How to show the economic benefits of sustainable development

Local authorities and some other publicly funded bodies have a duty and a necessity to encourage businesses, developers and consumers to work towards sustainable development to be able to meet their own nationally and locally decided targets (such as those defined by a Community Plan). To achieve this cooperation within current economic conditions it is necessary to demonstrate that there are recognisable economic benefits to the community and for those proposing development resulting from taking this 'sustainable' course. Establishing an objective and measurable method to appraise and select projects and proposals on the basis of relative contribution to sustainable economic development is also important to ensure progress that is acceptable to all parties. Thus, the two necessary conditions that have to be met to enable an appraisal to be made are that:

  1. It must be shown that the project will reduce the economic effects of resource depletion, climate change and other significant environmental problems (i.e. demonstrating a more sustainable outcome)
  2. The positive economic benefits of undertaking the project  (i.e. the economic outcome) must be visible to the locality

 

The two tables below suggest a way of measuring monetary and non-monetary factors relevant to most communities served by a publicly funded body responsible for approving economic sector projects.

 

More sustainable outcome

Measures

Explanation for seeking outcome

1. Reduce and, where possible, eliminated waste currently going to landfill

a)      Total contribution, in  tonnes of waste, to meeting EC & UK recycling targets

b)      Monetary value of reduction in financial penalties

There is a shortage of suitable sites and natural systems cannot cope with some of the products that we currently deposit in landfill. A local authority will incur financial penalties if it fails to meet its targets for reduction of waste to landfill.

2. Replace energy produced by burning fossil fuels (such as oil, gas and coal) with energy from renewable sources (such as solar, wind and wave power or burning crops grown for energy purposes, known as biomass)

a)      Total contribution, in tonnes of carbon, to reduction in emissions

b)      Monetary value of tradable emissions certificates

There is internationally recognised evidence of the contribution that burning fossil fuels makes to climate change (see DTI Energy White Paper, published on 24th February 2003)

3. Reduce and eliminated, where possible, transport involving vehicles powered by fossil fuels (principally oil & gas derivatives)

a)      Total contribution, in tonnes of carbon, to reduction in emissions

b)      Monetary value of tradable emissions certificates

Transportation of goods and people contributes to the causes of climate change and renewable alternatives are at an early stage of development

4. Reduce impact on biodiversity

a)      Total contribution, in numbers of species, to maintenance of biodiversity

b)      Cost of reintroduction of species

Because humans rely on the global biosphere for our survival and there is evidence of rapid depletion across some species

5. Improve fairness of demand on global systems

a)      Total emissions of carbon per head of population in defined locality (e.g. local authority area)

b)      Addition to (or reduction in) local carbon emissions

Planetary systems have a calculable ability to absorb carbon, whereas some communities are currently emitting more carbon per head than others. Achieving greater fairness is essential for social stability and the cooperation needed for making large-scale changes.

 

Notes

1.      EC Directives already issued or currently planned set targets for recycling that will probably require local authorities to reduce the amount of waste currently going to landfill. There is also a Parliamentary Private Members Bill at Committee stage that, if passed, will set tougher UK only targets.

2.      Tradable emission certificates became legal tender in the UK in April 2001 and a voluntary market came into being in April 02. There is inter-governmental interest in developing an international market in such certificates.

1.      The measurable sustainable outcomes listed in the left hand column of the above table are designed to be related to the four conditions of 'The Natural Step' an internationally recognised minimum standard to avoid unsustainable behaviour.

2.      The measurements calculated by this method for an individual project could prove to be negative (i.e. if it appears to make environmental conditions worse)

 

Economic outcome

Measures

Explanation for seeking outcome

Increase of employment generated locally

a)      Turnover of new local facility

b)      Total salaries, wages or fees paid to employees living in locality

c)      Total new revenue generated (e.g. from council tax)

New employment opportunities produce both economic and social benefits for a locality

Increase in capital investment in locality

Total value of capital investment made within the locality

Capital investment creates an input of finance into the community, as well as a new local asset

Increase in services used locally

a)      Increase in money circulating within local economy

b)      Value of services available to locality

A key problems for communities is that a lack of local services causes money from new investment and employment to flow out of the local economy

 

Notes

1.      Consumer expenditure and capital formation (which includes capital expenditure and stock-building) are both used as factors when calculating Gross Domestic Product (GDP), income payment and tax revenue are used as components in another comparative method of national accounting (usually known as National Income)

2.      Retention of jobs related to a new project could be included in a calculation of benefits but is only usually accepted once by DTI when administering regional selective assistance

3.      Research carried out by the New Economics Foundation suggests that money flowing out of a community has a greater bearing on relative deprivation than investment

4.      The measurements calculated by this method for an individual project could prove to be negative (i.e. if it appears to make economic conditions worse)

Ways of using this appraisal method

Because all parties involved in this process are familiar with the use of money to indicate relative value where economic matters are concerned, it makes sense to select monetary measures from the two tables above to build into an economic sustainability calculator designed to appraise business proposals. Alternatively non-monetary values, such as carbon emissions, might be considered a better measure for social projects (e.g. new community buildings). Even in this case, positive economic benefits indicated by the measures of economic outcome suggested above might also prove useful in selecting from competing proposals seeking limited public funding. The figures that would be included in the spreadsheet used as an example below would be requested from developers proposing a business project that they wanted the local authority (or other public body) to accept on behalf of the local community. However, the receiving authority would need to check the assumptions that had been used by the information supplier and add or subtract values based on their wider perspective of the likely effects of the project on the local economy, such as positive gains due to extra income coming to existing local businesses or the negative effect (in terms of loss of sales and employment) on local competitors. The authority might also decide to include an estimate of the global benefits of a project, for example if the product of a business project might be likely to replace a less sustainable alternative in the market. As most substantial business projects take time to establish their place in the market and for revenues to flow in, a familiar appraisal technique is 'payback', in which a time limit is set in which inflows are expected to equal the cost of the project. More sophisticated versions of payback make allowance for the 'time value' of money and discount returns in later years and this is included in the table shown below.

 

The final total calculated for each project can be used by the members of the authority (such as a planning committee or development board) as a way of demonstrating objectively that sustainability has been considered as a factor in their deliberations alongside other criteria.

Illustrative Economic Sustainability Calculator

Timescale

Year 1

Year 2

Year 3

Total

Unit of account

Łk

Łk

Łk

Łk

Local employment

 

 

 

 

Local capital investment

 

 

 

 

 Recycled materials produced

 

 

 

 

 Recycled materials used

 

 

 

 

 Landfill reduction

 

 

 

 

 Renewable energy produced for sale

 

 

 

 

 Renewable energy consumed (inc. transport)

 

 

 

 

 Reduction in transport costs

 

 

 

 

 Tradable emission certificates

 

 

 

 

 Other quantifiable local benefits

 

 

 

 

 Gross total of components

 

 

 

 

 Discount factor

 

 

 

 

 Discounted Total

 

 

 

 

Notes

1.      All values should reflect the benefit to the locality defined by the authority requesting this information

2.      Negative values should be included to allow fair comparison

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