Cost-Benefit Analysis of Three Gorges Project

Cost-Benefit Analysis of Three Gorges Project

Shen Bojiu

China is working on the controversial Three Gorges project.   Are such projects economically justified?

1. Introduction
The Three Gorges Project (TGP) in China is the largest hydro project in the world.   The project was first proposed by Sun Yat-sen in 1919, and 84 years later, in 1993, the project has started its construction.   The TGP has three phases.   The first phase is from 1993, when the Yangtze River was diverted, and after it reverted in November 1997, the second phase has started.   The second phase is to complete the main body of the dam and open the permanent ship lock for navigation.   The whole project would be completed in 2008, when 26 power generators would start working, and they will be able to generate 84.9 TWh (315 PJ) of electricity annually (Wikipedia, 2006).   The TGP has been greatly debated on its’ costs and benefits.   The benefits of the dam are from the generation of electricity, flood control, and national economic enhancement, and the costs of the project would be mainly from the environmental and ecological destruction, migration and mitigation of the people affected by this project, fishery problems, water pollution on the reservoir, and loss of agricultural, archaeological sites, etc.

2. Is the TGP economically justified?

2.1. Cost Benefit Analysis (CBA) model for the TGP
A CBA model is used to examine the economical benefits for projects.   In a CBA model, the first step is to assess the major benefits and costs, and if the benefits larger than the costs, the project would be worthwhile, if the benefits are smaller, then the project would not be economically justified.   The same principle can also be applied in TGP, according to Morimoto and Hope (2001), the major benefits and costs of TGP were analyzed in a CBA model, and they have concluded that the mean and the 95th percentile of the cumulative net present value at the 5% discount rate were positive, whereas...