1. Environment Cost Management
CHAPTER
Environment Cost Management

2. After studying this chapter, you should be able to:
Objectives
1. Discuss the importance of measuring environment costs.
2. Explain how environmental costs are assigned to products and processes.
3. Describe the life-cycle cost assessment model.
4. Compare and contrast activity- and strategic-based environmental control.
After studying this chapter, you should be able to:

3. The Benefits of Ecoefficiency
Ecoefficiency essentially maintains that organizations can produce more useful goods and services while simultaneously reducing negative environmental impacts, resource consumption, and costs.

4. Incentives and causes for increased efficiency:
1) Customers are demanding products that are environmental friendly

5. Incentives and causes for increased efficiency:
1) Customers are demanding products that are environmental friendly
2) Employees prefer to work for environmentally respective firms

6. Causes and Incentives for Ecoefficiency

7. Cost Reduction and Competitive Advantage
Customer Demand
For Cleaner Products
Cost Reduction and Competitive Advantage
Better Employees and Greater Productivity
ECOEFFICENCY
Innovations and New Opportunities
Lower Cost of Capital and Lower Insurance
Significant Special Benefits Leading to Improved Image

8. Environmental Quality Cost Model
Environmental costs are costs that are incurred because poor environmental quality exists or may exist.
Environmental costs can be classified in four categories: prevention costs, detection costs, internal failure costs, and external failure costs.

9. Classification of Environmental Costs by Activity
Prevention Activities
Evaluating and selecting suppliers
Evaluating and selecting pollution control equipment
Designing processes
Designing products
Carrying out environmental studies
Auditing environmental risks
Developing environmental management systems
Recycling products
Obtaining ISO certification

10. Classification of Environmental Costs by Activity
Auditing environmental activities
Inspecting products and processes
Developing environmental performance measures
Testing for contamination
Verifying supplier environmental performance
Measuring contamination levels
Detection Activities

11. Classification of Environmental Costs by Activity
Operating pollution control equipment
Treating and disposing of toxic waste
Maintaining pollution equipment
Licensing facilities for producing contaminants
Recycle scrap
Internal Failure Activities

12. Classification of Environmental Costs by Activity
External Failure Activities
Cleaning up a polluted lake
Cleaning up oil spills
Cleaning up contaminated soil
Settling personal injury claims (environmentally related)
Restoring land to natural state
Losing sales due to poor environmental reputation
Using materials and energy inefficiently
Receiving medical care due to polluted air (S)
Losing employment because of contamination (S)

13. Environmental Cost Report For the Year Ended December 31, 2004
Numade Corporation
Environmental Cost Report
For the Year Ended December 31, 2004
Percentage of
Environmental Costs Operating Costs
Prevention costs:
Training employees $ 60,000
Designing products 180,000
Selecting equipment ,000 $280, %
Detection costs:
Inspecting processes $240,000
Developing measures , ,
Continued

14. Percentage of Environmental Costs Operating Costs
Internal failure costs:
Operating pollution
equipment $400,000
Maintaining pollution
equipment 200,000 $ 600, %
External failure costs:
Cleaning up lake $900,000
Restoring land 500,000
Incurring property
damage claim 400, ,800,
Totals $3,000, %

15. Environmental Financial Statement For the Year Ended December 31, 2004
Numade Corporation
Environmental Financial Statement
For the Year Ended December 31, 2004
Environmental benefits:
Cost reductions, contaminants $ 300,000
Cost reductions, hazardous waste disposal 400,000
Recycling income 200,000
Energy conservation cost savings 100,000
Packaging cost reductions ,000
Total environmental benefits $1,150,000
Continued

16. Environmental Financial Statement For the Year Ended December 31, 2004
Numade Corporation
Environmental Financial Statement
For the Year Ended December 31, 2004
Environmental costs:
Prevention costs $ 280,000
Detection costs 320,000
Internal failure costs 600,000
External failure costs 100,000
Packaging cost reductions 1,800,000
Total environmental costs $1,150,000

17. Environment Product Costs
The environmental costs of processes that produce, market, and deliver products and the environmental postpurchase costs caused by the use and disposal of the products are examples of environmental product costs.

18. Full environmental costing is the assignment of all environmental costs, both private and societal, to products.

19. Full private costing is the assignment of only private cost to individual products.
Private costing is probably a good starting point for many firms.
Private costs can be assigned using data created inside the firm.

20. ABC Environmental Costing
Activities Cleanser A Cleanser B
Evaluate and select suppliers $0.20 $ 0.05
Design processes (to reduce pollution)
Inspect processes (for pollution problems)
Capture and treat chlorofluorocarbons
Maintain environmental equipment
Toxic waste disposal
Excessive materials usage
Environmental cost per unit $0.78 $ 3.80
Other manufacturing costs (nonenvironmental)
Unit cost $9.80 $20.00
Units produced 100, ,000

21. Product stewardship is the practice of designing, manufacturing, maintaining, and recycling products to minimize adverse environmental impacts.

22. Life-cycle assessment identifies the environmental consequences of a product through its entire life cycle, and then searches for opportunities to obtain environmental improvements.

23. Life-cycle cost assessment assigns costs and benefits to the environmental consequences and improvements.

24. Product-Life Cycle Stages
Raw
Materials
Controlled
by Supplier
Production
Controlled by
Manufacturer
Packaging
Product
Use and Maintenance
Recycling
Disposal
Controlled by Customer

25. Assessment Stages Inventory analysis Impact analysis
Improvement analysis

26. Inventory Analysis
Inventory analysis specifies the types and quantities of materials and energy inputs needed and the resulting environmental releases in the form of solid, liquid, and gaseous residues.

27. PAPER CUP POLYFORM CUP Materials usage per cup:
Wood and bark (g)
Petroleum (g)
Finished weight (g)
Utilities per mg of material:
Steam (kg) 9,000-12,000 5,000
Power (GJ)
Cooling water (m3)
Water effluent per mg of material:
Volume (m3)
Suspended solids (kg) trace
BOD (kg)
Organochlorides (kg) 5-7 0
Metal salts (kg)

28. PAPER CUP POLYFORM CUP Air Emissions per mg of material:
Chlorine (kg) 0.5 0
Sulfides (kg) 2.0 0
Particulates (kg)
Pentane (kg)
Recycle potential:
Primary user Possible Easy
After use Low High
Ultimate disposal:
Heat recovery (Mj/kg) 20 40
Mass to landfill (g)
Biodegradable Yes No

29. Contaminant-related resources 0.008 0.005
PAPER CUP POLYFORM CUP
Material usage $0.010 $0.004
Utilities
Contaminant-related resources
Total private costs $0.030 $0.012
Recycling benefits (societal)
Environmental cost per unit $0.029 $0.008

30. Impact Analysis
Impact analysis assesses the environmental effects of competing designs and provides a relative ranking of those effects.

31. Improvement Analysis
Improvement analysis has the objective of reducing the environmental impacts revealed by the inventory and impact steps.

32. Environmental Perspective
Five core objectives for the environmental perspectives:
Minimize the use of raw or virgin materials
Minimize the use of hazardous materials
Minimize energy requirements for production and use of the product
Minimize the release of solid, liquid, and gaseous residues
Maximize opportunities to recycle

33. NONVALUE-ADDED YEAR
ENVIRONMENTAL ACTIVITY
Inspecting processes $ 200,000 $ 240,000
Operating pollution equipment 350, ,000
Maintaining pollution equipment 200, ,000
Cleaning up water pollution 700, ,000
Property damage claim , ,000
Totals $1,750,000 $2,140,000

34. Environmental Cost Trend Graph
Environmental Costs/Sales
Periods

35. Bar Graph for Trend Analysis
CFC Emissions
100 80 60 40 20
2001
2002
2003
2004
Pounds emitted

36. Hazardous Waste Pie Chart
Treated 15.0%
Incinerated 35.0%
Recycled 5.0%
Landfilled 25.0%
Deep-well injected 20.0%
Incinerated
Treated
Recycled
Landfilled
Deep-well injected

37. Chapter Twelve
The End