2After studying this chapter, you should be able to: Objectives1. 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:
3The 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.
4Incentives and causes for increased efficiency: 1) Customers are demanding products that are environmental friendly
5Incentives and causes for increased efficiency: 1) Customers are demanding products that are environmental friendly2) Employees prefer to work for environmentally respective firms
7Cost Reduction and Competitive Advantage Customer DemandFor Cleaner ProductsCost Reduction and Competitive AdvantageBetter Employees and Greater ProductivityECOEFFICENCYInnovations and New OpportunitiesLower Cost of Capital and Lower InsuranceSignificant Special Benefits Leading to Improved Image
8Environmental 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.
9Classification of Environmental Costs by Activity Prevention ActivitiesEvaluating and selecting suppliersEvaluating and selecting pollution control equipmentDesigning processesDesigning productsCarrying out environmental studiesAuditing environmental risksDeveloping environmental management systemsRecycling productsObtaining ISO certification
10Classification of Environmental Costs by Activity Auditing environmental activitiesInspecting products and processesDeveloping environmental performance measuresTesting for contaminationVerifying supplier environmental performanceMeasuring contamination levelsDetection Activities
11Classification of Environmental Costs by Activity Operating pollution control equipmentTreating and disposing of toxic wasteMaintaining pollution equipmentLicensing facilities for producing contaminantsRecycle scrapInternal Failure Activities
12Classification of Environmental Costs by Activity External Failure ActivitiesCleaning up a polluted lakeCleaning up oil spillsCleaning up contaminated soilSettling personal injury claims (environmentally related)Restoring land to natural stateLosing sales due to poor environmental reputationUsing materials and energy inefficientlyReceiving medical care due to polluted air (S)Losing employment because of contamination (S)
13Environmental Cost Report For the Year Ended December 31, 2004 Numade CorporationEnvironmental Cost ReportFor the Year Ended December 31, 2004Percentage ofEnvironmental Costs Operating CostsPrevention costs:Training employees $ 60,000Designing products 180,000Selecting equipment ,000 $280, %Detection costs:Inspecting processes $240,000Developing measures , ,Continued
14Percentage of Environmental Costs Operating Costs Internal failure costs:Operating pollutionequipment $400,000Maintaining pollutionequipment 200,000 $ 600, %External failure costs:Cleaning up lake $900,000Restoring land 500,000Incurring propertydamage claim 400, ,800,Totals $3,000, %
15Environmental Financial Statement For the Year Ended December 31, 2004 Numade CorporationEnvironmental Financial StatementFor the Year Ended December 31, 2004Environmental benefits:Cost reductions, contaminants $ 300,000Cost reductions, hazardous waste disposal 400,000Recycling income 200,000Energy conservation cost savings 100,000Packaging cost reductions ,000Total environmental benefits $1,150,000Continued
16Environmental Financial Statement For the Year Ended December 31, 2004 Numade CorporationEnvironmental Financial StatementFor the Year Ended December 31, 2004Environmental costs:Prevention costs $ 280,000Detection costs 320,000Internal failure costs 600,000External failure costs 100,000Packaging cost reductions 1,800,000Total environmental costs $1,150,000
17Environment 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.
18Full environmental costing is the assignment of all environmental costs, both private and societal, to products.
19Full 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.
20ABC Environmental Costing Activities Cleanser A Cleanser BEvaluate and select suppliers $0.20 $ 0.05Design processes (to reduce pollution)Inspect processes (for pollution problems)Capture and treat chlorofluorocarbonsMaintain environmental equipmentToxic waste disposalExcessive materials usageEnvironmental cost per unit $0.78 $ 3.80Other manufacturing costs (nonenvironmental)Unit cost $9.80 $20.00Units produced 100, ,000
21Product stewardship is the practice of designing, manufacturing, maintaining, and recycling products to minimize adverse environmental impacts.
22Life-cycle assessment identifies the environmental consequences of a product through its entire life cycle, and then searches for opportunities to obtain environmental improvements.
23Life-cycle cost assessment assigns costs and benefits to the environmental consequences and improvements.
24Product-Life Cycle Stages RawMaterialsControlledby SupplierProductionControlled byManufacturerPackagingProductUse and MaintenanceRecyclingDisposalControlled by Customer
26Inventory AnalysisInventory 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.
27PAPER 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 5,000Power (GJ)Cooling water (m3)Water effluent per mg of material:Volume (m3)Suspended solids (kg) traceBOD (kg)Organochlorides (kg) 5-7 0Metal salts (kg)
28PAPER CUP POLYFORM CUP Air Emissions per mg of material: Chlorine (kg) 0.5 0Sulfides (kg) 2.0 0Particulates (kg)Pentane (kg)Recycle potential:Primary user Possible EasyAfter use Low HighUltimate disposal:Heat recovery (Mj/kg) 20 40Mass to landfill (g)Biodegradable Yes No
29Contaminant-related resources 0.008 0.005 PAPER CUP POLYFORM CUPMaterial usage $0.010 $0.004UtilitiesContaminant-related resourcesTotal private costs $0.030 $0.012Recycling benefits (societal)Environmental cost per unit $0.029 $0.008
30Impact AnalysisImpact analysis assesses the environmental effects of competing designs and provides a relative ranking of those effects.
31Improvement AnalysisImprovement analysis has the objective of reducing the environmental impacts revealed by the inventory and impact steps.
32Environmental Perspective Five core objectives for the environmental perspectives:Minimize the use of raw or virgin materialsMinimize the use of hazardous materialsMinimize energy requirements for production and use of the productMinimize the release of solid, liquid, and gaseous residuesMaximize opportunities to recycle