Long-Term Effects Evaluation for Investments in the Energy and Water Sectors

The rapid economic and demographic growth of recent decades, together with the rising living standards and the unplanned urbanization process, have caused a disproportionate use of water and energy resources. This requires methodologies to support the decision-making processes capable of establishing sustainable actions and strategies. Therefore, in the Cost–Benefit Analysis (CBA) of investment projects, it is of increasing interest to also consider the extra-financial effects that are generated. For such effects, conventional discount procedures are often inadequate, especially when intergenerational environmental effects need to be assessed. This paper proposed a model that differently discounts the economic effects and environmental impacts that projects in the water and energy sectors determine. The model outlines a declining structure for both of the economic discount rate and the environmental discount rate. The main novelty of the model lies in the introduction of environmental quality into the logical-mathematical estimation scheme. Environmental quality is expressed according to the indicators that contribute to the Environmental Performance Index (EPI). The use of dual and declining discounting procedures makes it possible to give greater weight to environmental externalities, orienting guiding the decision-maker towards more sustainable investment choices.