Cost-Benefit Analysis of System Transitions

The European Green Deal aims to transform the EU into a modern, resource-efficient and competitive economy, putting the EU on the path towards sustainability. Additional investment needs for sustainability transitions in the EU are substantial, particularly in the energy and transport sectors. The transition towards sustainability will also have implications for society. In this context, economic cost-benefit analysis (CBA) is a key tool that evaluates the broader societal net benefits of these transitions, by summing direct and indirect costs and benefits, and supports decision-making to improve societal welfare. This study has three objectives. Firstly, it seeks to provide insight into the application of costs-benefits analysis at EU level for sustainability transitions, with a focus on the mobility system. Evidence from quantitative studies is presented to demonstrate the impacts of policies enabling sustainability transitions and conclusions from these studies. Secondly, given the role CBA of supporting decision-making, the study provides a critical review of the methodologies used for assessing sustainability transitions. Lastly, reflecting on the findings of the study, solutions to overcome the methodological challenges of modelling these transitions are proposed. All reviewed CBAs indicate that the societal benefits of sustainability transitions assessed exceed the costs. However, there is considerable variation in environmental externalities considered across studies, highlighting the need for greater transparency and consistency. Consistent application of CBA guidelines is essential for comparability. Additionally, careful consideration of insufficient risk analysis, the complexity of system transitions, technological progress, and other path dependencies is necessary to avoid overstating costs and understating benefits. In light of both the strengths and the limitations of cost-benefit analysis in the context of sustainability transitions, it is concluded that CBA should serve as one element within a broader appraisal framework rather than as the primary decision-making criterion.