Many companies now use environmental management systems that are formal
management accounting practices that both increase profits and reduce waste
to the environment. These formal methods range from 'life cycle analysis' to
acitivity based costing.
"An important function of environmental accounting is to bring environmental
costs to the attention of corporate stakeholders who may be able and
motivated to identify ways of reducing or avoiding those costs while at the
same time improving environmental quality." Catepiller Corp. no longer
"dumps waste disposal costs into an overhead account; rather the costs of
waste disposal are allocated to responsible commodity groups, triggering
efforts to improve the bottom line through pollution prevention."
In_Environmenta_ Compliance: Managing_the_Mandates", Manufacturing
Engineering (March 1995).
USEPA disclaimer:
"This primer refers to environmental accounting activities at several
companies in North America. These examples are by no means exhaustive of the
many laudable efforts underway to implement environmental accounting at
firms in many different industries. Moreover, by mentioning these examples,
EPA is not necessarily endorsing their approaches or terminology."
Environmental cost has two major dimensions: private costs that affect the
companies bottom line, and societal costs that do not affect the companies
bottom line.
"Many companies have discovered that environmental costs can be offset by
generating revenues through the sale of waste by products or transferable
pollution credits, or licensing of clean technologies, for example."
"Competitive advantage with customers can result from processes, products,
and services that can be demonstrated to be environmentally preferable."
"Environmental costs often can be reduced or avoided through P2 practices
such as product design changes, input materials substitution, process
re-design, and improved operation and maintenance (O&M) practices."
In two of the most thorough reports on the subject of pollution prevention
in the industrial community, the-not-for-profit group INFORM studied 29
companies in the organic chemical industry in 1985 and again in 1992. This
research found that chemical "plants with some type of environmental cost
accounting program had" an "average of three times as many" P2 projects "as
plants with no cost accounting system." The study also showed that the
average annual savings per P2 project in production facilities, where data
were available, were just over $351,000, which equalled an average savings
of $3.49 for every dollar spent. Not only were substantial savings and
returns on investment documented for P2 projects, but an average of 1.6
million pounds of waste were reduced for each project." [Cutting Chemical
Wastes (1985), INFORM, New York, NY; Environmental Dividends: Cutting More
Chemical Wastes (1992), INFORM, New York, NY.
*Environmental accounting terminology uses such words as full, total, true,
and life cycle to emphasize that traditional approaches were incomplete in
scope because they overlooked important environmental costs savings and
revenues* "Full Cost Accounting for Life Cycle Costs -- a quide for
Engineers and Financial Analyists, Paul Bailey, In_Environmental_Finance
(Spring 1991), pp.13-29.
Environmental costs may be broken down as follows:
1. Conventional costs - Global Environmental Cost Primer [GEMI] costs
"termed 'usual' or 'direct' costs, from costs taht may be obscured through
treatment as overhead or R&D, distorted through improper allocation to cost
centers, or simply overlooked, termed 'hidden', 'contingent', 'liability' or
'less tangible' costs. [potentiall hidden costs can be further broken down
into: regulatory, upfront, and voluntary [beyond compliance] costs.
Potentially hidden costs "include for example the future cost of
decommissioning a laboratory that uses licensed nuclear materials, or
replacing a storage tank used to hold petroleum..."
Contigent costs are associated with accidental releases of contaminants into
the environment.
Image and Relationship Costs:
Some environmental costs are less tangible and expected to incur subjective
[though measureable] costs. Relations with regulators, lenders, host
communities, etc. fall into this category.
Steve wrote:
>---Steven Bissell <[log in to unmask]> wrote:
Do you let the firms via
>economic
>> incentives decide when to pollute and how much? Is that a good
>solution?
>> And, I think the assumption that *all* firms pollute is nonsense.
>
>You haven't been reading my posts have you? There would be a per unit
>cost imposed on the firms. Such a cost would clearly have an impact
>on how much the firm produces and as a result the amount of pollution
>that is produced as well. This is definitely not the way things were
>done in the past. This topic (externalities) is covered in public
>finance and can be found in most texts on public finance. The
>solution theoretically is simple, you internalize the cost (benefit)
>of the externality so that the firms production decisions are now
>efficient (marginal cost=marginal benefit). In practical terms such a
>solution is hard to implement since the firms dont want to bear their
>portion of the additional cost and neither do many consumers. Not to
>mention the problems of measurment involved.
This is an example of traditional economic thought that is no longer
relevant to many potentially polluting organizations. Full cost accounting
encorporates external costs into it's assessment practices. It is standard
now in many organizations to include acitivity based costing as well. This
is a method which allocates the high overheads and indirect costs that have
accompanied rapid change in industrial production as a result of a general
reduction in labour as an activity. Thus ABC is a very effective way to
reduce waste and determine the cost of any activity so that the product
[good or service] can be priced to reflect it's input costs, or to look at
finding reduced input costs, potentially valuable for pollution prevention.
>
>As for the assumption that all firms pollute it is not nonsense, but a
>question of definitions. Externalities are caused when a firm,
>individual, or government, etc. engages in an economic activity that
>has a negative (or positive) effect on other firms, individuals, or
>both. In addition the actor that generates the externality does not
>bear (recieve) the cost (benefit) that the externality imposes on
>others. Thus, if you drive a car you are imposing an externality on
>others from the exhaust, added congestion of the roads, noise, etc.
>Even the smallest firm has some negative impact on the environment
>(the building it occupies for example). Thus, if you want no negative
>impact on the environment then you cannot have any firms.
The idea of the externalization of costs is important to any organization.
If the trends of the 60's through to the 90's are any indication of what
lies ahead for capital budgeting, business case studies, and process and
methodologies analysis is that full cost assessments will be carried out
more and more frequently not just to improve profitability but to prevent
pollution. Acitivity based costing, total cost assessment, and full cost
assessments are all being used by many very large and influential
organizations from government agencies to firms like 3M. This organizations
evaluate the social and environmental costs of nonproduct outputs that are
not born by the organization.
The USEPA, Office of Technology and Toxics, 1995, "an introduction to
Environmental Accounting as A Business Management Tool: key concepts and
Terms" [EPA 742-R-95-001]
>
>Steve
>_________________________________________________________
>DO YOU YAHOO!?
>Get your free @yahoo.com address at http://mail.yahoo.com
>
>
>
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