ECONOMIC EVALUATION OF POLLUTION PREVENTION PROJECTS

1. ECONOMIC EVALUATION OF POLLUTION PREVENTION PROJECTS CHAPTER 11

2. To discuss in this chapter:*Total Cost Assessment of Pollution Controland Preventing Strategies:- Evaluating Hidden Costs- Evaluating future liabilities- Less tangible costs

3. 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.>>>> It’s important to consider them in the economic analysis of pollution prevention projects too.

4. 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 >>> superior environmental performance

5. Total cost assessment of pollution control and prevention strategies:Types 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)

6. The most important tiers to discuss for economic evaluating in pollution prevention projects are:Tier 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

7. Tier 0. Usual CostsCosts normally captured by engineering economic evaluations:- Process equipment- Process materials- Direct labor- Materials- Suplies- Utilities- Structures

8. 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)

9. Tier 1. Hidden costsIn example, in a evaluation of the hidden costs associated with a replacement of an environmentally hazardous material with a more benign:Costs that can be evaluated (associated with the generation and emissions):* Waste taxes * Fees * Monitoring & analysis of waste

10. 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

11. Tier 2. Future Liabilities>>> 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).

12. 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

13. 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)

14. Tier 2. Future LiabilitiesExample:If 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 calculated:If 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.

15. 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.

16. 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 productivity*Market Share: negative enmironmental incidents to loss in market share* License to operate, are costs associated with issues such as delays in receiving permits

17. 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

18. 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.>>>>> Therefore, minimizing costs by prevening wastesand emissions will be far more strategic an issue than in other sectors