Economic Analysis Tools

Economic analysis is integral to ICEM’s work and is applied across the majority of our environmental and development projects. Our economists collaborate closely with ICEM’s technical teams to ensure that economic insights are rooted in ecological and social realities. For example, we work with ICEM’s GIS specialists to map how economic costs and benefits are distributed across landscapes; with biodiversity and water experts to value ecosystem services such as flood control, carbon sequestration, and groundwater recharge; and with livelihoods experts to assess value chains and community development opportunities.

Economic Valuation

Much of our work involves valuing ecosystem services and the benefits of restoration or climate adaptation interventions. ICEM employs a wide array of valuation techniques, including willingness-to-pay surveys, contingent valuation, travel cost methods, and hedonic pricing. Replacement and avoided cost approaches, often combined with hydrological and ecological modelling, enable us to demonstrate the value of ecosystem services such as flood regulation or water purification, as well as the value-added of Nature-based solutions over more conventional infrastructure.

ICEM applied an economic valuation framework to identify and value the full range of costs and benefits associated with NbS for flood management (Figure 1). The framework reflects all market and nonmarket benefits associated with NbS in urban areas including pollution reduction, water conservation, ecosystem services, biodiversity enhancement, social cohesion and climate resilience from flooding and other extreme events.

Figure 1: Economic valuation framework to identify, analyse and rank NBS for urban flood management

Cost-Benefit Analysis

We apply CBA to evaluate alternative options, weighing costs against benefits over time and under different scenarios. Drawing on various valuation techniques and contributions from ICEM’s GIS and modelling teams, we identify the most cost-effective and sustainable investments and interventions. Our analysis typically involves assessing the economic impacts of alternative Nature-based solutions, infrastructure, agricultural approaches, and climate adaptation or mitigation strategies. In addition to determining economic value, our approach to CBA enables us to assess the distribution of benefits and costs across communities, time, and space.

ICEM frequently uses economic and financial tools such as trend analysis in conducting baseline assessments of different sectors in its SEA and spatial planning work (Box 1).

Box 1: Trend and market analysis as part of the baseline assessment for the SEA of hydropower on the Mekong mainstream

The SEA baseline assessment involved gathering information on the most important markets and their development concerns and analysing their past trends and current status with projections to 2030. The main questions addressed were:

(i) What have been past trends for each of the key issues in the markets?

(ii) What will the market look like when projected to 2030?

The baseline assessment was conducted on:

Power systems
Economic systems
Hydrology & sediment regime
Aquatic systems
Fisheries
Social systems
Navigation
Climate change

The cost-benefit analysis (CBA) will take into account capital and O&M costs over the economic life of the intervention, including resilience and environmental protection benefits. This should ensure that net benefits of NBS, GI and GGI pilots are properly estimated. Like grey infrastructure, NBS/GI costs consist of initial capital costs, and ongoing costs over the life of the investment. Initial capital costs can be further broken down into financial costs (i.e. project outlays on land purchases, labour and materials) and opportunity costs (eg. the value of economic opportunities foregone, such as loss of potential agricultural output on land converted to a constructed wetland). Initial capital costs of NBS/GI investments generally outweigh ongoing costs, as illustrated in Figure 2. They tend to have lower initial capital costs but higher O&M costs, but also have a much lower replacement cost and tend to bring a greater range of benefits. For the CBA, unit costs will be obtained from a range of sources including available field surveys, existing research, previous projects and expert opinion of national and international consultants.

Figure 2: Costs of green and grey infrastructure investments (source: ICEM)

Sustainable livelihoods

We undertake value chain and financial analysis to identify and support the development of environmentally and socially sustainable business models. Value chain assessments help to identify opportunities for communities whose livelihoods depend on natural resources to increase income and resilience. Examples include developing eco-tourism models, identifying opportunities to introduce value-added activities, enhancing market access for local producers, and conducting financial analysis to assess the feasibility of ownership models and business development strategies.

Green Finance

ICEM partners with governments, communities, and development partners to develop sustainable financing strategies to mobilise resources for nature-based solutions. Strategies include developing and demonstrating mechanisms such as payments for ecosystem services (PES), carbon and biodiversity credits, and green bonds. In developing solutions, our economists will utilise ecosystem valuation techniques, spatial analysis, and access to our network of partners to develop effective financing solutions.

Integrated Planning

ICEM economists provide support to many projects to assess trade-offs between competing priorities. Nexus assessments allow us to evaluate the interconnections between water, energy, food, and ecosystems, identifying synergies, complementarities, and conflicts. Multi-criteria analysis combines economic, environmental, and social factors to guide decision-making in complex contexts. Used in conjunction with other analytical techniques, these tools help ensure that proposed interventions reflect a balanced view of costs, benefits, and risks.

Figure 3: Template for Multi-Criteria Analysis