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EE08

EE08

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Published by Arina Farihan Azhar

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Published by: Arina Farihan Azhar on Dec 08, 2011
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05/04/2012

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Chapter 8

Assessing Costs for Environmental Decision Making

© 2004 Thomson Learning/South-Western

Identifying and Valuing Environmental Costs: Conceptual Issues

Defining Incremental Costs

Incremental costs – the change in costs arising from an environmental policy initiative.

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Identifying and Valuing Environmental Costs: Conceptual Issues

Explicit Environmental Costs

Explicit costs – administrative, monitoring, and enforcement expenses paid by the public sector plus compliance costs incurred by all sectors  Fixed costs – not controllable in short run and not dependent on production levels  Variable costs – opposite characteristics to fixed costs

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Identifying and Valuing Environmental Costs: Conceptual Issues
Capital costs – Fixed expenditures for plant, equipment, construction in progress, and production process changes associated with abatement  Operating costs – Variable expenditures incurred in the operation and maintenance of abatement processes

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Identifying and Valuing Environmental Costs: Conceptual Issues

Implicit Environmental Costs

Implicit costs - the value of any nonmonetary effects that negatively influence society’s wellbeing Social costs – expenditures needed to compensate society for resources used so that its utility level is maintained

Conceptually Valuing Environmental Costs

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Identifying and Valuing Environmental Costs: Conceptual Issues
Figure 8.1 Marginal Social Cost (MSC) and Total Social Costs
(TSC) of Air Quality (% SO2 Abatement)

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Identifying and Valuing Environmental Costs: Conceptual Issues
Figure 8.2 Modeling Incremental Costs for Air Quality (% SO2
Abatement) Using the MSC Function

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Identifying and Valuing Environmental Costs: Conceptual Issues
Figure 8.3 Modeling Incremental Costs for Air Quality (% SO2
Abatement) Using the TSC Function

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Estimation Methods for Measuring Explicit Costs

Engineering Approach – estimates abatement expenditures based on least-cost available technology

Difficult to implement for proposed environmental controls Assumes all firms are cost-effective or technically efficient

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Estimation Methods for Measuring Explicit Costs
 Survey

Approach – polls a sample of firms and public facilities to obtain estimated abatement expenditures

Advantages  More direct means to obtain abatement cost data Disadvantages  Implicitly assumes polluting sources provide reasonable estimates,  Inherent bias – polluting sources have incentive to offer inflated values seeking regulation rejection
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Cost Classifications in Practice

Cost classifications by economic sector
  

Private business outlays Government Personal private sector

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Cost Classifications in Practice
 Cost

Classifications by Environmental Media
Distribution of expenditures – air, water, solid waste

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