ENVIRONMENT

COST
ASTRID RUDYANTO (1306498235)
AULYA AGUSTIN DWI ANDHINI (1306498241)
HERMAWAN SOEROSO (1306420900)

CLASS : F13/2S

Business leaders have come to talk of the
desirability of sustainable development
Sustainable development = business activity that
produce goods and service needed in the present
without limiting the ability of future generations to
meet their needs
To meet sustainable development, Eco efficiency is
needed.
Eco efficiency = increasing production while at the
same time reducing negative environmental effect,
resource consumption and costs
ISSUES
Eco efficiency
Three important messages of Eco efficiency:
1. Improving ecological and economic
performance can and should be
complementary
2. Improving environmental performance should
no longer be viewed as a matter of charity and
goodwill but as a matter of competitiveness
3. Eco efficiency is complementary to and
supportive of sustainable development
Eco efficiency
Eco efficiency implies that increased efficiency comes
from improving environmental performance:
1. Customer wants cleaner products
2. Employees prefer to work for environmentally
responsible firms
3. External benefits, such as lower cost of capital
4. Social benefits
5. A need to innovate and search for new opportunities
6. Competitive advantage
Three pillars of sustainability:
1. People
2. Planet
3. Profits
TRIPLE BOTTOM LINE
Environment cost
Environmental cost = costs that are incurred
because poor environmental quality exists
or may exists
ENVIRONMENTAL SIRCUMTANCE
1. NATURAL ENVIRONMENT
2. ECONOMIC ENVIRONMENT
3. SOCIAL ENVIRONMENT
4. POLITICAL ENVIRONMENT
5. CULTURAL ENVIRONMENT
Categories of Environment Cost
1. Prevention cost = cost of activities to prevent the
production of contaminants that could cause
damage to environment
Ex: evaluating and selecting equipment to
control pollution
2. Detection cost = cost of activities executed to
determine if products, processes, and other
activities within the firm are in compliance with
appropriate environmental standards
Ex: auditing environmental activities,
inspection
3. Internal failure cost = costs of activities
performed because contaminants and waste
have been produced but not discharged into
the environment

Goal: ensure these contaminants are not released
and reduce level of contaminants to
acceptance level
Ex: treat and dispose toxic materials, maintain
pollution equipment, recycle scrap
Categories of Environment Cost
4. External failure cost = costs of activities performed
after discharging contaminants and waste into
environment
Consists of:
Realized external failure (private) = incurred and
paid by firm. Ex: clean up polluted lake
Unrealized external failure (social) = incurred by
firms, paid by public. Ex: losing a lake for
recreational use

Categories of Environment Cost
Source: Hansen et al., 2009, Management accounting and control 6
th

ed, USA: South-Western Cengage Learning
Environment Cost Classification
Private vs social environmental cost
Private = borne by company
Social = borne by public

Visible vs hidden environmental cost
Visible = known and clearly identified as tied
to environmental issues
Hidden = caused by environmental issues but
have not been so identified
Ronald Hilton
Environment Cost Classification
1. Conventional Cost
2. Hidden Cost
3. Contingent Cost
4. Image Cost
5. Social Cost
EPA
Environment Cost Classification
1. Internal Environmental Cost

2. External Environmental Cost

SCHALTEGGER
Environment Cost Classification
1. Direct Environmental Cost

2. Indirect Environmental Cost

ACCOUNTING
REPORTING
Internal: should be reported as a separate
classification so manager can assess their
impact on firm profitability responsibility
accounting
External: could be mandatory (regulation and
continuous improvement process based on
environmental management system)
Reporting of the environmental performance of
a company cannot be achieved with the level
of accuracy without implementing an
Environmental Management System

Source: http://www.airbus.com/company/environment/documentation/
?eID=dam_frontend_push&docID=4036
Environment Financial Statement
Environmental financial statement consists of
environment benefit and environment cost.

Environment benefit:
1. Income = revenues that flow to organization due to
environmental action, ex: recycling paper
2. Current saving = reduction in environmental cost
achieved in current year
3. Cost avoidance = ongoing saving produced in
prior years

Example: BAXTER 2012

Source: Hansen et al., 2009, Management accounting and control 6
th
ed, USA:
South-Western Cengage Learning
Example


Berikut ini adalah daftar biaya PT Save the Earth untuk tahun 2010 :

Costs Amount (USD)
Testing for contamination
1,600,000
Measuring contamination levels 1,100,000
Auditing environmental activities 2,000,000
Inefficient materials usage 1,800,000
Restoring land to to natural state 3,400,000
Losing sales due to poor environmental reputation 2,500,000
Medical care due to polluted air 800,000
Maintaining pollution equipment 2,700,000
Recycling scrap 750,000
Recycling products 800,000
Performing environmental studies 680,000
Training (enviromentally related) 970,000
Penjualan tahun 2010 adalah sebesar $ 250,000,000 dengan total biaya operasi sebesar 30% dari
penjualan.
Berdasarkan data diatas,
- Buatlah Environmental Cost Report PT Save the Earth untuk tahun 2010
- Hitung persentase masing-masing kategori environmental cost terhadap total biaya operasi
PT Save the Earth
Environmental Cost Report
For the Year Ended December 31, 2010
Environmental Costs
Percentage of
Operating Costs
Prevention Costs
Recycling products $ 800,000
Performing environmental studies 680,000
Training (enviromentally related) 970,000 $ 2,450,000 3.27%
Detection Costs
Testing for contamination $ 1,600,000
Measuring contamination levels 1,100,000
Auditing environmental activities 2,000,000 4,700,000 6.27%
Internal Failure Costs
Maintaining pollution equipment $ 2,700,000
Recycling scrap 750,000 3,450,000 4.60%
External Failure Costs
Inefficient materials usage $ 1,800,000
Restoring land to to natural state 3,400,000
Losing sales due to poor environmental reputation 2,500,000
Medical care due to polluted air 800,000 8,500,000 11.33%
TOTALS $ 19,100,000 25.47%
Assigning Environmental Costs
Products and processes are sources of
environmental cost
Environmental product costs = environmental cost
of processes that produce, market, and deliver
products and the environmental post purchase
costs caused by the use and disposal of products

Type of environmental product costs:
Full environment costing = private and social
Full private costing = private
Functional based environmental cost assignments
1. Separated into cost pool
2. Assign to individual product using unit-level
drivers
3. Activity based environmental cost assignments

Assigning Environmental Costs
Life-cycle Cost Assessment
As the firm gains experience with environmental
costing, it is advised to expand product cost
assignment and implement life cycle cost assessment

Life-cycle assessment identifies the environmental
consequences of a product through its entire life cycle
and then search for opportunities to obtain
environmental improvements

Life-cycle cost assessment assigns cost and benefits to
the environmental consequences and improvements

Stages of life cycle assessment:
1. Inventory analysis = type and quantity of materials
and other inputs needed and resulting environmental
released
2. Impact analysis = environment effect of competing
design and its ranking
3. Improvement analysis = reducing environmental
effects revealed by inventory and impact analysis
Life-cycle Cost Assessment
CASE
Pupuk Kaltim is the biggest Urea fertilizer
manufacturer in Indonesia, in addition to producing
ammonia and NPK fertilizer. Pupuk Kaltim provides
national need of fertilizer both for the subsidized or
non-subsidized sector. In its activities, Pupuk Kaltim
emphasizes the importance of running an eco-
friendly industry that would provide added values to
the surrounding communities. Pupuk Kaltim is a
subsidiary of PT. Pupuk Indonesia (Persero).

ENVIRONMENTAL PERFORMANCE
Pupuk Kaltim recognizes the importance of the National
park to preserve the balance of the ecosystem and
protect biodiversity

Environmental Responsibility
Pupuk Kaltim is fully aware that its business activities
affect the surrounding environment.
The obvious impact of Pupuk Kaltims industrial
activities is the emergence of effluents, solid wastes,
gas emissions, and greenhouse gases.
Pupuk Kaltim also realizes that industrial activities
require a large amount of energy and water.
Therefore Pupuk Kaltim is trying to conserve its energy
and water usage.
ENVIRONMENTAL PERFORMANCE
Environmental Responsibility

Pupuk Kaltim has applied and obtained the ISO
14001:2004 Environmental Management System
certification in order to minimize the negative
impacts of its production activities on the
environment, conserve natural resources utilized in
the production process, and protect the
biodiversity in the environment surrounding the
Company.
Environmental Management Program
1. Compiling Amdal or EIA (Environmental Impact
Assessment)
2. Implementing the Environmental Management Plan or RKL
and Environmental Monitoring Plan or RPL, and reporting
them on a quarterly basis to relevant institutions.
3. Performing software application study of gas emissions
from ammonia and urea plants by independent external
parties. The results of this study will be used as the basis for
establishing a policy to reduce greenhouse gas emissions
and other significant emissions.
4. Replacing all refrigerants that contain ozone-depleting
substances with eco-friendly materials.
5. Replacing light bulbs used in the Companys premises with
more energy-efficient bulbs.
6. Encouraging employees to reduce electricity and water
usage.
7. Equipping new plants with energy-efficient technologies
to replace the old plants.
Energy and Material Usage
The primary raw material is natural gas.
The average rate of natural gas consumption per
ton of ammonia in 2012 was 37.55 mmbtu/ton, 1%
lower compared to the average rate of natural
gas consumption in 2011, which was 38.02
mmbtu/ton. Meanwhile, average rate of gas
consumption per ton of urea in 2012 was 28.79
mmbtu/ton, 2% lower than the average rate of
natural gas consumption in 2011, which was 29.3
mmbtu/ ton.
In its production processes, Pupuk Kaltim did not
use indirect energy sources since the entire
energy requirement is fully met by the power
plants in Pupuk Kaltims premises
Conservation Programs
1. Replacement of refrigerants with more
environmentally-friendly and energy efficient ones.
2. Replacement of light bulbs with more energy
efficient ones in the Companys premises.
3. Installation of kWh meter for panel lighting in plants
and residential areas.
4. Installation and application of solar cells in the
employee residential areas for garden lighting and
traffic lights.
5. In 2012, Pupuk Kaltim produced approximately 3,125
liters of biofuel from used cooking oil, which was
subsequently used in fuel mixture/substitution
experiments involving diesel engine vehicles, at a
proportion of maximum 5%.
Waste Management
Pupuk Kaltim has obtained permission for
discharging effluents into the sea from the Ministry
of Environmental Affairs
The monitoring of effluent discharges throughout
2012 shows that Pupuk Kaltims effluents are all
compliant with the quality standards set by the
Government