Quantification of economic benefits from a resilient infrastructure

2 min read

Resilience is a concept that indicates the ability to adapt and recover from the impacts of a crisis. It is a key concept in tackling climate change and the overcrowding of our cities. Achieving resilient cities that maintain their functionality in the face of a changing situation is a challenge that involves significant investments. In this context, a resilient infrastructure reduces the environmental impact of the life cycle by providing direct economic benefits. It has lower operating and maintenance costs, slower depreciation and generates higher asset values. It also has positive social impacts, such as improved health and productivity. 

The social and environmental benefits seem clear, but how can we quantify the economic benefits of implementing a resilient urban infrastructure?

The profit we can equate to profitability in terms of economic efficiency. In 2011 was published "Greeneconomy. Pathways to Sustainable Development and Poverty Eradication” by UNEP (United Nations Environment Programme). It develops the term "green economy", key to the agenda "Rio+20" as objective of sustainable development. The European Union is implementing Directive 2010/31/EU, which sets out the cost-effectiveness of energy in terms of economic efficiency. Guidelines 2012/C 115/01 accompanying Delegation Regulation (EU) 244/2012 indicate that the optimal cost-effectiveness will be determined by means of economic-financial assessment instruments establishing the impact of the project over its lifetime. This is based on the "circular economy" culture that makes possible a new scenario as opposed to the traditional linear model.

Whole Life Cost (WLC) is an analytical tool that allows the integral evaluation of a system in a circular model, combining social, environmental and economic factors, allowing It allows the analysis of the advantages or disadvantages of an investment by evaluating its costs and benefits. It compares different alternatives, defining the economic impacts produced during the lifetime of the asset (positive or negative).  It includes the impacts of dismantling, waste management and recovery, as well as recycling to restart the manufacturing process of a new element. It also includes technical and environmental performance. It involves assessing the sustainability of new options in terms of economic efficiency and cost-effectiveness compared to standard solutions.

The basic elements of a cost-benefit analysis are the time horizon, the investment costs, the operating, operating, maintenance and decommissioning costs, the costs of the environmental impacts produced at each stage, the revenues generated, residual values, risks incurred, discount rate, and performance indicators. These flows include costs and benefits related to externalities or intangibles, such as those related to the health and well-being of users. WLC is a dynamic model. Financial analysis makes it possible to convert future costs and revenues into current values. This allows a homogeneous accounting of cash flows. The most favourable proposal is the one that results in the lowest net present value. The benefit of implementing a given solution is matched by the difference between the net present values of the alternatives compared. Other elements of comparison are, the lower pay-back, or the maximum profitability of the project.

The incorporation of optimal cost as a variable in sustainable public procurement policies has been encouraged by the European Union in European Parliament and Council Directives 2014/23/EU and 2014/24/EU. The Spanish Government has therefore incorporated this criterion for the selection of proposals into Law 9/2017 of 8 November on Public Sector Contracts.