Qualitative assessment 
of economic benefits

Time savings

Summary of 
any time-saving 
benefits

Average time savings 
per user
Hours saved per year

Qualitative assessment 
of time-saving benefits

Project NPV, B/C Ratio 
and ERR (note this 
includes the present 
value of impacts noted 
beneath)

Present value of 
time-saving benefits 
(passengers and 
freight)

y
m
o
n
o
c
E

Vehicle 
operating costs

Summary impact 
on vehicle 
operating costs

Average operating 
costs per vehicle 
(without and with 
project scenarios)

Qualitative assessment 
of vehicle operating 
cost changes

Present value of vehicle 
operating cost savings

Wider economic 
benefits

Summary of any 
wider economic 
benefits

Number and quality of 
indirect jobs created 
(if any)

Qualitative assessment 
of potential for wider 
economic benefits

Generally excluded 
but, where applicable, 
present value of wider 
economic benefits

…

…

…

…

Additional 
economic 
objectives …

60

Economic Appraisal VademecumGHG impact

Summary of 
impact of project 
on climate change

Annual average tonnes 
of GHG emitted from 
project

Qualitative assessment 
of impact of project on 
climate change

Present value of GHG 
emission reductions

l
a
t
n
e
m
n
o
r
i
v
n
E

l
a
i
c
o
S

Environment-
related local 
health impacts

Summary of 
impact of project 
on emissions / 
local health

Annual average 
tonnes of NOx, CO, etc., 
emitted

Qualitative assessment 
of impact of project 
on environment / local 
health

Present value of 
environment-related 
local health impacts

Additional 
environmental 
objectives …

…

…

…

…

Safety

Summary of 
impact on 
transport safety

Average number of 
annual fatalities and 
serious injuries saved

Qualitative assessment 
of impact of the project 
on safety

Present value of safety 
impacts

Additional social 
objectives …

…

…

…

…

German approach

The German methodology (40) used to prepare the long-term national transport infrastructure investment plan (but which could 
equally be used to provide a higher level of detail for a project appraisal summary assessment) is based on four modules:

1.  CBA, covering all of the common elements also addressed by the 2014 CBA Guide – this is the only module based 

on monetisation of impacts;

2.  environmental protection, addressing all topics relevant for the environmental dimension not covered by the CBA, 

for example land consumption, protection of sensitive areas and habitat fragmentation;

3.  spatial  planning,  addressing  the  connectivity  and  accessibility  of  agglomerations  in  terms  of  distributive  equity; 
accordingly, this differs from the allocative benefits of accessibility included in the CBA in terms of time savings;

4.  urban planning, addressing the local impacts of transport infrastructure projects that affect the quality of urban 
areas – this applies, for example, to projects able to relieve urban areas of through traffic or decongest them (note 
that the national plan does not address investment in urban transport infrastructure).

Modules 2, 3 and 4 do not rely on monetisation but, for each of them, a strictly standardised and largely quantitative evaluation 
scheme  is  given,  ensuring  a  high  degree  of  objectivity  and  comparability  of  results.  In  a  subsequent  phase,  the  investment 
options are assessed against a detailed, multi-level set of given strategic goals. To this end, the scores resulting from each 
module are not aggregated to a single indicator. The particular way in which each project, as defined by its four individual scores, 
contributes to the strategic goals is assessed. This eventually allows a broadly based, informed investment decision to be made.

V.5. 
urban transport

Standardising and streamlining demand modelling as an input to economic appraisal for road, rail and 

Demand models generally form the key source of input and assumptions for a transport CBA, so their quality and objectivity are 
an essential prerequisite of a sound transport economic analysis.

Demand models provide forecasts (without and with project investment) of traffic levels that are a key basis for the assessment 
of  time  savings,  cost  savings  and  externalities.  The  creation  of  a  transport  model  is,  however,  a  costly  and  time-consuming 
exercise. It is therefore appropriate at an early stage of the project to consider what form the model should take.

In the 2014–2020 programming period, best practice in terms of demand modelling was outlined in Section 3.5 of the 2014 
CBA guide, and this remains valid. However, based on a review of transport projects submitted to the European Commission for 

40 Bundesministerium für Verkehr und digitale Infrastruktur, Bundesverkehrswegeplan 2030 (BWP 2030), and in particular: PTV at al., Methodenhandbuch zum Bundesverkehrswegeplan 2030, Karlsruhe, 2016

61

Economic Appraisal Vademecumapproval in the 2014–2020 programming period, a number of common weaknesses have been identified relating to demand 
modelling practices, including:

- 
- 
- 
- 
- 
- 

the need for a new transport model and the use of existing models;
an inappropriate geographical scope of the model;
an insufficient level of model network and zoning detail;
insufficient attention paid to model calibration and validation, and a lack of underlying data;
inappropriate or poorly documented forecasts;
incomplete travel time, cost estimation and data exports from public transport models.

Need for a new transport model and the use of existing models

Transport models are both expensive and time-consuming to create and therefore the decision to create one should not be taken 
lightly. In the 2014–2020 programming period, in a limited number of cases, decisions were taken to create new demand models 
when the modification of existing models might have sufficed. There were also a limited number of cases of major projects using 
demand forecasts from clearly unreliable, outdated models. At an early project stage, existing models (where available) should 
be reviewed and pragmatic decisions should be taken on whether the demand model needs to be updated/replaced. Even when 
a new demand model is required, existing sources of information (in the form of traffic counts, origin–destination surveys and 
coded supply networks) should be used to the maximum extent possible. The proliferation of national transport models provides 
a useful source of information; it is possible to extract basic information from these (on supply network and demand matrices), 
which may aid in the creation of local models.

Incorrect geographical scope of the model

Sometimes models do not have the correct geographical scope, with the modelled area being either too small or too large. The 
minimum required modelled scope should be the area within which the main expected transport impacts of the types of plans 
and/or projects are expected to occur. Particular issues are found with major cross-border projects and investments in rail freight 
facilities,  where  European  travel  data  are  essential.  European  data  such  as  from  the  European  Transport  Policy  Information 
System  (ETIS+)  and  Eurostat,  the  Trans-European  Transport  Network  Policy  (TEN-T)  information  system  (TENtec),  the  latest 
European models (a new model called TRIMODE is being developed) and European forecasts (e.g. the EU reference scenario 2016 
(European Commission, undated), which is being updated to a 2020 scenario) should be considered when possible in such cases. 
The development and use of national models and the data of neighbouring states should also be considered.

Insufficient level of model network and zoning detail

This is often observed when national models are applied to regional transport projects or regional models are applied to local/
urban transport projects. Existing higher level models may need to be cut (taking only the relevant part of the network) and 
further detailing made in terms of network and zoning in order to become applicable for project assessment at a lower level, 
especially in the area of direct influence of the project.

Insufficient attention paid to model calibration and validation, and a lack of underlying data

Transport models require proper calibration and validation (often understood just as calibration). Calibration essentially entails 
estimating the multitude of constants and parameters in a given transport model based on transport data; validation establishes 
the credibility of the model by demonstrating its ability to replicate observed traffic behaviour.

Data used for validation should be independent (i.e. they should not have already been used in the first steps of model calibration). 
For four-stage models used for public transport / rail projects, production / attraction, distribution and mode share model step 
parameters should be calibrated based on the outcome of census data (if recording trips) and specific mobility surveys.

To confirm the suitability of a model, statistical tests such as the GEH test may be used as part of a rigorous model acceptability 
test in the validation process. In the 2014–2020 programming period, there were no fixed requirements for model calibration and 
validation. The majority of transport projects followed best practice in this regard.

Inappropriate or poorly documented forecasts

Demand  forecast  models  normally  contain  mathematical  relationships  relating  travel  demand  (per  trip  purpose)  to  external 
driving factors such as GDP, school places or population. Ideally, demand forecasts will use official forecasts of these external 
factors  to  assess  probable  future  demand  (again  at  the  trip  purpose  level).  In  the  2014–2020  programming  period,  some 
forecasts  were  based  not  on  this  methodology  but  rather  either  on  simple  unjustified  assumptions  or  on  the  application  of 
simple growth factors. Forecasts should be transparently documented linking, underlying variables with the justification of the 
quantitative link between demand and these variables.

Incomplete travel time, cost estimation and exports from public transport models

When a project has a substantial impact on different elements of a door-to-door trip, such as a new railway stop, it is advisable 
that the model and its output into the CBA should take into account the perceived cost of each element of the trip, such as access 
to a public transport stop, waiting time and in-vehicle time. Without this, the full benefits of the project will not be measured, 
which may lead to a low ERR or a distorted option analysis.

62

Economic Appraisal VademecumFor more detailed descriptions of best international practice relating to demand modelling, please refer to the UK Department for 
Transport highway assignment modelling (UK Department for Transport, 2020) and the JASPERS publication The use of transport 
models in transport planning and project appraisal (JASPERS, 2014) or, for multi-modal freight modelling, see EIB and JASPERS 
(2017).

63

Economic Appraisal VademecumANNEX VI. BROADBAND

Introduction

VI.1. 
The digitalisation of society is a key component in the EU’s multiannual financial framework for 2021–2027. Two 
of the five cohesion policy objectives for the multiannual financial framework directly address digitalisation and digital networks. 
Indirectly, the other policy objectives will also rely on successful measures to implement projects in these areas. The driver for 
continuous digitalisation in the EU is an efficient and reliable infrastructure, with high-speed fixed and mobile broadband. The 
previous EU programming periods employed policy initiatives and financing of ICT investments to extend the availability and 
take-up of high-speed broadband access in the whole of the EU and to increase the uptake and use of ICT services. The recent 
COVID-19 pandemic reinforced the need to further deploy digital infrastructure and build on ICT services to support all business, 
commercial and everyday activities in our society.

Specifically, in relation to digital infrastructure, the European Commission introduced, in 2016, its strategy on connectivity 
for a European gigabit society. The document recognises that the full economic and social benefits of the digital transformation 
will  only  be  achieved  if  Europe  can  ensure  widespread  deployment  and  take-up  of  very  high-capacity  networks,  in  rural  as 
well as urban areas and across all of society. The gigabit society strategy sets out a number of targets to increase the 
coverage and quality of broadband infrastructure in Europe. The vision for 2025 includes gigabit access to major social 
economic drivers, ultrafast internet access (above 100 megabits per second (Mbps), upgradable to gigabit speed) to all European 
households, and uninterrupted 5G wireless broadband coverage in urban areas and along major rail and road infrastructures.

Over recent years, there has been a shift in the type of projects that have received public support. While many of 
the digital infrastructure projects in the earlier multiannual financial frameworks focused on the presence of a high-capacity 
telecommunication backhaul infrastructure, predominantly through investment in the deployment of fibre, the 2014–2020 one 
concentrated more on projects related to high-speed access to end users, ensuring that they can better benefit from capacity-
demanding applications, such as internet protocol television (IPTV) and various streaming services. More importantly, however, 
these projects have paved the way for tighter integration of ICT services in everyday life, empowering more teleworking options 
through more reliable, higher quality and more responsive video conferencing, as well as facilitating the deployment of several 
e-services in the areas of e-health, e-commerce and e-government. By unlocking investments in digital infrastructure in rural 
areas,  the  European  Commission’s  investments  have  worked  towards  reducing  the  digital  gap,  benefiting  citizens  across  the 
continent and creating new growth opportunities.

In  the  light  of  the  above  changes  in  the  broadband  landscape  and  policy  objectives,  this  chapter  also  provides 
an update to the approach presented in the 2014 CBA guide. Whereas the focus of analysis was previously on projects 
deploying backhaul infrastructure, this version also takes into account the rollout of next-generation access networks all the way 
to the end users.

For broadband projects, it is industry practice, in both publicly and privately financed projects, to develop a project feasibility study, 
including a financial analysis to demonstrate the rationale for the project and its sustainability during operations. In addition, the 
analysis needs to demonstrate if the project is bankable or in need of EU grant support. For many projects, in particular when 
required by the authority providing grants or loans, the analysis extends to the economic level, aiming to demonstrate the value 
of the investment at large for the target population and society as a whole. This chapter focuses on the economic analysis 
of broadband projects.

Project development cycle and methods

VI.2. 
The economic analysis of the project builds on several steps of the project development cycle, which form a feasibility study. The 
2014 CBA guide outlines these steps in more detail. The project idea needs to be developed within the framework of the overall 
drivers of the intervention, in particular the existing policies, regulations and sector strategies as described above for broadband 
investments. Publicly driven broadband projects equally need to carefully consider the EU State aid legislation.

Apart from compliance with policy, broadband interventions are duly justified only when their scope reflects the current 
and expected future demand for the project infrastructure. The current demand can be based on the national broadband 
map,  EU  and  national  regulator  reports  or  information  provided  by  telecommunication  operators.  Estimations  of  the  future 
demand would typically be based on market research and evidence of market interest (i.e. public consultations and operator 
investment plans) focused on the intervention area, as well as analysis of the future services that can trigger demand and their 
bandwidth  requirements.  Demand  analysis,  both  current  and  expected,  should  equally  consider  aspects  of  affordability,  ICT 
literacy and patterns of increase in penetration rate in comparable markets. The results of the demand analysis, such as the 
number and groups of users, will form the basis of economic assessment of the project.

The broadband demand analysis is followed by option analysis, in which the most cost-effective technical and business solutions 
are  selected,  within  the  desired  policy  goals  and  the  results  of  the  demand  analysis.  For  broadband  projects,  there  are 
usually also a number of strategic choices when it can be more effective to consider these qualitatively. An MCA can 
allow the relative merits of possible strategic options to be compared, including different business models or considerations of 
different locations or size of investments. Strategic options can be assessed, for example, from a legal perspective within State 

64

Economic Appraisal Vademecumaid and procurement law, the need for public oversight of investment or risk transfer between public and private partners. The 
results of the first-level analysis would lead to the identification of the possible business/institutional options. An 
evaluation and shortlisting of suitable technological alternatives should be done next, such as variants of FTTx, including fibre-
to-the-home or fixed or mobile wireless access.

In the next level of option analysis, it is recommended that the feasible options be compared using a simplified CBA, 
as this method can help in considering the efficiency of limited public resources at the early stage of project identification and in 
choosing the option with the highest value for money and impact on the local society and economy. This step involves preparing 
the financial and economic models based on approximate values, which will be made more accurate for the chosen option. The 
next section gives more recommendations on the economic analysis.

Once the project option has been selected, it will be used as the basis of the technical design. For telecommunication, 
a  number  of  tools  and  methods  are  used  for  network  design  and  the  calculation  of  related  equipment  needs.  An  important 
element of this is to take into account the presence of existing infrastructure that can be reused in the project.

Next,  the  financial  model  can  be  refined  with  more  accurate  project  cash  flows:  capital  and  operating  costs, 
reinvestments, financial revenues and residual value. There are different considerations related to the benefit of carrying 
out profitability analyses at the level of the owner or operator. For example, the selection of the private partner through fair, 
transparent and competitive procedures should allow the best value for money to be assured. For public owners, the calculation 
of financial ‘profitability’ may not be meaningful when the institutions are subject to budgetary balance. Moreover, there are 
also  often  specific  provisions  set  out  by  State  aid  decisions  (i.e.  a  clawback  mechanism).  However,  if  there  are  public  and 
private partners involved in the project, it is important to carry out financial sustainability analysis at the level of each of the 
stakeholders. Economic analysis of the selected option can be also performed at this stage, especially if there are major changes 
to the assumptions on the costs or scope of the project.

The project should finally be subject to a risk and sensitivity assessment, whereby potential shortcomings are tested and mitigated 
to ensure the viability of the undertaking for implementation and operation.

Economic appraisal

VI.3. 
To verify if the project has the potential to affect society and the economy positively, it is necessary to value the 
project’s benefits. The 2014 CBA guide discusses three broad categories of economic benefits: increased take-up of digital 
services by households and businesses, improved quality of digital services for households and businesses, and improved provision 
of digital services for public administration. Another possible categorisation of benefits is that focused on users (consumers and 
businesses),  sectors  (education,  healthcare  and  government)  and  cross-cutting  impacts  on  environmental  or  social  inclusion 
effects.

The research literature on the socioeconomic benefits of broadband has been evolving in the past decades alongside the continued 
growth in the reach of networks, their speeds and the range of applications and services available. While the positive impact of 
high-speed networks is generally recognised, it is equally noted that the exact impact remains difficult to measure.

Moreover,  the  challenge  in  proposing  a  generic  model  is  that  infrastructure  projects  aimed  at  improving  access 
to  broadband  networks  in  a  given  area  or  region  may  differ  significantly  because  of  the  specific  needs  of  the 
intervention area. For example, they may differ to the extent to which they aim to connect public administration, healthcare or 
schools, in addition to improving general broadband access. Projects focused on improving the connectivity of a particular public 
service or group of users would need to consider additional economic costs and benefits that are sector and project specific.

Despite  these  challenges,  there  are  studies  that  demonstrate  that  there  are  ways  to  quantify  a  set  of  economic 
benefits.  Consequently,  decision-makers  can  evaluate  the  economic  viability  of  publicly  funded  investments  in  broadband 
projects. The template CBA, developed for the beneficiaries of EU funds and available on the JASPERS website, can be adapted 
to be used independently of the sources of financing (JASPERS, 2020). The model assumes that the impact of the project will 
depend on the difference in speeds between the existing broadband provision and those resulting from the investment in the 
project area. This differentiation in capacity is partially also linked with the various types of services and technologies on the end 
user side that are enabled through the different speed ranges (from email and web surfing in the case of lower speed broadband 
to IPTV, streaming, video conferencing, etc. as the available speed increases; Table 9).

65

Economic Appraisal VademecumTable 9. Broadband speed categories used in the model

Broadband speed category

Description

From nothing/basic/fast broadband to 
superfast broadband (41)

From nothing/basic/fast broadband to 
ultrafast broadband

From superfast to ultrafast broadband

Source: JASPERS (2020) broadband model.

This category represents premises with no broadband, basic 
broadband (> 2 Mbps) or fast broadband (> 10 Mbps) currently but 
that will get superfast broadband (> 30 Mbps) as a result of this 
project

This category represents premises with no broadband, basic 
broadband (> 2 Mbps) or fast broadband (> 10 Mbps) currently but 
that will get ultrafast broadband (> 100 Mbps) as a result of this 
project

This category represents premises currently getting superfast 
broadband, but that will get ultrafast broadband as a result of this 
project

Following a literature review of available studies, two parameters are proposed to be used in the model: (i) consumer 
benefits per household and (ii) business benefits derived from productivity rises estimated per employee in the 
project area. The model has a built-in flexibility, which allows it to be modified according to the particular circumstances of a 
given project or beneficiary. Project promoters can use other types of benefits in their assessment or can modify parameters of the 
benefits considered in the model (Table 10 gives a checklist of a number of possible benefits, including additional considerations 
to make). In such a case, however, the methodology or assumptions used should be properly explained. As a ‘living document’, 
the model is can be updated, when new data emerging so require.

The European Commission’s 2014 CBA guide has promoted a microeconomic approach in the estimation of benefits and the 
above follows this approach. However, project promoters and evaluators often follow an alternative macroeconomic assessment 
of broadband investments based on GDP growth. While there are advantages and disadvantages to both methods, it is important 
to note that the two methods cannot be combined, as this can lead to double counting of benefits.

Table 10. Checklist of possible benefits 

Topic/issue

Monetary 
evaluation

Qualitative 
assessment

Comment on treatment

√

√

√

√

√

√

Consumer benefit

Business benefit

Social inclusion

e-Education – benefit of 
connectivity to home

e-Government – cost savings

e-Health – savings from 
e-health initiatives

e-Farming – increase in 
farm production through the 
adoption of new methods

Environment – limitation of 
negative impact thanks to 
reduced travel

There is sufficient evidence, although the estimates 
vary across studies. The values of the benefit would 
depend on the net increase in the available speed

Intangible benefit

The quantification of these benefits may be 
possible in the case of individual projects. Careful 
consideration is needed to avoid double counting 
with consumer or business benefits

Impacts are likely to be mixed; a variety of small 
effects are likely, which are difficult to estimate

√

√

√

√

√

√

41 Basic broadband is defined as being between 2 Mbps and 10 Mbps, fast broadband is defined as 10 Mbps to 30 Mbps, superfast broadband is defined as 30 Mbps to 100 Mbps and ultrafast broadband is defined 
as greater than 100 Mbps.

66

Economic Appraisal VademecumANNEX VII. WATER AND WASTEWATER

Introduction

VII.1. 
The main part of water/wastewater projects are implemented within the business of integrated water utility operators and can 
be subdivided into those that are:

- 

- 

compliance  related,  where  the  focus  is  on  ensuring  safe  and  reliable  drinking  water  together  with  adequate 
collection and treatment of wastewater;

efficiency related, where the aim is to improve resource usage, save costs and reduce carbon footprint, while also 
allowing for lower end user prices and reduced affordability constraints.

In practice, many projects combine elements of both, with the first group tending to result in increased operating costs, while the 
second has the potential to decrease such costs, reducing the impact.

Policy for compliance-driven projects is oriented towards meeting the requirements of the directives for the provision of water 
and wastewater services, such as the water framework directive (WFD; Directive 2000/60/EC), the directive on the quality of 
water intended for human consumption (Directive 98/83/EC) and the urban waste water treatment directive (UWWTD; Directive 
91/271/EEC), and is measured in terms of the relevant population connected to services, but also in terms of the quality and 
security of supply.

The directives also make reference to the polluter pays principle, the need for full cost recovery and the importance of the end 
user affordability of services. This, combined with the scarcity of water, which is exacerbated by climate change impacts, sets the 
agenda for efficiency-related projects.

Countries find themselves confronted with the need for investments that promote climate change adaptation, risk prevention 
and disaster resilience in the water sector. Thus, while the larger part of existing funding has been oriented towards directive 
compliance,  new  types  of  projects  will  increasingly  be  considered,  such  as  those  focusing  on  leakage/infiltration  reduction, 
drought resilience and water reuse schemes.

In considering the method of appraisal, some common features of water operators need to be considered.

- 

Typically, integrated water and wastewater service providers operate in a defined geographical area with existing 
operations, which comprises a ‘natural’ monopoly, where it is not cost-effective to have multiple networks (i.e. they 
will usually have a mandate to operate exclusively in that area and without competition).

-  Often,  such  entities  are  owned  by  national  or  regional/local  governments,  but  can  also  have  private  sector 

involvement.

-  Water operators typically have a relatively simple tariff structure (water vs wastewater collection and treatment) 

and relatively few customer types dominated by domestic consumers.

- 

Such  entities  also  have  a  relatively  simple  operating  cost  structure  with  a  high  level  of  fixed  costs  (e.g.  capital 
(depreciation/debt service) and salary (semi-variable)).

- 

Stable and predictable cash flows make operators suitable for debt finance with long tenors.

The following represents a codification of existing good practices, which have evolved over the last few funding phases.

VII.2.  Project development cycle and methods
When the nature of investments is, overall, compliance driven, the key question is how to achieve an outcome considering 
all of the constraints, rather than identifying whether or not the investments are needed. As the cost of achieving and maintaining 
compliance with the directives is substantial, it is important that, in an option analysis including all reasonable technical 
options, the technical design considers and selects the most cost-effective outcome based on the present value of 
the life-cycle costs for each standalone investment component. This is predicated on the assumption that each option has the 
same economic benefits, which is usually considered the case for solving a specific compliance-related problem (i.e. least cost 
analysis). If this is not the case, it will be necessary to rank options based on a cost per unit of output achieved (i.e. CEA).

While assessing the measures, project promoters should carefully assess the cost per connection, connections made per 
metre of pipe needed or similar indicators, based on national (or other reasonable) benchmarks, and in the case of wastewater 
consider the provisions of Article 3 of the UWWTD:

Where the establishment of a collecting system is not justified either because it would produce no environmental benefit or 
because it would involve excessive cost, individual systems or other appropriate systems which achieve the same level of 
environmental protection shall be used.

67

Economic Appraisal VademecumIn the case of more complex projects not dealing exclusively with compliance with the directives but also involving investments 
dealing with, for example, climate change adaptation, risk prevention and disaster resilience in the water sector, 
ultimate investment decisions should or could be based on a thorough assessment of the economic costs and benefits, through 
a fully fledged CBA.

A fully fledged CBA, in terms of the development of a cash-flow/economic cost and benefit forecast model is usually done at the 
feasibility stage. Its development should both be driven by and inform the technical development of the project in an iterative 
process to ensure consistency of assumptions, and to test scenarios for prioritisation and phasing to ensure that the outcome can 
reach a balance between affordability and sustainability. A financial cash-flow analysis is recommended to test such scenarios 
(see the following section).

VII.3.  Financial and economic appraisal
Owing  to  the  overall  objective  of  achieving  full  cost  recovery,  as  defined  by  the  WFD,  together  with  the  need  for  ensuring 
sustainability and affordability, the basic analysis follows a financial analysis approach (i.e. cash-flow projection) as the foundation. 
As most of the cash flows on the expenditure side also represent economic flows, the economic analysis usually builds on the 
financial  analysis.  When  the  project  is  undertaken  by  an  existing  operator  (e.g.  water  utility),  which  is  usually  the  case,  then 
the analysis needs to be conducted at the operator level, as it is for whole operations that measures of tariff, affordability and 
sustainability are of greatest value.

The main considerations to be taken into account in the EA include cost recovery tariffs ensuring sustainable operations (as 
required by the WFD), affordability considerations and the need for cash-flow projections and economic analysis, as discussed 
below.

Cost recovery tariffs
The legislative requirement for sustainability comes from the WFD (Article 9), which states that tariffs need to cover:

- 

- 

- 

- 

operating cost,

asset maintenance cost (a minimum level may need to be set),

capital costs through depreciation provisions (42) (historical asset values may need to be re-evaluated),

‘environmental and resource cost’ reflecting the scarcity value of water.

Depreciation under the third item is not a cash-flow cost, but reflects past capital outlays to be recovered over time. On the other 
hand, incorporating depreciation in the tariff allows a cash fund to be built up for asset replacement and/or to repay investment 
loans. Thus, it may be possible to charge less than 100 % depreciation in the tariff in the short/medium term, in order to keep 
within affordability constraints (see next point).

The regionalisation of services helps to spread costs over a larger area with a single unified tariff structure. This is also known 
as the solidarity principle, even if it represents an implicit cross-subsidy between more densely populated areas (i.e. cities) and 
less densely populated (i.e. rural) areas.

Affordability considerations
The WFD also mentions that ‘water pricing policies’ should ‘have regard to social’ effects. This is interpreted as meaning that 
tariffs should not result in amounts billed that exceed reasonable affordability thresholds. In current practice, these thresholds 
are often taken to be in the range of 2–3 % of average disposable household income (although higher levels are used, even up 
to 5 % in low-income areas where low incomes make such levels unavoidable and the benefits of the project are high).

In this respect, a key challenge is matching the operator’s need for financial sustainability (i.e. the cost recovery tariff) and the 
end users’ affordability constraint. It is worth noting that it is hard to be explicit about how fast a project needs to achieve cost 
recovery or with respect to absolute levels of affordability, as it depends on the level of needs and levels of income at the country 
(or even regional) level. It is normally in the interest of the project promoter that the path to full cost recovery is as short as 
possible, subject to the affordability constraints. Often, 3–3.5 % of average disposable household income is seen as an upper 
limit with respect to average household income in the EU context, but sometimes this may need to be exceeded.

As good practice in such cases, subsidy schemes for low-income users can be considered. Such schemes could, for example, 
give discounts to user groups that are identified as having difficulty in paying bills, and should be structured (as far as possible) 
as a social support measure and not imposed as a cost to the water operator. If designed to carefully target low-income users 
or otherwise vulnerable or displaced communities, this approach could ensure that affordability issues are addressed in a cost-
efficient manner.

Table 11 reviews some good practices on how to cope with issues related to tariffing and affordability.

42 If capital costs are financed by debt, then there may need to be an extra provision in the tariff to the extent that debt service (principal and interest) exceeds depreciation charge. This can happen if the repayment 
period is shorter than the expected useful lifetime of the relevant assets used for the depreciation charge.

68

Economic Appraisal VademecumTable 11. Tariffing and affordability: good practices

Issue

Good practice

End user charge respects full cost recovery 
(and, ultimately, the polluter pays principle)

End user charge (as a percentage of estimated 
average disposable household income) does not 
exceed a reasonable threshold

It is accepted that this may be achieved over time (say 10–
20 years of operations) to ensure WTP, but is conditional on cash-
flow sustainability. In principle, non-domestic users should pay the 
full cost recovery tariff immediately

Such a level (or range) should be defined at the country level or 
should otherwise be assessed for reasonableness, although it is 
accepted that some flexibility is needed to exceed thresholds to 
undertake investments needed

Cash flow at the operator level needs to remain 
cumulatively positive throughout the projection 
period

Apart from operating cash flow, this should include the replacement 
of assets and debt service on historical and new (i.e. project-
related) debt

Operating costs need to be adequate to ensure 
proper operation – this applies especially to 
maintenance

Operating costs should not be excessive owing 
to inefficiency – this especially applies to 
staffing costs

These two areas overlap both with each other and with the role of 
the relevant regulatory authority. It may be possible to undertake 
country-level benchmarking of costs for different operators to 
determine how to ensure cost levels are both adequate and not 
excessive

Cross-subsidy should be avoided between (i) 
non-domestic and domestic user groups for the 
same services and (ii) regulated and any other 
services performed by the same entity

No user group should pay a tariff greater than the full cost of the 
service provision. If industrial treatment tariffs are higher than 
domestic tariffs, this needs to be reconciled with requirements to 
pre-treat industrial wastewater. If an operator is active on other 
markets (other than water supply and wastewater collection and 
treatment), a proper cost allocation and separate accounts need to 
be secured

Need for cash flow projections (43)
Cash-flow projections are needed to assess if water operators could cover the cost of providing the service while managing the 
trade-off between affordable tariffs and tariffs that cover the full cost of the service, in other words to show that the operator 
can meet day-to-day costs (including existing operations), as well as capital replacement and debt service, as and when needed. 
These projections:

- 

- 

are built based on historical revenues and costs adjusted for the incremental impact of the project applied to foreseen 
changes in demand (also needed for project investment specification), foreseen operating cost developments (split 
between fixed and variable, expected real term growth in salaries, etc.) and adequate maintenance levels (on both 
existing and project assets);

need to quantify a tariff commitment (say 5 years) for project approval, but with some flexibility with respect to 
future demand if actual demand varies significantly from that forecast.

The  worked  example  in  Table  12  is  a  very  simplified  cash-flow  projection  done  at  the  project  level  simply  to  demonstrate 
the  balancing  of  affordability  with  cash  flow  through  the  phased  approach  to  charging  depreciation.  A  tariff  inclusive  of  full 
depreciation recovery is achieved in year 15, but sufficient cash is accumulated to fund replacements due in year 15 and ongoing 
debt service. Note that, in the example, the aim is to have affordability at 2.5 % of household income, but it is accepted that it 
may rise to 3 % provided that there is a long-term prospect to reduce it back to 2.5 % (which can be driven by forecast growth 
in household income in real terms).

43 It is assumed that the methodology for the EU grant calculation in the next phase of the cohesion policy will specify fixed rates. If calculated rates are still allowed, then this will become an additional requirement 
for cash-flow projections.

69

Economic Appraisal VademecumTable 12. Affordability: example (million EUR)

Revenue

Operating cost

Replacement

Debt service

Annual cash flow

Cumulative cash flow

Cover of depreciation (new assets), %

Affordability, %

Year 5

Year 10

Year 15

Year 20

55

50

5

5

0

2.5

70

50

5

15

40

50

2.75

85

50

20

5

10

100

100

3.0

85

50

5

30

150

100

2.75

Economic analysis
As mentioned before, quantitative economic analysis should not be the main focus for compliance-driven standalone investment 
components.  Rather,  the  justification  should  be  based  on  showing  that  the  least-cost  solution  (capital  and  operating  costs 
combined over the economic life of the investment, that is, use of the life-cycle cost analysis) has been chosen after evaluating 
all viable alternatives.

For efficiency-related investments (especially loss reduction) and those of a multipurpose nature (e.g. combining compliance-
driven measures and resource efficiency, climate change adaptation and risk prevention measures), an analysis of economic 
costs and benefits should be undertaken for different levels of output to show the optimal level of investment. In this respect, 
it can also be considered the ‘resource cost’ associated with the scarcity value of water as referred to in Article 9.1 of the WFD.

Different types of projects will gain precedence as Member States move closer to compliance (e.g. water resource and security 
(possibly induced by climate change), storm water, wastewater reuse and other). In those cases, the principles of analysis remain 
valid (as already discussed in Sections 4.1 and 4.3 of the 2014 CBA guide), but it needs to be shown that the economic benefits 
exceed the economic costs. Similarly, all kinds of interventions aiming at improving flood prevention, climate change adaptation, 
risk prevention and disaster resilience should be subject to economic evaluation.

The following are the main types of economic benefits applicable to water and wastewater projects:

- 

- 

- 

- 

- 

- 

- 

- 

- 

- 

improved access to water and wastewater services (costs avoided in building/operating private wells and/or septic 
tanks);

improved quality of drinking water (costs avoided to purchase drinking water from the market);

improved reliability of water sources and security of water supply service, including avoided costs caused by water 
supply disruptions;

variations in GHG emissions due to changes in electricity consumption and the efficiency of wastewater collection 
and treatment facilities, including sludge management;

health impacts (care should be taken not to double count benefits with improved quality of drinking water);

reduction in uncontrolled raw wastewater discharge/exfiltration;

avoided costs of local flooding due to inefficient sewers and/or storm water systems;

improved environmental quality of the water bodies and preservations of ecosystem services;

benefits from recreational use of the water bodies;

avoided opportunity cost of water (e.g. abstraction charge).

For the methodologies on how to evaluate, in monetary terms, the abovementioned benefits, please refer to the relevant sections 
in Chapter 4 of the 2014 CBA guide.

70

Economic Appraisal VademecumVII.4.  Other relevant information
Projects should look for a balanced approach to the development of water and wastewater assets, with priority given to more 
densely populated areas based on benchmark density indicators, such as metres of new network needed for each new connection 
(or similar indicators). Trying to address all compliance issues at once can result in very large projects with implementation and 
affordability issues.

Efficiency-related measures (e.g. loss reduction through rehabilitation) should be balanced with compliance-related measures 
(e.g. a new treatment facility), as the operating cost savings from the former can help to balance the incremental operating costs 
of the latter.

71

Economic Appraisal VademecumANNEX VIII. HEALTHCARE

Introduction

VIII.1. 
This chapter discusses specific issues concerning the appraisal of health projects, with emphasis on economic assessment. The 
guidance applies, primarily, to health infrastructure projects (e.g. the construction of hospitals and outpatient and diagnostic 
facilities), but also to comprehensive subsystems, such as emergency care networks. To a certain extent, it also applies to health 
programmes,  focusing  on  a  specific  health  threat,  such  as  disease  prevention  programmes,  health  professionals’  education 
programmes or e-health projects.

VIII.2.  Project development cycle and methods
It is implicitly assumed that health investment projects should address important challenges and obstacles in fulfilling some of 
the key functions of the health system. Therefore, an identification of problems and challenges ought to be the first step 
of the project preparation cycle. An indicative list of typical health-related challenges is presented in Table 13.

Table 13. Typical health challenges

Problem

Character

Excessive mortality

Death is the natural end of life, which, in some circumstances, can be postponed through effective 
disease (or health problem) prevention or treatment

Reduced longevity

The length of life increases with civilisation’s development. The life expectancy of individuals in 
every age category may be shortened if diseases are not prevented or treated effectively

Excessive disease 
incidence

Disease prevention measures may lead to a reduction in disease onset (incidence) and the 
consequences of disease (burden), such as reduced quality of life, loss of productivity and costs 
for the social (including health) protection system

Persistence of 
diseases

The duration of a disease, which could otherwise be cured or of which symptoms could be 
diminished, has an impact on the degree of consequences (burden), such as reduced quality of 
life, loss of productivity and costs for the social (including health) protection system

Delay in access to 
care

Long waiting times for health intervention may lead to the deterioration of health status 
(including death) and could prolong the period of deteriorated quality of life (suffering, anxiety, 
etc.)

Inappropriate care

Medical activity is mostly based on evidence, and the optimal patterns of care are often 
presented in the form of clinical guidelines, usually published by medical associations. Departure 
from the guidelines is regarded as inappropriate, leads to worse outcomes and the use of 
unnecessary resources, and may cause harms to patients’ health

Diminished quality 
of life

Imperfect health may reduce quality of life owing to physical and mental suffering, imperfect 
functioning and limited capabilities

Diminished 
productivity of the 
workforce

Health threats (e.g. pandemics and substance abuse) that affect younger groups of the population 
may have a significant impact on goods’ and services’ production processes, diminishing the 
overall well-being of the whole population

Affordability

The development of health technologies allows for the treatment of an increasing number of 
cases; however, financial accessibility is limited owing to the costs of such treatment

The proper identification of challenges enables the definition of the goals, objectives and aims of the intervention. 
Goals  and  objectives  should  represent  statements  that  describe  what  the  project  is  expected  to  accomplish  and  should  be 
embedded in wider strategies set at the national, regional and EU levels, if applicable. Health strategy setting and the mapping of 
needs, as enabling processes for the implementation of cohesion policy operational programmes, are natural points of reference 
when setting goals and objectives. Goals are usually high-level statements that present the overall context of what the project 
wants to achieve. Objectives are lower level statements that describe the specific outcomes that the project is expected to deliver 
(Pepper, 2007). In defining the objectives, it is useful to follow the rule of SMART (Doran, 1981). Project goals and objectives 
should be embedded in wider strategies that are set at the national, regional and EU levels, if applicable. The objectives should 
allow projects outcomes to be defined, among which should be economic gains (effects and benefits), which should be used later 

72

Economic Appraisal Vademecumfor economic analysis.

After defining goals and objectives, the next step is to define alternatives/options (i.e. different ways to address the problems 
identified)  and  prepare  a  shortlist  of  the  most  relevant  ones.  At  the  preliminary  stage,  the  strategic  options  assessment 
should  include  the  development  of  a  simplified  list  of  costs  and  outputs/benefits  for  each  alternative,  and  data 
should be gathered to quantify them for the alternatives/options identified. For large/strategic investments, the EA should 
be further updated at subsequent stages of development of the proposal as more information comes to hand.

The following methods of EA are usually applied to health projects (Drummond et al., 2005).

- 

Least-cost  analysis  (LCA)  is  used  when  a  well-defined  /  single  result  is  going  to  be  achieved  and  the  only 
dilemma is related to the associated costs. Least-cost analysis is typically used as an element of technical option 
analysis, when one decides on which technical component of a complex infrastructure to adopt by comparing the 
costs of different options.

-  Cost effectiveness analysis (CEA) is used when one needs to compare different options that have the same 
effect but with different intensities (e.g. number of lives saved). CEA particularly useful when assessing disease 
prevention programmes with specific health gains (e.g. breast cancer screening for reducing fatalities among cancer 
patients). CEA is more convenient when only one effect is achieved, and is usually carried out by calculating the cost 
of the intervention per unit of effect.

-  Cost–utility analysis (CUA) – is appropriate for interventions that result in both an increase in life years and an 
improvement in quality of life. It compares costs with expected number of acquired disability-adjusted life years 
(DALYs) and quality-adjusted life years. Cost–utility analysis is appropriate for all projects that generate gains in the 
form of reduced mortality and improved quality of life or reduced disability.

-  Cost benefits analysis (CBA) combines different types of gains converted into monetary values and compares 
them  with  invested  resources  (costs).  CBA  is  generally  the  recommended  tool  for  sizeable  health  infrastructure 
projects resulting in a series of heterogeneous outcomes. As for the quantification of benefits, this is not always an 
easy exercise, but some good practices exist, as described further in the document (44).

It is worth noting that the EA tools described above can be used in a strategic way to consider alternative solutions, but should 
always be used in combination with a qualitative analysis demonstrating basic strategic issues and a clear connection between 
the project and the overall strategic goals and objectives.

VIII.3.  Economic appraisal
The purpose of EA is to provide arguments for the socioeconomic gains of a project. It is assumed that, in exchange for the public 
funding of the CAPEX (and possibly the incremental change of OPEX), a given project provides economic gains for society, even 
if it does not generate financial profit for the beneficiary.

Identifying the health-related gains of different interventions is mainly associated with presenting a cause–effect relationship 
between the interventions and the benefits. The project promoter should provide evidence and data that are logically connected 
with the expected results of the intervention, as well as its targets and size. Health interventions may have various characteristics. 
They  may  be  health  infrastructure  development  projects,  possibly  accompanied  by  organisational  change  (restructuring),  the 
modification  of  operations  or  health  programmes.  Alternatively,  they  may  be  disease  prevention  programmes  or  projects 
implementing new e-health functionalities. The underlying logic is that the intervention modifies the ongoing routines of health 
system operations, generating incremental economic benefits several years after the project is completed (Figure 2).

44 There are, however, cases when benefits quantification is difficult, namely in the absence of statistical data or research studies to provide values for the benefits to be quantified, or the size of the project does not 
justify it; in these cases, cost effectiveness or cost–utility analysis is the methodology of choice.

73

Economic Appraisal VademecumFigure 2. Incremental change following health interventions

Costs w/o 
project

Health sector

Patients/Families

Other sectors

Production losses

Project costs

Benefits

Health outcomes

Intengible costs 
saved 

Health 
intervention

Resources saved

Direct costs saved

Other values

Indirect costs saved

Source: Adapted from Drummond et al. (2005).

Figure  2  illustrates  the  elements  of  the  EA  of  health  interventions  and  their  associated  costs;  these  include  CAPEX  and  the 
incremental  value  of  OPEX  over  the  reference  period,  as  well  as  effects  on  health  gains  and  savings  of  resources.  It  is  also 
commonly expected that an effect of the health intervention will be the improvement of the health status of individuals and/or 
the entire population.

The typical benefits of interventions in the health sector can be grouped as follows:

-  patients’ health status improvement, including mainly reduced mortality, disability, morbidity, burden of disease 
or adverse effects of medical procedures – the valuation of these benefits usually consists of estimating the savings 
in both direct costs of treatment and indirect costs such as productivity losses to society, as well as perceived value 
of health;

- 

improved efficiency/productivity of the healthcare system, usually resulting from cutting costs (e.g. reduced 
number of hospitalisations and reduced length of stay), but also from improving organisation of service delivery – 
this benefit usually consists of financial gains for the health system in general or time savings for patients;

-  patients’  satisfaction  improvement  due  to  the  perceived  increase  of  quality  of  service  or  health  status, 

measured in patients’ WTP;

- 

reduced externalities such as energy consumption and vehicle operating costs.

Achieving any of the above benefits is typically a result of a series of measures, of which infrastructure improvement is one 
component.

Table 14 at the end of this chapter provides a detailed illustration of the typical benefits of health interventions, together with 
a description of the benefit, the unit of measurement and the suggested monetary evaluation method. In what follows, some 
examples of benefit quantification (for reduced mortality, avoided hospitalisation costs and improved accessibility to services) 
are presented for illustrative purposes.

Reduced mortality owing to improved emergency care services
Box 3 contains an example of calculating the benefits of developing an emergency department, the aim of which is to reduce 
insufficient  capacity  that  results  in  delays  in  health  services  provision  and  increases  in  fatalities  among  emergency  patients 
(Mohan  et  al.,  2015;  Morley  et  al.,  2018).  There  is  an  assumption  that  the  proposed  capital  investment  in  emergency  care, 
associated with certain operational improvements, will help to address future overcrowding and so reduce the number of deaths.

An adjustment factor (the average reduction in the fatality rate) is applied to estimate the potential number of life years saved 
(or avoided deaths), and a monetary value is attributed to the additional number of years of life gained (or the avoided deaths).

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Economic Appraisal VademecumBox 3. Example: reduced mortality

where:

A = projected admissions to the emergency department

ΔFR = average reduction in the fatality rate among emergency department patients due to decreased overcrowding

YLG = assumed number of years of life gained (or avoided deaths)

vYLG = value of 1 year of life gained (or value of statistical life: vOSL)

Avoided hospitalisations owing to increased capacity of ambulatory services
Outpatient services and hospital services can be either complementary or alternative services. Medical staff take decisions on 
hospital admissions based on a number of factors, including the health status of a patient, the type of health interventions/
treatments that can be supplied and the possibility of providing the same services in an outpatient capacity. Sometimes, financial 
constraints can have an impact on decisions on admissions. Many health systems are undertaking efforts to replace hospital 
admissions with outpatient services whenever possible.

When considering a project that aims to replace inpatient care with outpatient care, one can consider both capital and operational 
cost savings of hospital care as benefits (Box 4). The avoided operating costs are estimated based on the difference between 
the average cost per acute hospitalisation and the average cost per non-admitted service event. The avoided capital costs are 
estimated based on the avoided hospital bed days.

Box 4. Example: avoided hospitalisation

where:

ΔOPEX = average reduction in operating costs of hospital care per non-admitted patient

ΔCAPEX = reduction in capital costs of hospital care resulting from reduced hospital admissions:

Δ DC = reduction of direct costs, composed of the reduction in OPEX and CAPEX

Δ IC = reduction in indirect costs to patients, calculated as hours saved per non-admitted service event multiplied by the value 
of time

Increased accessibility from e-health interventions
When considering e-health interventions – defined by the World Health Organization as ‘the use of information and communications 
technology in support of health and health-related fields’ – it is important to use the same analytical framework as for any 
other health intervention. This approach helps to ensure that a similar level of certainty regarding the extent of benefits and 
the evidence to support them is required for conventional as for e-health interventions. This is important, as e-health initiatives 
should not crowd out spending on other equally good but more traditional healthcare investments.

In principle, e-health interventions can help to achieve better health outcomes and save costs, for both providers and patients. 
The area in which the e-health intervention is applied determines the benefits. One of the most frequent applications of e-health 
is e-prescriptions, which bring benefits to all actors involved in the process of drug dispensing in terms of increased accessibility 
(Box 5). For patients, the benefits are the time saved for visiting a doctor (remote prescribing), convenience (one never loses the 
prescription) and certainty (the content is readable and errorless). For doctors, after some practice and if the use of e-prescriptions 
is economic, it is estimated that time savings can reach between 30 and 60 minutes per day. Furthermore, the whole of the 
health system benefits (including pharmacies, insurance companies, etc.) as a result of a reduction in errors, better control of 
prescription patters among doctors, and fraud detection and prevention (Cooke et al., 2010; Parv et al., 2016). 

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Economic Appraisal VademecumBox 5. Example: increased accessibility

where:

ΔP = cost and time savings of patients

ΔD = time saving of prescribing doctors

ΔPh = time saving of pharmacies’ personnel

ΔS = administrative cost savings of reimbursement entities/insurers

Table 14. Typical economic benefits, units of measurement and methods of monetary evaluation

No

Economic benefits

Description

Units of 
measurement

Method of monetary 
evaluation

1

Reduced mortality

2

Reduced disability 
and ill health

Avoided deaths

Years of life lost/
gained

This is considered a reduction in mortality in 
the target population due to the intervention 
(project). It is necessary to present a logical 
connection between the intervention (project) 
and the avoided deaths / saved years of life.

Usually, a reduction in deaths can be achieved 
through (i) an increase in volume of life-saving 
health services (more patients treated),(ii) 
an increase in quality (the same number of 
patients are treated but with more effective 
treatments) or both. In either case, the process 
leading to the forecast reduction in deaths 
should be explained and reasoned

People with a disability or ill health and 
their informal carers are often not fully 
professionally active, which results in 
productivity losses in the economy. Disabled 
people also often remain under either 
institutionalised or informal care.

A reduction in disability implies an increase in 
productivity and a reduction in cost for formal 
and informal care over the years of the lasting 
disability

Number of 
health services 
avoided

Time of 
temporary 
inability to work

Time of 
permanent 
inability to work

Indirect costs of deaths 
due to: 

- income/production 
losses (HCM)

- death-related 
compensation benefits

Alternatively calculated 
with WTP:

- value of statistical life

- years of life gained

Direct (operating and 
capital) costs of health 
system and long-term 
care

Indirect costs of ill 
health due to:

- income/production 
losses

- short-term and long-
term absenteeism (self 
and next of kin) (HCM)

- quality of life (WTP)

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Economic Appraisal VademecumNo

Economic benefits

Description

Units of
measurement

Method of monetary
evaluation

This is considered a reduction in the 
prevalence (occurrence and/or duration) of 
a given disease due to improved diagnostic, 
prevention, treatment and convalesce 
measures

3

Reduced morbidity

This is a synthetic measure of health status 
and its consequences. The DALY is the sum of 
the years of life lost (YLL) due to premature 
mortality in the population and the years lost 
due to disability (YLD) for incident cases of 
the disordered health condition (DALY = YLL + 
YLD).

4

Reduced burden of 
disease

In medical practice, unfavourable 
developments and adverse events are 
common. They can include hospital infections, 
falls, bleeding and unnecessary pain. Adverse 
events have an impact on patients’ treatment 
processes, making them longer than necessary 
and more costly and, in extreme situations, 
cause patient death

5

Reduced adverse 
effects

Society benefits from a (long-term) reduction 
in preventable/avoidable hospitalisations 
because of the control of morbidity or the 
replacement of hospitalisations with non-
hospital care in primary or community settings

6

Reduced 
hospitalisations

Number of 
health services 
avoided

Time of 
temporary 
inability to work

Time of 
permanent 
inability to work

Direct (operating and 
capital) costs of health 
system and long-term 
care

Indirect costs of ill-
health due to:

- income/production 
losses

- short-term and long-
term absenteeism (self 
and next of kin) (HCM)

- quality of life (WTP)

DALY

Calculated with WTP: 

Number of 
health services 
avoided

Time of 
temporary 
inability to work

Time of 
permanent 
inability to work

Avoided deaths

Years of life lost/
gained
Number 
of hospital 
admissions 
avoided

- value of statistical life 
((VSL) value of life in 
perfect health) 

- year of life gained 
(value of life in perfect 
health) (YLG).

The method depends on 
the category of effects 
of deaths or ill health 
(see above)

Direct (operating and 
capital) costs of health 
system due to hospital 
admissions

Indirect costs related to 
hospitalisation due to:

- income/production 
losses

- short-term and long-
term absenteeism (self 
and next of kin) (HCM)

- quality of life (WTP)

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Economic Appraisal VademecumNo

Economic benefits

Description

7

Reduced hospital 
length of stay

8

Improved 
accessibility

9

Improved patients’ 
satisfaction

10

Reduced external 
costs

Shortening the length of stay (LOS), if 
the quality of care and patients’ safety is 
maintained, brings about gains such as 
hospital cost savings, better access to care 
(more patients can be served), improvements 
to patient safety (reduced risk of secondary 
infections) and increased satisfaction 
(assuming that a hospital stay is not the most 
desired way of spending time)

Improved access is connected with the 
elimination of access hurdles in the public 
health system, which is usually connected 
with (i) a limited production capacity of health 
facilities, (ii) geographical hurdles caused by 
an uneven distribution of health infrastructure 
and competences, and (iii) financial and 
technical restrictions

This is a measure of improvements in 
perception, which are dependent on physical 
conditions of the stay, organisation of care, 
attitudes of medical personnel, trust and 
confidence

The mechanism of improving the perceived 
quality needs to be explained

Digital solutions may reduce external costs, 
notably in relation to the energy consumption 
of data centres and networks. These can be 
estimated well enough using emission factors 
and the social cost of carbon. Other external 
impacts can also be considered in relation to, 
for example, savings in transportation costs 
(unless these are trivially small)

NB: HCM, human capital method.

Units of
measurement

Method of monetary
evaluation

Avoided number 
of hospital days 
of stay

Methods such as 
reduced hospital 
admissions (see above)

Number of 
health services 
gained

Alternative cost saved 
in private sector prices, 
as a proxy for perceived 
value of the services

Percentage of 
patients with 
higher level of 
satisfaction

Alternative cost saved 
in private sector as a 
proxy for perceived 
value of the services

EUR per tonne 
of CO2
EUR per vehicle-
km

Economic cost of carbon 
(see Section 2.5 of 
Part I of the EAV)

Avoided vehicle 
operating costs (see 
Annex V)

78

Economic Appraisal VademecumANNEX IX. INFORMATION AND COMMUNICATION TECHNOLOGIES: E-SERVICES

Introduction

IX.1. 
The aim of this chapter is to outline the key aspects of EA that decision-makers and project promoters should/could 
consider when designing projects with large ICT components. The European Commission has highlighted digitalisation 
as one of its key goals to ensure Europe’s international competitiveness, to support regional cohesiveness, to improve living 
conditions across Europe and for Europe to deliver better services to citizens and businesses. Digitalisation enables increases in 
productivity, efficiency and effectiveness. The widespread use of ICT raises, however, many systemic challenges. These include, on 
the one hand, concerns in relation to data protection, privacy rights and cybersecurity and, on the other, the possibility of making 
ICT benefits available to all by deploying digital infrastructures and developing the required digital skills.

A number of EU policy initiatives and funding sources could finance investments in different digital sectors. Given 
that ICT cuts across all sectors, it is not possible to address the development of the sector under one policy objective. Recognising 
the  potential  of  digitalisation,  the  European  Commission  presented  in  February  2020  three  broad  pillars  of  its  strategy  for 
Europe’s digital future (European Commission, 2020). The strategy aims to provide the right legal and ethical environment for 
the users and the market. Possible sources of public support for projects with large ICT components include the Horizon Europe 
research programme, the Digital Europe (European Commission, 2018) programme, the Connecting Europe Facility, and the EU 
regional policy. Regarding the EU regional policy, Smarter Europe is one of the two priorities (together with the Green Europe 
policy  objective)  that  are  expected  to  receive  the  majority  of  EU  regional  policy  funds  in  the  next  phase.  It  will  encompass 
measures related to, among other areas, e-service development.

This section focuses on the EA of the introduction of ICT into the provision of public services. Public services delivered 
with the support of ICT do not differ in scope from services delivered in the traditional way. In this sense, objectives, expected 
benefits and evaluation methods are those typical of their relevant sectors, such as broadband, energy, transport or health, and are 
not discussed here. However, when shifting to the digital provision of services, some cross-cutting, not sector-specific, 
issues have been observed and should be taken into account, including efficiency gains for the service provider, improved 
quality of the services and the interdependency with other infrastructures. This chapter contains examples of approaches for 
project preparation and of the project benefits of e-services applied in e-education and e-government projects. The principles 
outlined below may also apply to further projects such as digital identification cards and different types of publicly run service 
portals, etc.

Project development cycle and methods

IX.2. 
e-Service development is preparation heavy. For the public sector, the success of these services is largely dependent on a clearly 
defined set of policies, supporting change management approaches and a defined legal framework, in particular when it concerns 
security and data integrity. Developing a new e-service also requires the overall processes already existing in the public sector to 
be taken into consideration, as well as any institutional and organisational changes that might need to be made.

For  example,  e-government  projects  often  form  part  of  wider  public  sector  reform  that  aims  to  streamline  public  institution 
processes through ICT. In this process, it is important to consider all of the relevant stakeholders, their requirements and their 
existing  ICT  infrastructure,  which  may  need  to  be  updated  or  modified.  The  lack  of  interoperability  between  different  actors’ 
systems would significantly reduce the benefits achieved by the project.

Field  experiments  can  be  used  to  determine  the  effects  of  ICT  projects.  Through  pilot  projects,  effectiveness  studies  can  be 
undertaken before a national roll-out or phased introduction. The advantage of a pilot project is that the measure is tested in the 
‘real world’, all the time bearing in mind the extent to which the results of the pilot project can be generalised (CPB Netherlands 
Bureau for Economic Policy Analysis, 2017).

Likewise, the integration of ICT into learning, teaching and school administration processes is a response to the need for schools 
to adapt to the complex and changing contexts in which they operate, including the digital era and the increasing diversity among 
pupils. These issues require not only the adaptation of school curricula, but also more diverse teaching and learning methods to 
address the needs of all students.

Regarding early screening and the selection of technology, the following aspects need to be considered for e-services 
projects: interoperability and compliance with standards, the availability of technology, and the overall cost of 
investment and the operating phase. Regarding the first element, it is critical to consider interoperability and compliance with 
relevant standards and other services put in place or planned at the national, European or international level. Diverting from such 
standards, or not taking into account other services or platforms, would render the development of the solution costly and time-
consuming and would increase implementation risks. As a next step, it is suggested to consider if there are technologies readily 
available. Even in cases in which standard solutions are followed, existing solutions may need to be modified to meet the specific 
requirements of a project, and the cost of such adaptation should be taken into account. Finally, if there are a number of possible 
solutions, the overall cost of the project should be determined – the choice of technology may affect the design, implementation 
or operation phase, including possible costs of upgrades.

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Economic Appraisal VademecumEconomic appraisal

IX.3. 
Given  the  broad  range  of  different  types  of  e-service  projects,  it  is  possible  to  provide  only  a  few  general 
observations of benefits that are common to these services and quantifiable, and which should be considered in an 
economic analysis. Other than these general considerations, the EA of ICT projects should first be considered against the ‘main’ 
sector to which the projects belong. For example, e-health projects should follow the guidance for healthcare infrastructures, 
research projects with an ICT component should be aligned with the research, development and innovation approach and the 
urban development projects would need to consider the urban framework first.

This chapter assumes generally that the socioeconomic impact of the project is verified by means of a CBA approach. Moreover, 
each different type of e-service also entails qualitative benefits, which are more typical of specific areas, for instance e-pharmacy 
or e-school. Applying an MCA methodology could also be considered for such projects to capture the impacts beyond quantitative 
economic impacts, for instance quality of life or contribution to climate change.

The first general observation for projects that replace an existing service with the possibility of a digital or remote 
service,  such  as  e-government,  e-health  or  e-school  projects,  is  their  efficiency  gains.  They  can  be  valued  in  an 
economic analysis by assigning monetary values to cost savings and time savings.

- 
Regarding the cost savings, these can occur first for the owner of the infrastructure / provider of a service, for 
example a governmental department or agency, hospital or school, but also for the service users. As a rule, all cost savings 
that occur for the owner of the infrastructure / provider of a service are already considered in the financial analysis 
(and consequently in the economic analysis). Cost savings enjoyed by users, who are – in the case of e-government 
projects – other government departments or agencies, citizens or businesses, are not captured by the financial analysis. 
They should be regarded as economic benefits and included in the economic analysis. User benefits through cost savings 
can be quantified in the CBA by estimating direct travel cost savings (e.g. fuel) and the reduced cost of transmitting 
information (e.g. phone, post or paperless interactions).

- 
Time savings can represent a significant benefit of e-service projects. For the EA of travel time savings, the 
length of the avoided travel time and the economic value of time need to be estimated. For example, an e-government 
project that enables the implementation of user interfaces that allow personal documents to be requested online will 
eliminate the travel time from local residents to local government agencies. In addition to the travel time saved, the 
implementation of an e-government project can lead to time savings due to faster service provision (e.g. because of 
avoided queuing at public agencies or reduced processing time of requests). The length of the time saved should be 
estimated based on documented assumptions.

Improvements to the services delivered, which translate into increased convenience for users, are the second most 
common group of impacts of e-services projects. For example, in the case of e-education through integrating ICT within 
schools, students can benefit from improved educational services (e.g. personalised learning curricula and innovative teaching 
practices).  In  addition,  the  resulting  increase  in  digital  skills  can  in  turn  also  lead  to  better  employability  in  the  future.  The 
benefits can be estimated by adopting the WTP approach, according to which the economic value of the service rendered by a 
(public) education project is usually larger than the fees applied to students, if any. In the case of e-government services, users 
might consider that better service delivery, reduced error rates, increased reliability and easier communication are important 
benefits, and it could be possible to quantify this category of benefits by means of traditional sample surveys or qualitative focus 
groups (45).

The third group of benefits of e-services projects lies in the common aim of these projects to increase the security 
level  of  electronic  services,  improve  reputation  and  raise  user  trust  and  confidence.  The  valuation  of  information 
security  solutions  requires  sufficient  data  about  incidents  and  their  consequences.  While  some  studies  have  attempted  to 
measure the benefit of improved security, and while quantification of these benefits may be possible in individual projects, as a 
general recommendation, it is suggested that these benefits be considered qualitatively.

Another observation common to e-services projects is the difficulty in quantifying the net environmental impact. 
In  the  case  of  projects  that  affect  a  large  number  of  users,  such  as  e-government  or  e-education  projects,  research  on  the 
impacts of GHG emissions today is not mature enough to measure the net effect of digital services on energy consumption and, 
more generally, on the environment. It is therefore recommended, until relevant studies become available, that this benefit be 
considered in qualitative terms rather than by valuing its impact in the CBA model (46).

It is equally important to note that ICT projects are interdependent with other infrastructure put in place, such as 
broadband connectivity, computers and end user applications, as well as on users having the right skills to take up new and 
innovative services. When the relevant infrastructure is not in place and additional substantial investment needs to be made by 
a third party or by users for the given type of benefits to emerge, the estimated project benefits should be distributed pro rata. 
The relevant net benefit ratio (calculated as the proportion of project costs in the total costs needed for the benefit to emerge) 
should be applied to the benefits quantification.

45 The project analyst should, however, make sure not to double count this category of benefits with users’ cost and time savings, as these can be assumed to automatically translate into an increase in users’ 
satisfaction.

46 If the project entails a quantifiable reduction in transportation costs (e.g. avoided car trips), the reduction in GHG emissions can be valued following the methodology illustrated in Annex V (‘Transport’). 

80

Economic Appraisal VademecumFinally, the full impact of ICT projects is not straightforward to quantify in monetary terms. In the case of several 
economic benefits, it is very difficult or maybe impossible to find a way to monetise their value. ICT projects are also an enabler 
of a multitude of different services, for which ICT, infrastructure and hardware provide the backbone.

As mentioned, it is not possible to easily provide recommendations for all possible sector investments and related benefits. This 
section exemplifies and outlines a possible summary approach to a CBA analysis in two different sectors: e-services in public 
administration and in education. In general, the principles in these sectors, including the common benefits and the sector-specific 
benefits, can be used as a guide for other projects in the area.

Public e-service projects
The importance of the deployment of new e-government services and, where possible, the replacement of traditional governmental 
services with their electronic equivalent is widely recognised.

For  the  purpose  of  this  document,  an  e-government  project  is  designed  and  implemented  with  the  aim  of  generating  wider 
benefits to society. Consequently, the financial revenues and cost savings that occur to the project owner do not capture the 
full impact of the project. Besides a number of quantifiable benefits to the users, such as cost or time savings, there are many 
qualitative benefits that can significantly affect the lives of citizens, but which no firm methodology can quantify. An example of 
a benefit evaluation is given in Table 15.

Table 15. Example of benefit evaluation of public e-service projects 

Economic benefit

Monetary 
evaluation

Qualitative 
assessment

Comment on treatment

User benefits in terms of 
cost savings

User benefits in terms of 
time savings

User benefits in terms of 
increased revenues

Convenience benefits

Improved data security

Environmental benefits

√

√

√

√

√

√

Cost saving approach, including direct travel cost saving 
and reduced cost of transmitting information (e.g. phone, 
post or paperless interactions)

Time savings owing to shorter travel time, reduced 
processing time, task elimination, etc.

√

√

√

√

Better and increased revenue collection (e.g. online tax 
filing and processing systems to enhance transparency)

Faster/better service delivery and reduced error rates

Avoiding loss of productivity due to work stoppages 
resulting from security incidents

Quantification of direct cost savings and qualitative 
assessment of project’s broader impact on environment

Other non-quantifiable economic benefits of e-government projects may include:

- 

- 

- 

- 

- 

- 

- 

- 

enhanced policy alignment and outcomes and support to decision-making;

better and timely information to facilitate policymaking (allows more, greater and new data to be collected, and 
greater information-sharing capacity);

better planning/pricing as a result of data generated by the system;

an improved image of the public service provider and of administrative work;

improved service delivery and enhanced customer service (more understandable services and personalisation);

improved service consistency and quality (interoperability and improved multi-agency cooperation);

greater take-up of entitlements;

improved communication (e.g. immediate confirmation of the processing of the request).

It should be noted that, in many circumstances, e-service projects have a wide impact on the national economy and on society 

81

Economic Appraisal Vademecumas a whole. For instance, investors’ location decisions can be influenced by an improved level of public services in a particular 
country. These wider benefits may include:

- 

- 

- 

- 

impacts on location decisions (the increased efficiency and better quality of the services enhance the attractiveness 
of the country as a business location and improve competitiveness and productivity);

enhancements to democracy (increased user participation and contribution);

enhanced transparency and reduced corruption (through making information public);

improved ICT skills and leadership in the digital economy.

Information and communication technology in learning
For projects that aim to introduce ICT tools (training, materials and equipment) into the learning experience, it is recommended 
that  emphasis  be  put  on  setting  up  the  appropriate  education  framework  and  institutional  structure  with  the  objective  of 
maximising the educational outcomes expected from the project.

The role of ICT in learning has been discussed by several studies, and its positive, as well as negative, effects are reported in the 
literature. Nevertheless, partially owing to the complexity of the various educational systems, and the wide differences in digital 
maturity between different countries, no widely accepted and tested methodologies to quantify and value benefits in monetary 
terms exist. It is therefore difficult to propose a uniform methodology, as only guidance can be given, depending on the scope of 
each ICT learning project.

Table 16 provides some initial approaches for the possible quantification of benefits. It is suggested that a CBA be carried out only 
on direct benefits accrued by the ‘users’ of the project, including students, teachers and school administrative staff.

It needs to be underlined, however, that there is limited experience of the use of CBA in the appraisal of this type of project, given 
the difficulties in the estimation of monetary values of benefits in education investments. Consequently, other techniques, such 
as MCA, may also be suitable to appraise projects that aim to introduce ICT tools into learning.

Table 16. Benefit evaluation of school digitalisation

Economic benefit

Comment on treatment

Savings in management, 
administration and work planning

Cost savings approach – if not already included in the financial analysis

Improved education services to 
students

WTP – the economic value of the improved education service rendered by a public 
project can be proxied by the tariff/charges applied to students of private schools 
offering similar services

School dropout reduction

Human capital approach – an individual is ‘worth’ to society what he or she will 
produce during his or her lifetime. The benefit can be calculated as the wage 
differential between workers with and without secondary education

Professional development

WTP – the wage differential between private and public sectors in the education 
system can be used as proxy, or the avoided cost of attending training courses 
supplied in the private market that allow the development of the same level of 
digital competence can also be used

82

Economic Appraisal VademecumANNEX X. OPTIMISING PROGRAMMES FOR TERRITORIAL AND URBAN DEVELOPMENT

Introduction

X.1. 
Territorial  development  with  a  particular  view  to  unlocking  local  economic  potential,  encouraging  smart 
development,  promoting  climate  change  action  and  improving  living  conditions  is  a  key  policy  focus  of  the  EU. 
The European Commission has published guidance on the process of designing sustainable urban strategies for urban projects 
and programmes (JRC, 2020). It also supports innovation in Member States through programmes aimed at digitalisation and 
smart specialisation (47) and has launched the new European Green Deal (European Commission, 2019). These policies require 
multisectoral investment programmes that are anchored in integrated plans combined with spatial planning.

In  the  2021–2027  programming  period,  in  addition  to  the  strategic  emphasis  on  the  climate  change  agenda  (e.g.  the  Paris 
Agreement),  the  focus  will  be  on  economic  recovery  after  COVID-19.  It  is  expected  that  the  emphasis  on  regional  smart 
development (including smart city investments, the circular economy and ‘just transition’ projects) will continue.

The investment programmes of the regions or cities (public promoters) must reflect the development strategies embedded in 
their spatial development plans and the policies at local, regional, national and international levels. The authorities, through such 
investment programmes, attempt to stimulate local growth and development conditions and improve the quality of life (welfare) 
of their inhabitants, primarily through public works and the provision of public services. The funding sources for such territorial 
programmes  may  include  European  funds  (48).  The  tool  that  is  often  used  in  this  context  is  integrated  territorial  investment 
(URBACT, 2019). Integrated territorial investments allow EU Member States to bundle funding from several priority axes of one or 
more operational programmes (EU programmes) to ensure the implementation of an integrated strategy for a specific territory.

In  this  chapter,  we  will  focus  on  the  MCA  methodology,  in  particular  policy-led  multi-criteria  analysis  (PLMCA), 
which is specifically suited to territorial and urban programmes with multisector investments.

The PLMCA methodology allows the expected benefits to be assessed against an explicit set of policies and objectives – in other 
words, the framework in place – that the decision-making body has identified. It also helps identify synergies between projects 
(e.g. transport, broadband, water and energy efficiency) and where social funds can be employed. The MCA tool can be used 
to consider urban–rural linkages and ‘rural’ municipalities in integrated territorial strategies and delivery models. It assists in 
bundling the projects of different local authorities and municipalities to facilitate their access to different sources of financing.

The design of a successful MCA toolkit in the urban/territorial context requires:

- 

- 

- 

- 
- 

- 

the principles of sustainable urban development to be embedded locally and a rigorous integrated planning 
regime;

clearly identified policies and their objectives;

clearly articulated and meaningful indicators / appraisal criteria / benefits that are user friendly and can be 
applied on a comprehensive basis;
consensus on the scoring of the qualitative and quantitative benefits;
clear consensus on the relative importance (i.e. the weights) of the objectives and their indicators;

consensus on the means to identify, record/register and describe key risks and opportunities.

The example used in this chapter is the application of the PLMCA tool to a sustainable urban development programme.

X.2.  When to use multi-criteria analysis
Sustainable urban programmes normally span a wide range of sectors that require integrated planning, and most projects in an 
area are interrelated; a framework approach is therefore the most suitable approach for the challenge of assessing a programme 
spanning different sectors. Although, for single urban mobility projects (e.g. a bypass or a tram extension) a CBA, for example, 
would be appropriate, if more sectors are involved, the assessment becomes more complex because there are joint economic 
benefits. This is the case even in rather simple urban regeneration schemes (e.g. linking road improvements and/or surface water 
drainage). To be able to undertake an EA in the context of urban development, different EA methodologies need to be considered 
as relevant to the different types, phases and aspects of urban development investments.

The  MCA  methodology  can  be  applied  in  the  following  stages  of  the  development  of  a  territorial  investment 
programme (Figure 3), including sustainable urban development.

47 See, for instance, the Smart Specialisation Platform, which supports Member States (https://s3platform.jrc.ec.europa.eu/)

48 Sustainable urban development programmes and projects can be financed by a number of European funds and/or a combination of other funds.

83

Economic Appraisal VademecumFigure 3. Appraisal stages of territorial investment programmes

Local/regional/
national
authorities decide
how to prepare

Local/regional/
national
authorities decide
how to prepare

MCA

MCA

MCA

CBA, CEA
or MCA for
option analysis

MCA

Strategy

Investment 
plans and other
city/regional
programmes

Selection/
prioritisation
of projects on
the basis of
the investment
programme

Appraisal of
urban projects 
(transport, energy,
regeneration, etc.)

Tool rerun to
check that
the projects
constitute an
investment
programme

- 

- 

The definition of an urban strategy or a territorial investment programme requires an integrated, multisectoral 
planning approach, including the participation of the representatives / key stakeholders of all of the expected areas of 
investments (subsectors). A sustainable urban strategy is founded on relevant applicable policies and on local needs and 
can apply to different levels of urban policy. The JRC (2020) provides more information about the European Commission 
guidelines on how to define a sustainable urban strategy. If PLMCA is expected to be used at the selection/prioritisation 
stage of projects, it is helpful to set up the criteria and relevant framework at the strategy-making phase to obtain a 
more coherent exercise (e.g. start building the PLMCA matrix as presented in Section X.3 at this early stage of strategy 
making).

The  setting  up  and  management  of  an  investment  plan  or  programme  require  the  participation  of  all  the 
stakeholders, to ensure that the programme or plan includes all of the policy objectives of the strategy that it seeks to 
implement. PLMCA can also be recommended for the definition of investment plans or programmes, because it clearly 
portrays the path and indicators of the actions and their potential benefits, helping to trace them back to the policy 
objectives. It also provides an assessment of the adequacy of the policy objectives themselves (i.e. it is a way to check 
the consistency between the policy and benefits and vice versa). As above, if work on the PLMCA has already started or if 
it starts at this stage, the application of the PLMCA method in the next stage (i.e. the selection/prioritisation of projects) 
becomes a more coherent exercise.

-  MCA can be a useful tool for the provision of a sound basis for the prioritisation of projects by reference 
to a specific set of strategic documents. MCA facilitates the comparison of different projects or sets of projects, 
considering all of the criteria/indicators (even those that are not monetised) and relates them back to the policies that 
the strategic and planning documents pursue in a direct visual way. The final scores can be used to establish a list of 
priorities (e.g. by starting with the projects that have received the highest scores).

- 

The appraisal or analysis of individual projects traditionally uses CBA or CEA. MCA may be useful in the context 
of an EA to compare the strategic options for a single project (see Sections 1.3 and 3.2 of Part I of the EAV).

-  Ongoing  monitoring/evaluation  and  continuous  adjustment  of  the  programme  is  necessary. The MCA (like 
all EA tools) can be rerun at different stages of the project cycle to check that the final set of projects constitutes a 
programme.

The participation of the most relevant stakeholders from the beginning of the appraisal process improves the quality of the 
whole analysis. This multi-stakeholder team participates in the whole process as the analysis moves on. In this way, the city/
territory develops a holistic view of investments, reducing the risk of silos and improving governance. It is important to note 
that the governance structure of cities is different in different constituencies and in different countries, which would need to be 
reflected in the stakeholder set-up. What is needed is a balanced top-down / bottom-up approach to drive integrated sustainable 
urban development, in other words an approach that includes the policy-driven considerations of the administrations and the 
needs-driven considerations of representatives of the concerned population according to the sector (mobility, education, health, 
energy efficiency, services, digitalisation, etc.).

Example of an urban regeneration programme supported by policy-led multi-criteria analysis

X.3. 
The example presented in this section illustrates the application of MCA to the appraisal of an urban regeneration 
programme. The method described is replicable in other stages of the process of urban/territorial development, as 
explained above. The key request by the local authorities pertained to the facilitation of the process of prioritising and selecting 
projects in order to develop the strategy’s investment programme and optimise its delivery and subsequent impact. To this end, 
JASPERS suggested the deployment of a specific tool, a PLMCA methodology, as an Excel-based tool that assists decision-
makers with the selection of packages of measures and the timing of the delivery of such measures. In this particular case, 
the regeneration packages – housing, skills, culture, transport and business – were included as columns referred to as ‘priority 

84

Economic Appraisal Vademecumdimensions’ in the matrix.

In the example, the aim was to assess a regeneration programme developed for a run-down district in a city. The programme 
had identified five areas of action (‘regeneration packages’) mentioned above: housing, skills, culture, transport and business. 
Under each area, a number of potential investments had been listed (e.g. for culture, proposals included several restorations of 
buildings with historical and cultural value; for transport, proposals included upgrades of roads and the introduction of electric 
bicycles).

The PLMCA framework starts with the step of structuring the problem by defining the context of the decision, in particular the 
policy and institutional guidance that applies. Columns 1–5 in Table 17 illustrate this process.

Table 17. PLMCA columns 1–5

(1)

(2)

Dimension

Sub-dimension

(3)

 Policy Objective 
(Generic Good Practice 
for Sustainable Urban 
Development 

(4)

Sub-objectives 
(specific to the case)

(5)
 Justification 
for inclusion of 
objectives/sub 
objective in Matrix 

Social

Choice and 
Provision of 
accessible facilities 

Improve provision and access 
to facilities, amenities & 
services including hospitals, 
schools, community centres, 
leisure facilities, housing, 
transport infrastructure, 
retail, water, energy and 
e-governance

Improve provision and access 
to housing & public open spa 

-PA Thematic Objective 
9: Promoting social 
inclusion, combating 
poverty and any 
discrimination
-OP1 Axis 6 Investment 
Priority 9b - support for 
physical, economic and 
social regeneration of 
deprived communities 

-OP1 Investment Priority 
9 

To invest in health and 
social infrastructure 
which contributes to 
national, regional and 
local development, 
reducing inequalities 
in terms of health 
status, promoting 
social inclusion through 
improved access to 
social, cultural and 
recreational services 
and the transition 
from institutional to 
community-based 
services (PA Thematic 
Objective 9 Expected 
Results

Regeneration of public 
open spaces and 
public social housing 
within deprived 
neighbourhoods to 
lift people out of risk 
of poverty. (MT OP1 
Investment Priority 9b 
Specific objective SO 

Employment 
generation

Generate and provide access 
to employment (especially 
through education and 
training) and reduce youth 
unemployment 

Promoting sustainable 
and quality employment 
and supporting labour 
mobility (PA thematic 
objective 8)

-PA Funding Priority 3 
-PA Thematic -Objective 
8 
-OP1 Axis 6 Investment 
Priority 9b 
-OP1 Axis 9 Investment 
Priority 9

85

Economic Appraisal VademecumAffordability

Encourage provision of 
options/ opportunities that 
are affordable to the greatest 
number of people, especially 
those in significant need

Integration of deprived 
families through the 
upgrading of public 
social housing. (OP1 
Investment Priority 9b 
specific objective so3) 

Social cohesion and 
inclusion

Promote equity & provide 
opportunities that are 
accessible to all groups of 
society, including women, 
ethnic minorities, and people 
with disabilities

Promoting social 
inclusion and combating 
discrimination (PA 
Thematic Objective 9 

-PA Funding Priorities 
Malta OP1 Axis 6
-Investment Priority 
9b support for physical, 
economic and social 
regeneration of deprived 
communities 

-PA funding priorities

NB: OP, operational programme; PA, partnership agreement.

The dimensions (column 1), should be drawn from global best practice on sustainable urban and regional development and core 
national policy documents. The following seven dimensions constitute a standard set and they are the ones used in the example: 
institutional, territorial, social, environmental, economic, financial and technical.

The subdimensions (column 2) are also identified from global best practice and national documents. In the example provided, the 
subdimensions of the social dimension are choice and the provision of accessible facilities, employment generation, affordability, 
and social cohesion and inclusion.

The dimensions and subdimensions establish the area in which the programme’s impact is going to be assessed. For example, 
how does housing (one of the priority actions of the regeneration programme) affect the social subdimensions (one of the areas 
in which there will be an impact)?

The following columns (3 and 4) define the objectives and subobjectives for each subdimension obtained from local, national and 
international policy, including the partnership agreement, the operational programmes and other recommendations (e.g. JASPERS 
Guidance Notes).

Column 5, namely the justification for inclusion of the objectives/subobjectives, is a record of the sources of the objectives and 
subobjectives (e.g. partnership agreement thematic objective 9 – ‘promoting social inclusion and combating poverty and any 
discrimination’).

The next phase is to select appraisal criteria/indicators to use for each policy area and objective and decide on their relative 
importance through the use of weights and/or ranking. Column 6 depicts the first part of this phase (i.e. deciding which criteria or 
indicators to use for the first subdimension, that is, the choice and provision of accessible facilities; Box 6).

86

Economic Appraisal VademecumBox 6. PLMCA column 6

(6)
Criteria

Qualitative

·	 Extent of provision and/or upgrading of social infrastructure/public facilities/cultural facilities to match demographic 

needs and meet or exceed national standards including extent to which the proposal includes the building of 
thealth and wellness infrastructure to support population

·	 Extent to which the proposal improves access to affordable, sustainable and high quality services, including health 

care and social services of general interest (PA Thematic Objective 9 Expected Results)

·	 Provision of support for physical, economic and social regeneration of deprived communities in urban and rural 

·	

areas (PA Thematic Objective 9 Expected Results).
Improvement to social / health service quality through measures aimed at addressing the specific needs of the 
social and health sectors (PA Thematic Objective 9 Expected Results).

·	 Extent of Investment in health and social infrastructure which contributes to national, regional and local 

development, reducing inequalities in terms of health status, promoting social inclusion though improved access 
to social, cultural and recreational services and the transition from institutional to community based services (OP1 
Investment priority 9a).

·	 Extent of promotion of sustainable transport practice (PA Thematic Objective 7 – expected results)

Quantitative

·	 Population living in areas with integrated urban development strategies  (OP 9b)
·	 Persons benefitting from new/upgraded infrastructure (including equipment/service as). (Investment Priority 9a
·	 Population covered by improved social services (Investment Priority 9a)

The  model  use  phase  involves  determining  the  performance  of  the  project/programme  relative  to  each  criterion/indicator, 
usually using a numerical scoring system. Columns 7–17 illustrate the results of this process (Tables 18 and 19). Columns 7–11 
are exclusive to this example, as they present the five priority action areas in the regeneration programme already mentioned. A 
colour code has been used in Tables 18 and 20 to show the scores for each area of action. Column 12 summarises the extent to 
which the areas of action of the regeneration programme meet the criteria (column 6).

Table 18. PLMCA columns 7–12

(7)
Priority 
Action 1 

(8)
Priority 
Action 2 
‘skills’

(9)
Priority 
Action 3 

(10)
Priority 
Action 4 

(11)
Priority 
Action 5 

(12)
Priority actions 1-5
Aggregated project evidence

All  packages  strongly  aligned  to  social 
cohesion  and  opportunity.  Clear 
intent 
to  retain  population  and  provide  more 
community  services  and  assets.  A  walkable 
electric  transport  community  will  aid  health 
and well being.

green = maximum score; orange = medium; red = lowest

The next columns, namely columns 13–17, represent the steps in the calculation of and the final weighted score (Table 19). As 
the weighted scores align with the colour coding of the priorities in this example, the majority of green boxes correspond to a 
maximum weighted score of 10. In this example, the weights are always 2, because all of the subdimensions and objectives were 
considered to be equally important. In such cases, the weight column can be removed, as applying the same weight throughout 
does not change the relative scoring.
The risks, mitigations and opportunities (i.e. columns 13 and 14) apply to all of the subdimensions in each dimension. They inform 
the final decision on the scores.

87

Economic Appraisal VademecumTable 19. PLMCA columns 13–17

(13)

(14)

Risk & Mitigation

Opportunities

(15)

Weight

(16)

Score

(17)

Weighted 
Score

·	 Once  buildings  are  complete 
and  upgraded  they  will  need 
maintenance  and  ongoing  life 
cycle expenditure which national 
budgets will need to consider

·	 Policies such as the right to buy 
may  help  develop 
individual 
aspiration but can release stock 
to  open  market  so  will  need 
careful consideration

·	 Risk 

is  older 

residents  still 
move out as there is poor public 
realm,  fear  of  crime,  etc.  this 
intervention needs to show early 
wins  to  have  positive  impact  in 
programme period.

·	 Heritage  assets  not  conducive 
to  accessibility  as  expensive 
lifts, etc. required

·	 May  create  more  targets 

if 
more footfall; enhanced policing 
needed to support especially at 
the outset

ability 
self-help 

to 
·	 Programme’s 
encourage 
for 
skills development and wider 
intervention.    As  a  small 
district  adjoining  the  core 
City the movement of people 
is  more  easily  addressed 
than a regeneration requiring 
greater transport focus.  This 
is a walkable city and can be 
walkable  for  all  with  some 
provision  and  coordination 
with 
existing 
transport  such  as  electric 
buses,  consider  new  stops, 
number of stops

positive 

·	 Other tenure models such as 
shared ownership can create 
capital  for  individuals,  but 
still  retain  stock  for  public 
sector

·	 The  existing  housing  stock 
has  very  high  quality  views 
and aspect and is “inclusive” 
in  the  opportunity  that  it 
brings for well being

·	 Horizontal  property  division 
will  create  more  opportunity 
if  publicly  owned  properties 
are divided differently legally

·	 Will  create  a  greater  night 
local 
for 
time  economy 
to  enjoy  and 
businesses 
indeed 
in  darkest  winter 
months when tourist trade is 
slower

·	 Health 

being 
and  well 
promoted  through  walkable 
city, community sports areas 

Table  20  uses  the  same  scoring  and  colour  coding  system  for  the  subdimension  ‘employment  generation’  as  that  used  in 
Table 18 for the social dimension. In Table 20, the score is very low, as only one of the programme’s priority actions addresses 
employment generation in the example.

88

Economic Appraisal VademecumTable 20. PLMCA low-score illustration

(8)

(7)
Priority 
Action 1 

(9)
Priority 
Action 
3 

(10)
Priority 
Action 4 

(11)
Priority 
Action 5 

(15)
Weight

(16)

Score

(17)
Weighted 
score

2

1

2 * 1 = 2

(12)
Priority actions 
1-5
Aggregated 
project evidence

One  package  fully 
focused  on  skills, 
others  are  very 
indirectly so 

green = maximum score; orange = medium; red = lowest

The final scores for each dimension and the whole programme under analysis are reached by adding up the individual weighted 
scores of each subdimension and comparing them with the maximum possible score for the whole dimension; the outcome is 
usually presented in percentage terms. In the example, the whole programme had a score of 71.4 % and none of the dimensions 
had a score below 60 %. In this case, it was decided that the scores obtained render the programme positive for the objectives 
and policy context under which it was proposed.

The weighted scores for each dimension provided guidance for the prioritisation of the priority actions and their corresponding 
investment  proposals.  In  addition,  by  including  the  priority  actions  and  colour  coding  them,  it  was  clear  to  see  how  each 
subdimension performed against the objectives and therefore which aspects to emphasise. For example, in the subdimension 
‘culture and heritage’ (within the environmental dimension), the objective ‘to seek to conserve, protect, promote and develop 
the natural and cultural heritage’ was not achieved by the transport or skills priority actions (colour coded red). This objective 
was, however, well achieved by the culture and business priority actions (colour coded green), while the housing priority action 
moderately achieved the objective (colour coded orange). Therefore, the proposals of the red-coded actions might need a greater 
focus  on  the  preservation  and  promotion  of  the  natural  and  cultural  environments.  Alternatively,  the  decision-makers  might 
choose to focus on the dimensions and corresponding objectives that have the highest number of ‘green boxes’ (high scores for 
the priority actions).

Other relevant information

X.4. 
The  MCA  methodology  described  can  also  be  used  as  a  system  to  monitor  progress  during  later  stages  of  the 
project cycle (e.g. implementation and/or operation), providing an audit trail. It can be used as a risk register to highlight trade-
offs that may be required as the implementation evolves and to incorporate feedback loops from the stakeholders. Down the line, 
the methodology can also be used in the evaluation of urban programmes. The use of MCA involves a number of challenges, 
which are listed in Table 21 together with suggestions for their mitigation.

89

Economic Appraisal VademecumTable 21. Challenges and mitigation measures

Challenges

Mitigation

Urban projects (especially housing) 
require clear criteria/indicators. 
In urban programmes, criteria/
indicators need to be multisectoral. 
It is not always a straightforward 
matter or practical to apply 
indicators that have been generated 
for other sectors

Policy leadership of the appraisal is essential (to provide legitimised guidance). 
There must be national, regional and/or local ‘urban policies’ with clear 
guidance on objectives and appraisal eligibility indicators.

Key to urban development is place-based, integrated planning to carry out 
the policy. The criteria/indicators need to be clearly derived from a sensible 
combination of existing sectoral and spatial plans. These then need to inform 
the action measures or the investments

It is important to establish some 
quality standards for the MCAs, as 
they are frequently superficial and of 
poor quality

It is highly desirable that the formation of objectives be guided by reference 
to international, national and local policy statements alongside secondary 
information sources, including best practice.

Use an existing model, such as the one in the example, which exists as a toolkit 
containing prepared Excel sheets and a guide. The subdimensions, objectives, 
criteria/indicators, scoring and weighting are to be decided by consensus on a 
case-by-case basis

Managing Authorities (MAs)/
beneficiaries may be unfamiliar with 
how to perform a proper MCA

Assistance and capacity-building actions for MAs and beneficiaries to learn how 
to use any type of MCA tool is available (including from JASPERS).

The first time a PLMCA is used, expert support may be needed. After a 
municipality or other decision-making body has benefited from expert advice 
in the use of the tool once, the experience gained should be sufficient to use it 
again without external support

As they are easy to manipulate (e.g. 
based on preferences), a beneficiary 
might set the criteria unilaterally 
and use the tool to justify a 
predetermined decision

The preparation of an MCA must include the main stakeholders. Whether 
it is used for the selection/prioritisation of projects, for the appraisal of a 
programme or even for a stand-alone project, a multi-stakeholder team should 
identify all of the steps in the process, in particular the objectives, the criteria/
indicators and the weights, and decide the scores.
While the seven standard dimensions can be used in most cases, the decision-
makers may choose to replace some or all of them. Whether the seven 
standard dimensions are chosen or not, the content of each of the following 
steps of the process (or columns in terms of the PLMCA matrix) must be 
consensually agreed upon by a team of people (the decision-makers) who 
together combine the necessary technical expertise and provide legitimate 
representation for all of the stakeholders. This is the best way to avoid using 
the PLMCA tool as a means of rubber stamping a decision that has been taken 
previously without the full analysis that the PLMCA requires

90

Economic Appraisal VademecumBIBLIOGRAPHY

Annex I – research and innovation
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EIB (2017), Economic analysis of research infrastructure projects in the programming period 2014–2020, JASPERS staff working paper.

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Florio,  M.,  Forte,  S.,  Pancotti,  C.,  Sirtori,  E.  and  Vignetti,  S.  (2016),  Exploring  cost–benefit  analysis  of  research,  development  and  innovation 
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Florio, M. (2019), Investing in Science: Social cost-benefit analysis of research infrastructures, MIT Press.

Giffoni, F. and Vignetti, S. (2019), Assessing the Socioeconomic Impact of Research Infrastructures: A systematic review of existing approaches and 
the role of cost-benefit analysis, L’industria, Società editrice il Mulino, pp. 75–102 (http://www.csilmilano.com/docs/WP2016_01.pdf).

JASPERS  (2011),  Best  practice  in  the  preparation  of  projects  in  the  culture  sector  (http://www.jaspersnetwork.org/plugins/servlet/
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JASPERS (2017), Economic analysis of research infrastructure projects in the programming period 2014–2020, JASPERS staff working paper 
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Reid, A. (2020), ‘Designing a socio-economic impact framework for research infrastructures: preliminary lessons from the RI-PATHS project’, in 
Beck, H. and Charitos, P. (eds), Economics of Big Science. Science Policy Reports.

Rousseau, S., Catalano, G. and Daraio, C. (2021), ‘Can we estimate a monetary value of scientific publications?’, Research Policy, Vol. 50, No 1, 

104116.

Annex II – renewable energy
EIB (2019), EIB Energy Lending Policy (https://www.eib.org/en/publications/eib-energy-lending-policy.htm).

EIB  (2020),  ‘EU  member  states  approve  EIB  Group  Climate  Bank  Roadmap  2021–2025’  (https://www.eib.org/en/press/all/2020-307-eu-
member-states-approve-eib-group-climate-bank-roadmap-2021-2025).

ENTSOG (2019), 2nd ENTSOG methodology for cost–benefit analysis of gas infrastructure projects 2018 (https://www.entsog.eu/sites/default/
files/2019-03/1.%20ADAPTED_2nd%20CBA%20Methodology_Main%20document_EC%20APPROVED.pdf).

ENTSO-E  (2020),  3rd  ENTSO-E  guideline  for  cost  benefit  analysis  of  grid  development  projects,  draft  version,  28  January  2020  (https://
draft 
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pending European Commission approval.

Final 

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European  Commission  (2019),  The  Costs  of  Not  Implementing  EU  Environmental  Law,  Publications  Office  of  the  European  Union, 
Luxembourg 
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Hirth, L. (2013), ‘The market value of variable renewables’, Energy Economics, Vol. 38, pp. 218–236.

International Energy Agency (2014), Capturing the Multiple Benefits of Energy Efficiency.

Lamont,  A.  (2008),  ‘Assessing  the  long-term  system  value  of  intermittent  electric  generation  technologies’,  Energy  Economics,  Vol.  30, 
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OECD (Organisation for Economic Co-operation and Development) and Nuclear Energy Agency (2018), The Full Cost of Electricity Provision 
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Steffen, B. (2020), ‘Estimating the cost of capital for renewable energy projects’, Energy Economics, Vol 88, 104783.

World Health Organization (2018), Circular Economy and Health: Opportunities and risks (https://www.euro.who.int/en/publications/abstracts/
circular-economy-and-health-opportunities-and-risks-2018).

91

Economic Appraisal VademecumAnnex III – energy efficiency
EIB  (2013),  The  economic  appraisal  of  investment  projects  at  the  EIB  (https://www.eib.org/attachments/thematic/economic_appraisal_of_
investment_projects_en.pdf). 

EIB (2020), How Can Favourable Financing Improve Energy Efficiency Investments? Evidence from new experimental data, economics working 
papers 2020/01.

European Commission (2014), Guide to Cost-Benefit Analysis of Investment Projects – Economic appraisal tool for Cohesion Policy 2014–2020, 
Publications Office of the European Union, Luxembourg (https://ec.europa.eu/regional_policy/sources/docgener/studies/pdf/cba_guide.pdf).

European  Court  of  Auditors  (2020),  Energy  Efficiency  in  Buildings:  Greater  focus  on  cost-effectiveness  still  needed,  special  report  11/2020 
(https://eca.europa.eu/en/Pages/DocItem.aspx?did=53483).

International Energy Agency (2014), Capturing the Multiple Benefits of Energy Efficiency.

Annex IV – municipal waste management
Ballinger, A. (2015), ‘The potential contribution of waste management to a low carbon economy’, Eunomia (https://www.eunomia.co.uk/reports-
tools/the-potential-contribution-of-waste-management-to-a-low-carbon-economy/). 

European Commission (2020), Categorisation System for the Circular Economy, Publications Office of the European Union, Luxembourg (https://
op.europa.eu/en/publication-detail/-/publication/ca9846a8-6289-11ea-b735-01aa75ed71a1/language-en/format-PDF/source-120460723).

Annex V – transport
CEDEX (2010), Economic Evaluation of Transport Projects – Guidelines.

De Jong, G., Vignetti, S. and Pancotti, C. (2018), ‘Ex post evaluation of major transport infrastructure projects’, at European Transport Conference 
2018 (https://significance.nl/wp-content/uploads/2019/04/2018-GDJ-Ex-post-evaluation-of-major-transport-infrastructure-projects.pdf).

Department for Transport (2021), ‘Transport analysis guidance’ (https://www.gov.uk/guidance/transport-analysis-guidance-webtag).

De Rus, G. and Johansson, P.-O. (2019), Measuring the Economic Effects of Transport Improvements, Working Papers 2019-01, FEDEA.

Directorate-General for Mobility and Transport (2019), Handbook on the External Costs of Transport, Publications Office of the European Union, 
Luxembourg.

EIB and JASPERS (2017), Guidance on appraising the economic impacts of rail freight measures (http://www.jaspersnetwork.org).

European  Commission  (undated),  ‘EU  reference  scenario  2016’  (https://ec.europa.eu/energy/data-analysis/energy-modelling/eu-reference-
scenario-2016_en).

European  Environment  Agency  (2019),  EMEP/EEA  Air  Pollutant  Emission  Inventory  Guidebook  2019:  Technical  guidance  to  prepare 
national  emission  inventories,  Publications  Office  of  the  European  Union,  Luxembourg  (https://www.eea.europa.eu/publications/emep-eea-
guidebook-2019).

Flyvbjerg, B., Holm, M. K. S. and Buhl, S. L. (2004), ‘What causes cost overrun in transport infrastructure projects?’, Transport Reviews, Vol. 24, 
No 1, pp. 3–18.

Flyvbjerg, B., Holm, M. K. S. and Buhl, S. L. (2005), ‘How (in)accurate are demand forecasts in public works projects? The case of transportation’, 
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IER Germany (2006), Developing harmonised European approaches to transport costing and project assessment – Deliverable 5 (Proposal for 
Harmonised  Guidelines)  (https://trimis.ec.europa.eu/sites/default/files/project/documents/20130122_113653_88902_HEATCO_D5_summary.
pdf).

JASPERS  (2014),  The  use  of  transport  models  in  transport  planning  and  project  appraisal  (http://www.jaspersnetwork.org/plugins/servlet/
documentRepository/displayDocumentDetails?documentId=222).

Laird, J. J. and Venables, A. J. (2017), ‘Transport investment and economic performance: a framework for project appraisal’, Transport Policy, 
Vol. 56, pp. 1–11.

Mackie, P. and Preston, J. (1998), ‘Twenty-one sources of error and bias in transport project appraisal’, Transport Policy, Vol. 5, No 1, pp. 1–7.

Mackie,  P.,  and  Worsley,  T.  (2013),  International  Comparisons  of  Transport  Appraisal  Practice,  Institute  for  Transport  Studies  for  the  UK 
Department for Transport.

Transport  Infrastructure  Ireland  (2020),  Project Appraisal  Guidelines  for  National  Roads  Unit  6.11  –  National  parameters  values  sheet,  PE-

PAG-02030 (https://www.tiipublications.ie/library/PE-PAG-02030-03.pdf).

Turro Calvet, M. (2004), RAILPAG: Railway Project Appraisal Guidelines, European Commission. 

UK Department for Transport (2005), Transport, Wider Economic Benefits and Impacts on GDP, DfT, London.

92

Economic Appraisal VademecumUK Department for Transport (2020), WEBTAG Unit M3.1 Highway Assignment Modelling, DfT, London (https://assets.publishing.service.gov.uk/
government/uploads/system/uploads/attachment_data/file/427124/webtag-tag-unit-m3-1-highway-assignment-modelling.pdf).

Venables, A. (2016), ‘Incorporating wider economic impacts within cost–benefit appraisal’, discussion paper 2016-05, International Transport 
Forum.

Venables, A., Laird, J. J. and Overman, H. G. (2014), Transport Investment and Economic Performance: Implications for project appraisal.

Wardman, M. and Hine, J. (2000), Costs of Interchange: A review of the literature, working paper, Institute of Transport Studies, University of 
Leeds, Leeds, UK.

Wardman, M., et al. (2012), European Wide Meta-analysis of Values of Travel Time, University of Leeds, Leeds, UK.

Annex VI – broadband
The Commission’s strategy on Connectivity for a European Gigabit Society: https://ec.europa.eu/digital-single-market/en/broadband-europe

European Commission (2013), EU guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks, 
2013/C 25/01 (https://eur-lex.europa.eu/legal-content/GA/TXT/?uri=CELEX:52013XC0126(01)).

European Commission (2013), The Broadband State Aid Rules Explained – An eguide for decision makers, Publications Office of the European 
Union, Luxembourg (https://ec.europa.eu/regional_policy/sources/conferences/state-aid/broadband_rulesexplained.pdf).

JASPERS 
displayDocumentDetails?documentId=521).

(2020),  Broadband  Intervention  CBA  Model,  JASPERS 

(http://www.jaspersnetwork.org/plugins/servlet/documentRepository/

Annex VII – water and wastewater
Dickens, R., Gill, J., Rubin, A. and Butterick, M. (2013), Valuing Impacts on Air Quality: Supplementary green book guidance, HM Treasury and 
Department for Environment, Food and Rural Affairs.

ECOTEC (2001), The benefits of compliance with the environmental acquis for the candidate countries, ECOTEC, Birmingham, UK (https://ec.europa.
eu/environment/archives/enlarg/pdf/benefit_long.pdf).

European Commission (2018), ‘Blue2 study: assistance for better policy-making on freshwater and marine environment’ (https://ec.europa.eu/
environment/blue2_en.htm).

Markandya,  A.  (2016),  Cost  Benefit Analysis  and  the  Environment:  How  to  best  cover  impacts  on  biodiversity  and  ecosystem  services,  OECD 
environment working papers No. 101, OECD Publishing, Paris.

OECD (Organisation for Economic Co-operation and Development) (2018), Cost–Benefit Analysis and the Environment: Further developments 
and policy use, OECD Publishing, Paris.

Annex VIII – healthcare

Cooke, C. E., Isetts, B. J., Sullivan, T. E., Fustgaard, M. and Belletti, D. A. (2010), ‘Potential value of electronic prescribing in health economic and 
outcomes research’, Patient Related Outcome Measures, Vol. 1, pp. 163–78. 

Doran, G. T. (1981), ‘There’s a S.M.A.R.T. way to write management’s goals and objectives’, Management Review, Vol. 70, No 11, pp. 35–36.

Drummond, M. et al. (2005), Methods for the economic evaluation of health care programmes, Oxford University Press, Oxford, UK.

Hietbrink, F., Houwer, R. M., van Wessem, K. J. P., Simmermacher, R. K. J., Govaert, G. A. M., de Jong, M. B., deBruin, I. G. J., de Graaf, J. and Leenen, 
L. P. H. (2020), ‘The evolution of trauma care in the Netherlands over 20 years’, European Journal of Trauma and Emergency Surgery, Vol. 46, 
No 2, pp. 329–335. 

Mohan, H. M., Mullan, D., McDermott, F., Whelan, R. J., O’Donnell, C. and Winter, D. C. (2015), ‘Saving lives, limbs and livelihoods: Considerations 
in restructuring a national trauma service’, Irish Journal of Medical Science, Vol. 184, No 3, pp. 659–666.

Morley, C., Unwin, M., Peterson, G. M., Stankovich, J. and Kinsman, L. (2018), ‘Emergency department crowding: a systematic review of causes, 
consequences and solutions’, PLoS One, Vol. 13, No 8, e0203316. 

NSW  Health  (2018),  Guide  to  cost–benefit  analysis  of  health  capital  projects,  NSW  Health  (https://www1.health.nsw.gov.au/pds/
ActivePDSDocuments/GL2018_021.pdf).

OECD (Organisation for Economic Co-operation and Development) (2012), Mortality risk valuation in environment, health and transport policies, 
OECD, Paris (https://www.oecd.org/environment/tools-evaluation/valuingmortalityimpacts.htm).

Parv, L., Kruus, P., Mõtte, K. and Ross, P. (2016), ‘An evaluation of e-prescribing at a national level’, Informatics for Health and Social Care, 
Vol. 41, pp. 78–95. 

Pepper, J. (2007), What Really Matters: Service, leadership, people and values, Yale University Press, pp. 147–148. 

93

Economic Appraisal VademecumAnnex IX – information and communication technologies: e-services
CPB Netherlands Bureau for Economic Policy Analysis (2017), Study of Cost–Benefit Analysis for e-Government, CPB, The Hague (https://www.
cpb.nl/sites/default/files/omnidownload/CPB-Communication-Study-of-cost-benefit%20analysis-for-e-government.pdf).

European Commission (2018), ‘EU budget: Commission proposes €9.2 billion investment in first ever digital programme’, press release (https://
ec.europa.eu/commission/presscorner/detail/en/IP_18_4043). 

European Commission (2020), ‘Shaping Europe’s digital future’, factsheet (https://ec.europa.eu/commission/presscorner/detail/en/fs_20_278). 

Annex X – optimising programmes for territorial and urban development

Beria, P., Maltese, I. and Mariotti, I. (2012), ‘Multicriteria versus cost benefit analysis: a comparative perspective in the assessment of sustainable 
mobility’, European Transport Research Review, Vol. 4, pp. 137–152.

EIB and European Committee of the Regions (2016), Financing a city’s or region’s long-term capital investment programme: EIB framework loans, 
European Committee of the Regions, Brussels (https://www.eib.org/attachments/documents/mooc_factsheet_eib_framework_loans_en.pdf).
European Commission (undated a), ‘The urban agenda for the EU’ (https://ec.europa.eu/regional_policy/en/policy/themes/urban-development/
agenda/).

European Commission (undated b), ‘A European Green Deal’ (https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en).

European Commission (2013), Urban Development in the EU: 50 projects supported by the European Regional Development Fund 2007–2013, 
(https://ec.europa.eu/regional_policy/en/information/publications/studies/2013/urban-development-in-the-eu-50-projects-
AEIDL,  Brussels 
supported-by-the-european-regional-development-fund-during-the-2007-13-period).

European  Commission  (2017),  A  social  multi-criteria  framework  for  ex-ante  impact  assessment  operational  issues,  JRC  technical  reports, 
Publications  Office  of  the  European  Union,  Luxembourg  (https://publications.jrc.ec.europa.eu/repository/bitstream/JRC107899/jrc107899_
smce-ia-operational.pdf).

JRC (2020), Handbook of Sustainable Urban Development Strategies, Publications Office of the European Union, Luxembourg (https://ec.europa.
eu/jrc/en/publication/eur-scientific-and-technical-research-reports/handbook-sustainable-urban-development-strategies).
OECD (Organisation for Economic Co-operation and Development) (2019), ‘OECD principles on urban policy’ (https://www.oecd.org/cfe/urban-
principles.htm).

UN  Habitat  (2009),  Global  Report  on  Human  Settlements  2009  –  Planning  sustainable  cities,  Earthscan,  London  (https://unhabitat.org/sites/
default/files/download-manager-files/Global%20Report%20on%20Human%20Settlements%202009%20Planning%20Sustainable%20Cities.
pdf).

URBACT (2019), ‘What are integrated territorial investments?’ (https://urbact.eu/what-are-integrated-territorial-investments)

94

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