Approaches to the Assessment of Ecological and Economic Efficiency of Investment Projects: Brief Review and Recommendations for Improvements

Abstract

The implementation of investment projects has an important role to play in the development of the economy and also to be in concordance with the Circular Economy concepts, as it causes not only the flows of financial and labor resources into the regional economy, but also stimulates the development of scientific and technological progress and the emergence of innovations. A comprehensive assessment is essential approach of any investment project to achieve sustainable development and to close the loop as requested be the Circular Economy through balancing between social and economic development, as well as preservation of environment. The assessment of ecological and economic efficiency of investment projects is one of the most significant stages of project implementation as it allows to uncover the potential negative effects and possible failure of the project. So far, there are no unified approaches to assessing the effectiveness of investment projects, especially its environmental component. That fact leads to a biased assessment of the impact of an investment project on the environment. The problem is caused not only by the lack of a common, internationally accepted methodology, but also by the complexity of accounting for externalities and negative financial impact. The purpose of the study is to examine and systemize existing approaches to the assessment of ecological and economic efficiency and provide recommendations for its enhancement. The article highlights two conceptual approaches to the efficiency assessment of the project and their benefits and drawbacks.

Screening of Factors for Assessing the Environmental and Economic Efficiency of Investment Projects in the Energy Sector

“…The modern agenda in the field of climate and environmental conservation and the global energy transition to low-carbon production are tightening the requirements for investment projects and their management [ 1 , 2 , 3 ]. The circular economy (CE) principles, including the availability of an effective waste management system, secondary use of waste generated for energy production or processing, and rational resource consumption, also significantly influence the justification of new projects [ 4 , 5 , 6 ]. Consequently, environmental indicators have a role to play in the decision-making process on the implementation of an investment project.…”

“…Consequently, environmental indicators have a role to play in the decision-making process on the implementation of an investment project. Current approaches for environmental and economic project evaluation are more focused on evaluation of their economic performance: environmental efficiency and the environmental impact of the project is estimated at the stage of cash flow modeling, when environmental costs and benefits from the implementation of the project and environmental protection measures are calculated [ 6 ]. In most cases, the environmental component of the project is considered for evaluating investment projects that could be conditionally classified into two groups: criteria focused on accounting estimates (PP, investment performance indicator), and criteria based on discounted estimates (NPV, PI, IRR, DPP).…”

“…Both ecological costs and pollution charges could vary considerably depending on the ecological legislation of the country and the availability of environmental technologies. That fact might lead to a reduction in the objectivity of estimations of environmental performance and makes it difficult to compare alternative investment projects [ 6 , 7 ]. For instance, a small amount of fines for pollution, due to the lack of strict environmental legislation, will have a lesser impact on economic efficiency, even if the investment project demonstrates a low level of environmental efficiency.…”

Regulations for Efficiency Assessment of Investment Projects in the Energy Sector: Brief Overview and Comparative Analysis

“…The inflows of investments and the current environmental agenda require a thorough selection of projects, taking into account both the economic and environmental pillars [10], [11]. There is no unified recognized regulatory framework for efficiency assessment of investment projects in the energy sector at present.…”

“…It is important to note that EIA is just the one of the assessment stages that includes the analysis of the potential project's impact on the environment, the consideration of the longterm consequences and costs of environmental protection measures and the analysis of other environmental costs and energy efficiency of the project [11], [16]. A significant contribution to the development and improvement of approaches to EIA is made by the International Association for Impact Assessment (IAIA) that unites specialists in the field of assessing the social and environmental impact of programs or projects on the environment [17].…”