ECONOMIC EVALUATION OF POLLUTION PREVENTION PROJECTS

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ECONOMIC EVALUATION OF POLLUTION PREVENTION
PROJECTS
CHAPTER 11
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To discuss in this chapterTotal Cost
Assessment of Pollution Controland Preventing
Strategies- Evaluating Hidden Costs-
Evaluating future liabilities- Less tangible
costs
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The economic evaluation of engineering projects
typically involves estimation of Equipment
Installation Raw materials Energy
Maintenance costsDisposal and pollution control
costs are often factored into these calculations
in determining economic rates of return, but
other regulatory and social costs are not.gtgtgtgt
Its important to consider them in the economic
analysis of pollution prevention projects too.
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Also corporate image and relationships with
workers and communities can suffer if
environmental performance is substandard.Now,
companies are giving more consideration to all
significant sources of environmental costs.
Costs properly accounted gtgtgt superior
environmental performance
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Total cost assessment of pollution control and
prevention strategiesTypes and magnitudes of
costs are categorized Tier 0. Usual CostsTier
1. Hidden costsTier 2. Liability costsTier 3.
Less tangible costsTier 4. Key Financial
MeasuresCatogories recommended in the Total
Cost Assessment Methodology developed by the
American Institute of Chemical Engineers Center
for Waste Reduction Technologies (AIChE CWRT,
2000)
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The most important tiers to discuss for economic
evaluating in pollution prevention projects
areTier 1. Hidden costsTier 2. Liability
costsTier 3. Less tangible costsbecause they
are the types of costs that normally are due to
generation and emission of waste directly
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Tier 0. Usual CostsCosts normally captured by
engineering economic evaluations- Process
equipment- Process materials- Direct labor-
Materials- Suplies- Utilities- Structures
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Tier 1. Hidden environmental costsAdministrative
and regulatory environmental costs not normally
assigned to individual projects- Monitoring of
waste (off-site waste management charges, waste
treatment, inspection hazardous waste storage,
sampling, etc)- Paperwork (reporting on PP
plans, filling out hazardous waste manifests,
etc)- Permit requirement (filling for permits,
etc)
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Tier 1. Hidden costsIn example, in a
evaluation of the hidden costs associated with a
replacement of an environmentally hazardous
material with a more benignCosts that can be
evaluated (associated with the generation and
emissions) Waste taxes Fees
Monitoring analysis of waste
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Tier 2. Future LiabilitiesLess tangible set of
costs Compliance obligations Remediation
obligations Fines and penalties Obligations
to compensate private parties for personal
injury, property damage, and economic loss
Punitive damages Natural resource damages
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Tier 2. Future Liabilitiesgtgtgt These are very
difficult to evaluate in a projectdue It is
impossible to know, with certainty, whether a
particular waste stream will result in liability
and when the liability will ocurr. Cost
estimation can be based on experiencies with
other plants failures in average (of the same
matter).
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Tier 2. Future Liabilities Due the uncertaity
associated with estimates of future liabilities
these are evaluated qualitatively instead of
quantitatively in three distinct parameters-
The probability that an event will ocurr- The
costs associated with the event- When the event
will ocurrIn estimating the probability of a
fine or penalty, it should be recognized that not
all process units are equally likely to be fined
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Tier 2. Future Liabilities Factors
influencing the probability of a fine or penalty
include- The extend that spill control
measures will be in place- The history and
reputation of the plant or company- The local
culture and visibility of the operation to
non-governmental organizationsSource
(AIChECWRT, 2000)
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Tier 2. Future LiabilitiesExampleIf the goal
is to estimate the expected value of a civil fine
or penalty, the likelihood that a fine will be
assesed and the likely magnitude of that fine
must be calculatedIf the probability of a fine
being assesed is 0.1 (1 chance in 10) per year
and the likely magnitude of the fine is 10,000,
the expected annual cost due to fines would be
1000.
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Tier 3. Less Tangible CostsThese are coss and
benefits, internal to a company, associated with
improved environmental performance Consumer
responses Employee relations Corporate
imageSuch factors are even more difficult to
quantitatively evaluate than tier 1 and 2 due the
three factors mentioned in Tier 2.
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Tier 3. Less Tangible CostsIntangible cost
categories and how they affect Staff
productivity, morale, turnover, union negotiating
timePoor environmental performance due workplace
conditions, illness, lower productivityMarket
Share negative enmironmental incidents to loss
in market share License to operate, are costs
associated with issues such as delays in
receiving permits
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Tier 3. Less Tangible CostsIntangible cost
categories and how they affect Investor
relationships costs are reflected in stock
price Lender relationships costs are
reflected in bond ratings Community and
regulator relationships that are related to
licence to operate
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The expenditures are not ditributed uniformly
among industry sectors. Petroleum refining
Chemical manufacturing- They spend much higher
fractions of their net sales and capital
expenditures on pollution abatement than other
industrial sectors.gtgtgtgtgt Therefore, minimizing
costs by prevening wastes and emissions will be
far more strategic an issue than in other sectors