A GUIDE TO ECONOMIC ASSESSMENT FOR DECISION-MAKERS: An Outline of Economic Methods
and A Response to the Land and Environment Court Issues with the Economic Assessments of the Warkworth Extension Project
Methods used by economists to evaluate projects can be confusing to decision-makers. Many guidelines and texts exist but they can be confusing for those without an economics background.
This document provides a simple dot point summary of some of the methods that are used by economists and where they fit within a decision-making framework. The focus is on:
benefit cost analysis (BCA);
choice modelling (CM); and
regional economic assessment (input-output (IO) analysis and computable general equilibrium (CGE) modelling).
In context of the information provided on these methods, a detailed response is then provided to the main economic findings provided in the Land and Environment Court Judgement on the Warkworth Extension Project.
COMPANY TAX RATES AND THE DISTRIBUTION OF COMPANY TAX BETWEEN STATES
Company taxes represent part of the producer surplus benefit of mining projects that accrue to Australia. There has been debate about the effective company tax rate paid by foreign owned mining companies. This Note examines the claims that have been made and also examines what percentage of company tax paid to the Commonwealth from mining projects in NSW is likely to find its way back to NSW.
GUIDE TO COAL ROYALTY CALCULATIONS
Claims in submissions to mining projects have suggested that inclusion of allowances for deductions can reduce the estimate of royalties from a project by 50%. In a number of cases the Planning Assessment Commission accepted these claims without question. However, this is incorrect. This Note identifies how coal royalties are calculated and the impact that deductions can have on the level of royalties paid.
NONMARKET BENEFITS OF EMPLOYMENT
This Note draws a distinction between use and nonuse values of employment generated by projects. While the former type of benefit has historically been included in BCA for many years, the latter type of benefit is related to altruism and reflects people' existence value for the employment of others. Nonmarket valuation studies that have empirically estimated these values are identified, including three studies of coal mining projects in NSW.
BCA AND ASSESSMENT OF EXTERNALITIES
This Note identifies some different ways that externalities can be addressed in the BCA of mining projects, including using the threshold value method and a combination of market data and nonmarket valuation techniques. The nonmarket valuation techniques that can be used to value different types of mining impacts are identified.
UNDERLYING ASSUMPTIONS AND INTERPRETATIONS OF INPUT-OUTPUT ANALYSIS AND MULTIPLIERS
This Note identifies the assumptions that underlie input-output analysis and the interpretation of impacts that are identified using this method. Different types of multipliers are defined.
INPUT-OUTPUT ANALYSIS AND COMPUTABLE GENERAL EQUILIBRIUM ANALYSIS
This Note provides a dot point comparison between input-output analysis and computable general equilibrium analysis and addresses some of the misrepresented criticisms that have been made of input-output analysis. Guidelines supporting the use of input-output analysis and government applications of input-output analysis are identified.
INTRODUCTION TO ECONOMIC METHODS
This Note provides a brief distinction between welfare analysis and economic activity analysis and the role of these two types of analysis in decision-making.
LEGISLATIVE CONTEXT FOR ECONOMIC ANALYSIS IN EIA
Benefit Cost Analysis is the main technique that economists use to evaluate projects. This Note provides an overview of the legislative context for undertaking BCA and other types of analyses as part of the Environmental Impact Assessment process in New South Wales, Australia.