“General RIA Training” 6–8 July 2009 EuropeAid/125317/D/SER/TR Session 8 Basic RIA Concepts and Methods

Objectives By the end of this session participants should understand how to: Identify impacts Analyse impacts Compare options and recommend intervention

3 RIA Informs Decision Governments should not act unless the results (benefits) are worth the cost Governments should find the lowest cost solution to solve problems Impacts (benefits and costs) must be sufficiently clear to identify better and worse solutions

Impact Indicators Spectrum of Impacts: Economic Social Environmental Features of Impacts: Positive or negative (costs and benefits) Large or small Long term or short term Distributional

Economic: Business Investment Employment Environmental: Environmental quality Renewable resources Biodiversity Social: Health Gender Rural Education Livelihoods Economic, Social and Environmental Impacts

Positive and Negative Impacts Benefits: may be either gains or losses restored Costs: may be either losses or gains forgone

Example of Costs: UK Minimum Rules for the Protection of Chickens Kept for Meat Capital costs Ongoing costs Training costs Administrative costs to producer Costs to government: information, inspection, enforcement Environmental costs (negligible)

Example of Benefits: UK Minimum Rules for the Protection of Chickens Kept for Meat The welfare of broilers: –Stocking density - reduced –Footpad lesions - reduced –Ventilation - increased –Period of darkness - increased Public good –According to scientific reports high stocking density, stress, etc. may facilitate emergence and spread of diseases, including highly pathogenic avian influenza viruses with public health implications

Large or Small Impacts Proportionality principle: Focus on relatively large impacts (impacts that affect many people, major stakeholders etc.) The more significant the impacts are likely to be, the more detailed the assessment of the impacts should be

Example: UK RIA on Enabling Electronic Communication of Building Control Documents

Uzun veya kısa vadeli etkiler Bir kereye mahsus etki (örneğin idari kapasiteye yatırım) Kısa vadeli etkiler (geçici değişikliğe bağlı olarak) Uzun vadeli veya daimi etkiler (örn.: kamu alanlarında sigara yasağına bağlı olarak daimi yıllık faydalar )

Dağılımsal Etkiler: AB Rehberi Farklı sosyal ve ekonomik gruplar üzerindeki etkiler: Bir opsiyonun “kazananları” ve “kaybedenleri”ni tanımlayarak, opsiyonun engellerini bulmaya yarayabilir ve olumsuz etkileri yok edilmesi için olasılıklar değerlendirilir. Örneğin, bir öneri tüketiciler için faydalı olabilir ancak üreticilere ciddi maliyetler getirebilir. Varolan eşitsizliklere etkiler: Örn.: Savunmasız gruplar veya farklı bölgelere etkileri inceleyerek varolan eşitsizliklere nasıl etkileyeceğine bakınız

Maliyet Fayda Analizi (CBA) = Faydalar - Maliyetler Genel olumlu ompares overall negative and positive impacts to ask IF options should be considered based on whether they produce more benefits than costs Cost Effectiveness Analysis (CEA) = Compares costs per metric of benefit for different options and asks WHAT KIND of action should be taken to maximize results per unit cost Costs Effects (lives saved, etc.) Politika Analizi Karar verme kriterlerini destekler

Costs (€)No. of injuries per year prevente d Cost per injury prevente d Option 14,000,001, Option 25,000,001, Option 37,000,002, CEA Example: Reduction of Injuries in Minibuses

Three Elements of CBA Identification of potential benefits and costs Quantification and valuation of costs and benefits Spread of costs and benefits over time

Identification of Costs and Benefits Set baseline (assess existing situation as impacts would be changes from this situation) Consider ‘Do nothing option’ (enables to understand if intervention is necessary and allows better comparison of options) Avoid double counting (avoid adding together distributional effects)

Quantification and Valuation Whenever possible, quantify (measure) impacts using different metrics (kilos, metres etc) Whenever possible, value impacts in a single metric to enable adding them together and easy comparison Monetary valuation is also referred to as ‘market valuation’ or ‘economic valuation’ If there is no market value, estimate the ‘willingness to pay’ (or ‘willingness to accept compensation’)

Spread of Costs and Benefits over Time The value of €1 received tomorrow is less than the value of €1 received today Individuals expect to receive a rate of interest on savings to compensate for giving up consumption today. Using this rate to convert future value into equivalent value today is called discounting. This enables comparison of benefits and costs that occur in different time periods Example: Requirements for construction materials to be produced in To comply, companies invest €100 million this year. Expected benefits in 2014 = €120 million. Net benefit = €20 million. However, if 10% interest, present value of benefits = €82 million. Net loss = €18 million

Qualitative Weighting Where it is difficult to value impacts, describe them by looking at other impact measures You might provide information such as: –how many people will be affected –what type of people might be affected –the nature and impact of the effects Effects may be categorized as ‘small’, ‘medium’ or ‘large’ to compare and weight various impacts

AdvantagesDrawbacks Status Quo 1. Maintains production and income in the majority of regions, although the level of both gradually decreases 2. Progressively decreases the budget cost of the regime 3. Maintains current benefits to ACP/EBA countries 1. Delays restructuring and improved competitiveness of the sector 2. Attracts non-restricted quantities of imports, under preferential agreements, at non- competitive prices, to the EU market which threaten continued EU production in the long run 3. Maintains distortions in competition 4. Maintains inequalities among farmers 5. Trade balance is very sensitive to the removal of the safeguard clause and the abolition of C sugar 6. Complicates the EU's WTO negotiating position 7. The common market organization for sugar remains complex and non-transparent. Qualitative Presentation: EC Sugar Quotas IA

AdvantagesDrawbacks Price Fall 1. Facilitates restructuring and improved competitiveness of the sector. 2. Reduces production surpluses and world market distortion. 3. Reduces distortions in competition. 4. Reduces inequalities among producers. 5. Reduces cost to consumers and users. 6. Promotes diversification in the market for sweeteners. 7. Facilitations WTO negotiations. 8. Promotes application of cross-compliance. 9. Reduces budget cost of the regime slightly. 1. Producer incomes fall. 2. Revenue of ACP countries falls. 3. Cost of possible accompanying measures for restructuring Qualitative Presentation: EC Sugar Quotas IA

Qualitative Presentation: UK RIA on Implementation of EU Directive on Maximum Levels of Organochlorine Compounds in Animal Feed

Qualitative presentation: EU Postal Services (2006)

Quantitative presentation: UK RIA for Directive on Minimum Rules for the Protection of Chicken Kept for Meat

Quantitative presentation: UK RIA for Directive Laying Down Minimum Rules for the Protection of Chicken Kept for Meat

Combining Quantitative and Qualitative Presentations Example: UK RIA on Gambling Act Source: Option 1 Retaining the status quo Option 2 Implement the Gambling Act 2005 Total cost per annum No additional costs £1.9 – 2.6m Total benefit per annum No additional benefits Greater employment opportunities Higher revenue generation as a result of additional websites being based in the UK and non-UK residents visiting UK-based websites Improved regulation Better choice, information and safeguards for customers Other costsVoluntary contributions to the Responsibility In Gambling Trust Additional software to protect the vulnerable and prevent crime Training to identify problem gambling

Presenting Results and Recommendation: Decision Criteria Assessment of costs and benefits informs decision and provides evidence for recommended option Do the benefits justify the costs? Is the approach the least costly option for achieving the objective?

Presenting Results and Recommendation Result of assessment should be clearly described and explained in RIA Sources of evidence should be provided to build credibility Quantify as many impacts (costs and benefits) as possible Present results in tabular form: show positive impacts (benefits) and negative impacts (costs) separately and, if possible, net benefits are calculated Present separately any significant distributional impact