Conventional benefit–cost analysis incorporates the normally reasonable assumption that the policy or project
under examination is marginal. Among the assumptions this entails is that the policy or project is small, so the
underlying growth rate of the economy does not change. However, this assumption may be inappropriate in
some important circumstances, including in climate-change and energy policy. One example is global targets
for carbon emissions,while another is a large renewable energy project in a small economy, such as a hydropower
dam. This paper develops some theory on the evaluation of non-marginal projects,with empirical applications to
climate change and energy. We examine the conditions under which evaluation of a non-marginal project using
marginal methods may be wrong, and in our empirical examples we show that both qualitative and large
quantitative errors are plausible.