Presentation on theme: "Cost Benefit Analysis of the Three Gorges Dam"— Presentation transcript:
1 Cost Benefit Analysis of the Three Gorges Dam Risako Morimoto and Chris Hope
2 Methodology Goals: Calculate present value of costs and benefits Examine uncertainty.Method:Quantify each effect (e.g. kwhrs of electricity).Value each effect (e.g. determine its price)Sum discounted benefits minus costs
3 Direct CostsConstruction costs of the power station and transmission facilitiesOperation and maintenance costLost land from inundation (reservoir)
4 Indirect CostsResettlement costs (including compensation and development costs)Lost archaeological sitesPossible accident costs (during construction, operation and maintenance)
5 Environmental CostsAesthetic loss due to reduction in water flow Sedimentation- lower power generation Decline in fish catch downstream Downstream pollution caused by dam construction
6 BenefitsPower generation Economic growth (avoided economic losses from power shortages) Avoided damages from air pollution (from coal) Flood control Navigation improvement
7 UncertaintyKey Parameters: Electricity generated, economic growth per kwhr, decay of electricity from sedimentation, loss of archeological sites, etcAllow parameters to vary and explore sensitivity
8 ElectricityWhat is capacity (GC) of dam? What is the electricity price (EO)? How will sedimentation reduce electricity over time (A)?
10 AnalysisUse best guess of parameters and calculates annual costs and benefits. Examines many different assumptions about parameters and calculate a distribution of NPV. Discounts values back to current using 5% discount rate
11 Calculate Flood Benefits Calculate frequency of flooding before damCalculate economic damage and health effects of each floodCalculate expected flooding damage per yearIf dam eliminates flooding, then benefit is damages avoided
13 Uncertainty ResultsThe 5th percentile, mean, and the 95th percentile of the cumulative NPV with a 5% discount rate95th Percentile runMean run5th Percentile run
14 ResultsThe final NPV values are –114, 424, and 1321 billion Yuan for the 5th percentile, mean and 95th percentile runs. The cumulative NPV is initially negative due to the large upfront construction and resettlement costs. As electricity starts to flow, NPV improves. Electricity at end of project matters less than in early stages. If climate change reduces electricity at end, it would have only a small effect on NPV.
15 Discussion Measures direct costs and benefits well Incorporates uncertaintyDoes not measure damages associated with coal- undervalues electricity priceAssumes growth limited by electricity- probably not true-over values electricity