CHAPTER 11

ECONOMIC EVALUATION OF
POLLUTION PREVENTION PROJECTS
To discuss in this chapter:

*Total Cost Assessment of Pollution Control

and Preventing Strategies:

- Evaluating Hidden Costs

- Evaluating future liabilities

- Less tangible costs

The economic evaluation of engineering projects typically
involves estimation of:
* Equipment
* Installation
* Raw materials
* Energy
* Maintenance costs

Disposal and pollution control costs are often factored into

these calculations in determining economic rates of return,
but other regulatory and social costs are not.

>>>> Its important to consider them in the economic

analysis of pollution prevention projects too.
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
Total cost assessment of pollution control and
prevention strategies:

Types and magnitudes of costs are categorized :

Tier 0. Usual Costs

Tier 1. Hidden costs
Tier 2. Liability costs
Tier 3. Less tangible costs
Tier 4. Key Financial Measures

Catogories recommended in the Total Cost Assessment Methodology developed by the

American Institute of Chemical Engineers Center for Waste Reduction Technologies
(AIChE CWRT, 2000)
The most important tiers to discuss for economic
evaluating in pollution prevention projects are:

Tier 1. Hidden costs

Tier 2. Liability costs

Tier 3. Less tangible costs

because they are the types of costs that normally are

due to generation and emission of waste directly
Tier 0. Usual Costs

Costs normally captured by engineering economic

evaluations:

- Process equipment
- Process materials
- Direct labor
- Materials
- Suplies
- Utilities
- Structures
Tier 1. Hidden environmental costs

Administrative 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)
Tier 1. Hidden costs

In 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
Tier 2. Future Liabilities
Less 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
Tier 2. Future Liabilities
>>> These are very difficult to evaluate in a project
due:

* 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).
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 ocurr

In estimating the probability of a fine or penalty, it should

be recognized that not all process units are equally likely
to be fined
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 organizations

Source: (AIChECWRT, 2000)

Tier 2. Future Liabilities

Example:

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.
Tier 3. Less Tangible Costs

These are coss and benefits, internal to a company,

associated with improved environmental performance:

* Consumer responses
* Employee relations
* Corporate image

Such factors are even more difficult to quantitatively

evaluate than tier 1 and 2 due the three factors mentioned
in Tier 2.
Tier 3. Less Tangible Costs

Intangible cost categories and how they affect:

* Staff : productivity, morale, turnover, union negotiating

time
Poor 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
Tier 3. Less Tangible Costs

Intangible 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
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 wastes

and emissions will be far more strategic an issue than in
other sectors