Expressing

ExpressingEnvironmental
EnvironmentalImpact
Impactin
in
Monetary
MonetaryUnits
Units
--
Environmental
EnvironmentalAccounting/Costing
Accounting/Costing
Approaches
Approaches

Georgia Institute of Technology

Systems Realization Laboratory
 Economic
EconomicMetrics
Metrics

Working
Workingwith
withcost
costas
asaaunit
unitprovides
providesdesigners
designersand
andcompanies
companiesaagood
goodguideline.
guideline.

However,
However,like
likeininLCAs,
LCAs,the
themajor
majordisadvantage
disadvantageof
ofsuch
sucheconomic
economicmetrics
metricsisisthe
thelack
lack
of hard data concerning environmental costs and profits,difficult to convert
of hard data concerning environmental costs and profits,difficult to convert
environmental
environmentalimpact
impactinindollars.
dollars.

Example: # of links to be disassembled

C = C Recollection +  {C Disassembly, i+ CReassembly, i }
i=1

# of components to be reused
+  {C Cleaning, j + C Check/Sort, j + C Reconditioning,}j
j=1

# of links to be separated # of materials

+  reprocessing, k}
{C k=1 +  {C Identification, l+
l=1
C Separation , }l

Formula only takes product retirement into account and no environmental

cost incurred during the product’s operational life.
Portions of the process costs can be assigned to the individual parts of the
product and to the linking elements between the parts.
Georgia Institute of Technology
Systems Realization Laboratory
 Economic
EconomicAssessments
Assessments
• One of the key elements of each product development process is the
economic evaluation of the design concepts.

• Environmental impacts occur over an entire product life-cycle. Hence, the

economic implications of the environmental impacts should also be assessed.

• Four methods for such economic assessment are:

– Total Cost Accounting
– Life-Cycle Costing
– Full Cost Accounting
– Environmental Life-Cycle Cost

• A good overview of terms and relevant resources can be found at

http://www.epa.gov/oppt/acctg/, for example:
– “An Introduction to Environmental Accounting as a Business Management Tool: Key
Concepts and Terms (June 1995)”. This paper presents an overview of environmental
accounting for those unfamiliar with environmental accounting. It describes what
environmental accounting is, why it is important, outlines some application options, and
presents key concepts, definitions, and issues. (EPA 742-R-95-001, pp. 39)
– Download it at http://www.epa.gov/oppt/acctg/pdf/busmgt.pdf

Georgia Institute of Technology

Systems Realization Laboratory
 Life-Cycle
Life-CycleCosting
Costing

• Eco-Design includes assessments of impacts in the product

life-cycle outside the producing company or Original
Equipment Manufacturer.

• For an economic assessment, therefore, we have to address

all the costs and benefits for which actors and participants in
a product’s life-cycle have to account for.

• This investigation of economic impact is called Life-Cycle

Costing.

• Basically, LCC is an assessment of the costs in each stage of

the life-cycle of a product.
• The different cost factors (such as capital, labor, material,
energy, and disposal) are investigated on the basis of current
and/or future costs.
Georgia Institute of Technology
Systems Realization Laboratory
 Total
TotalCost
CostAccounting
Accounting(TCA)
(TCA)

• Total Cost Accounting (TCA) was introduced in the late 1980s

with the introduction of clean production.

• The method typically focuses on in-company assessments of

cleaner production investments.

• TCA can be described as a normal, long-term oriented cost

accounting method which pays special attention to hidden,
less tangible and liability costs.
– Liability costs are fines due to liability for things as future clean-up, health
care and property damage.
– Less tangible costs are, e.g., consumer acceptance, corporate image and
external relations.
• The TCA method also focuses on the risks and hidden costs
associated with a product or activity.
Georgia Institute of Technology
Systems Realization Laboratory
 Full
FullCost
Cost Accounting
Accounting
• There is an additional category of costs that should be accounted,
namely, the social costs related to production, use, and disposal
which are not accounted for by any of the life-cycle actors or
participants.

• Societal Cost Accounting or Full Cost Accounting (FCA) could be

used to treat topics such as ozone layer depletion.
– Because nobody is directly responsible for such issues, they are TYPICALLY not
taken into account in TCA and LCC.

• The monetarization of waste streams and emissions is based on a

“willingness to pay” to avoid negative environmental effects.

• Clearly, it is difficult to estimate the current and future social

costs associated with specific products.
– The Environmental Priority System (EPS) provides a framework.
Georgia Institute of Technology
Systems Realization Laboratory
 Environmental
EnvironmentalLife-Cycle
Life-Cycle Costs
Costs

• “Environmental Life-Cycle Costs” are costs caused by the

environmental impact of the product.

• The outcome of an LCA can be used as a basis for assessing

the environmental life-cycle costs.

• The most common method is to use standard cost factors,

e.g., the costs a company has to incur to clean waste water.

• Environmental Life-Cycle Cost accounting is much narrower

than the preceding approaches.
– It only looks at the cost related to environmental aspects - a subset of total
costs.

Georgia Institute of Technology

Systems Realization Laboratory
 Life
LifeCycle
CycleAccounting/Costing
Accounting/Costing Issues
Issues
• To do a LCC, one basically has to follow the same four steps as in
an LCA, except that the outcome is a single numerical monetary
value.

• More and more companies are starting to realize the importance of

Life-Cycle Costing.
– For example, a mercury thermostat switch may be the cheapest alternative to buy,
but when one includes the costs of disposal, a solid state switch becomes more
advantageous.

• Clearly Full Cost Accounting is the broadest approach.

• Many use Activity-Based Costing (ABC) as the tool for Life-Cycle

Costing and accounting of environmental costs.

Georgia Institute of Technology

Systems Realization Laboratory
 Very
VeryImportant
ImportantIssue:
Issue: Cost
Cost versus
versusValue
Value

Cost  Value

• Example: Disposal costs of a product are smaller than the

(economic) value added in the production process.

• Focusing on “costs” only will limit the identification of

improvement opportunities!

Georgia Institute of Technology

Systems Realization Laboratory
 Another
AnotherImportant
ImportantIssue:
Issue: Different
Different types
typesof
of“Capital”
“Capital”

• In Sustainable Development, three types of capital are

recognized and should be accounted for (ideally!)
– Sustainable Development = “development that meets the needs of the present
generation without compromising the needs of future generations.”

• Financial capital
– Financial resources

Financial units are often incapable

• Natural capital or insufficient to accurately measure
– Natural resources
Natural and Social Capital.

• Social capital
– Social resources Example: What do YOU pay for the CO2
emitted from your car?

Georgia Institute of Technology

Systems Realization Laboratory