EPA 742-R-98-006
May 1998
INSTITUTE
Snapshots of Environmental
Cost Accounting
Environmental
Accounting
Project
USEPA
Robert G. Graff
Edward D. Reiskin
Allen L. White, Ph,B.
Katherine Bidwell
Tellus Institute
-sit.
.f". J
This report was created under a cooperative agreement
between the Tellus Institute and the United States^* L
*- ' /- - ; .--,... ; c~" '-'--' Er,v:-' v ff-:
Environmental Protection Agency. u...,.,..- fe ^
L= ^-" : _ _ ji
';s..? Jk -S5- i'-.:T^.:|JVf
3r:fr:-s i " '--£&,*
fcs^iSJ^Jji
^ *
-«
?^ If
-------
-------
Snapshots
of Environmental
Cost Accounting
A Report to:
US EPA
Environmental Accounting Project
May 1998
-------
-------
SNAPSHOTS OF ENVIRONMENTAL COST ACCOUNTING
Prepared for:
United States Environmental Protection Agency
Office of Pollution Prevention & Toxics
Environmental Accounting Project
Robert G. Graff
Edward D. Reiskin
Allen L. White, Ph.D.
Katherine Bidwell
May 1998
Tellus Institute
11 Arlington Street
Boston, MA 02116-3411
tel. (617) 266-5400
fax (617) 266-8303
info@tellus.org
http://www.tellus.org
-------
-------
Disclaimer
DISCLAIMER
This report presents a number of Environmental Cost Accounting snapshots and case studies
developed in recent years by a diverse group of organizations. The concepts, terms, and
approaches represented throughout the report represent many different philosophies and
means of applying Environmental Accounting (EA) principles and do not necessarily
represent the position or views of the US Environmental Protection Agency (EPA).
Through the production of this report, the EPA is presenting many different possible
approaches to EA without intending to endorse any one. Readers may also want to consult
An Introduction to Environmental Accounting as a Business Management Tool: Key
Concepts and Terms, EPA 742-R-95-001 (June 1995) for more general information about
environmental accounting.
This document and information on the US Environmental Accounting Project can be
accessed via the Project's website at http://www.epa.gov/opptintr/acctg.
-------
Acknowledgments
ACKNOWLEDGMENTS
This document benefited immeasurably from the reviews, comments, and assistance of
stakeholders from a variety of organizations. We especially thank Holly Elwood, Kristin
Pierre, and Susan McLaughlin of US Environmental Protection Agency's Environmental
Accounting Project for their guidance and comments on earlier drafts of this report.
EPA would like to specifically thank the following individuals for providing comments on
earlier drafts of this report.
Steve Allen
Texas Natural Resources Conservation
Commission
Laurie Case
Illinois Waste Management & Research
Center
Robert Currie
Baxter International
Melinda Dower
New Jersey Department oFEnvironmental
Protection
Wendy Fitzner
Michigan Department of Environmental
Quality
Terri Goldberg
North Bast Waste Management Officials
Association
Robert Kainz
Chrysler Corporation
David Leviten
Pacific Northwest Pollution Prevention
Resource Center
Chris Montovino
Pacific Northwest Pollution Prevention
Resource Center
George Nagle
Bristol-Myers Squibb Co.
Jerry Parker
Washington State Department of Ecology
Randy Price
Allied Signal Inc.
Brian RoJingson
AMOCO Corporation
Nicholas A, Shufro
United Technologies Corporation
Glenn Stephens
PA Department of Environmental
Protection
Tom Tramm
Commonwealth Edison
Jeannie Wood
Life Cycle Dimensions
-------
Table of Contents
TABLE OF CONTENTS
DISCLAIMER 1
ACKNOWLEDGMENTS 1
TABLE OF CONTENTS 1
WHAT IS THE PURPOSE OF THIS REPORT? 1
1. INTRODUCTION 2
WHY MEASURE ENVIRONMENTAL COSTS? 2
WHAT is ENVIRONMENTAL ACCOUNTING? 3
How CAN EA SUPPORT BUSINESS DECISION MAKING? 4
EA Informs Product/Process Costing 5
EA Informs Capital Investment Decisions '. 5
EA Informs Strategic Planning 6
2. OVERVIEW OF CASES 9
CASE SELECTION ; 9
ORGANIZATION OF THE CASES 9
Business Decisions Examined 9
Industry Sectors Examined. 10
Sizeof Companies Examined 10
PROFILE OF THE CASES 11
Why Was the Case Study Performed? 11
Costs Considered 11
Financial Results 12
3. ENVIRONMENTAL ACCOUNTING SNAPSHOTS 15
SELECTION RATIONALE .-. 15
A DIVERSIFIED CHEMICAL COMPANY 17
POLAROID CORPORATION 19
ALUMINUM PROCESSING COMPANY 22
DEBOURGH 24
HYDE TOOLS, INC 26
A JEWELRY COMPANY 28
MAJESTIC METALS 30
MANUFACTURER OF PRECISION METAL PARTS 33
A METAL FABRICATION COMPANY 35
PRODUCTION PLATING, INC , 37
WILLIAMS PRECISION VALVE COMPANY, INC 39
A FLEXOGRAPHIC PRINTER 41
A SCREEN PRINTER 43
A SMALL LITHOGRAPHIC PRINTER 45
QUEBECOR PRINTING MOUNT MORRIS, INC 47
MANUFACTURER OF MILITARY AND CIVILIAN ELECTRONIC EQUIPMENT 50
PRECISION CIRCUITS, INC 52
SAE CIRCUITS 54
A PAPER COATING MILL 56
A SPECIALTY PAPER MILL 58
NIAGARA MOHAWK POWER COMPANY 61
BRISTOL-MYERS SQUIBB COMPANY 63
BRISTOL-MYERS SQUIBB COMPANY 65
-------
Table of Contents
TIZ'S DOOR SALES, INC. ,........,..,.,..,.,.....,.., ., -67
AMOCO OIL COMPANY,.., ....,..,. ...,..,....,..,. 69
CIBA-GEIGY(NOVARTIS) ..,..,...,..,..,..,..,.....,.. ..............71
A RESINS MANUFACTURER..............,..,...... .,.....,..,.,..,..,..,..,..,..,.., 73
S.C.JOHNSON WAX. ...,....,....,..,.., ,....,.,....,..... 76
A FORESTRY COMPANY ,..,..,. ..................... , , .....78
SOUTHWEST HYDRO, INC,..,.,. ,....... ...,.......,..,.,.., ...,.. ................. 80
BAXTER INTERNATIONAL..... ,......., ,....,........,...,........ .......82
CHRYSLER CORPORATION ..,.. ...........,...,....,.......,.. ...........84
LARGE FIRM IN AUTO INDUSTRY ,.,....,....,. 86
CELANESE ENGINEERING RESINS, INC. ,.,.....,...., 88
DUPONTDE NEMOURS ,..,.,..,..., ............... .......90
WirCO CORPORATION .,..,.,..,....,.. .,... - -.92
THE ROBBINS COMPANY...., ....,., .....,..,....-,....,... ........... .94
SANDOZ PHARMACEUTICALS ,. , -97
UNIFOIL CORPORATION................... .,..,. ...-99
APPENDIX A- GLOSSARY OF TERMS , . . . A-l
APPENDIX B - FEEDBACK AND INFORMATION FORM.... ...,....., .,.....«.. B-l
-------
What is the Purpose of this Report?
WHAT IS THE PURPOSE OF THIS REPORT?
This report demonstrates the financial results of actual environmental accounting applications. It
highlights 39 cases of companies using various forms of environmental accounting (EA) and offers a
more detailed review (snapshot) of all of these cases. The snapshots represent applications of EA in
small, medium, and large businesses in a variety of industries, and in a range of business decisions.
Examples run the gamut from a small manufacturer of wooden doors examining an investment in a new
lacquer process, to a large, multinational health care products company measuring the value of its
proactive environmental management program.
The intent of this report is to document how the application of EA principles can have a direct, positive,
bottom-line effect on business operations. This collection of existing snapshots will form the basis of a
larger, "living" database of EA snapshots to which individual companies can both refer and contribute.
This database will be made accessible on the Internet at http://www.epa.gov/opptintr/acctg.
This report was funded by EPA's Environmental Accounting Project to respond to requests from
stakeholders for more information on the application of environmental accounting concepts in various
business decision making processes.
The Environmental Accounting Project began in 1992 in response to concerns that pollution prevention
would not be adopted as the first choice of environmental management by industry until the
environmental costs of non-prevention approaches and the economic benefits of pollution prevention
become evident to managers. The mission of the Project is to encourage and motivate business managers
to understand the full spectrum of environmental costs, and integrate these costs into decision making.
The collection of cases can serve engineers, accountants, financial analysts, operations managers,
environmental managers, and general managers as a reference source on the range and business benefits
of applying EA concepts.
Section 1 briefly introduces the reader to environmental accounting. Section 2 follows with an overview
of the 39 cases, including a profile of the facilities studied, the EA methods they used and the results
achieved. Section 3 presents snapshots of all cases, representing a diversity of companies, applications,
and outcomes. Appendices containing a glossary and a form for reader feedback round out the report.
In addition to the EA snapshots in this report, the Environmental Accounting Project has developed case
studies that examine how AT&T and Ontario Hydro (a Canadian public utility) have developed
corporate-wide environmental accounting programs. To access these case studies or for more information
on EPA's Environmental Accounting Project and additional resources, visit the Project's website at:
http://www.epa.gov/opptintr/acctg/
or contact EPA's Pollution Prevention Information Clearinghouse:
phone: 202/260-1023
fax: 202/260-4659
email: ppic_group@epamail.epa.gov
If you are interested in offering a snapshot of one of your firm's EA applications to the Environmental
Accounting Project's Snapshot Database, please contact the Environmental Accounting Project by phone
at 202/260-4164 or by fax at 202/260-0178.
-------
Introduction
1. Introduction
A business's long-terra profitability depends on the quality of the product or service it offers, the
demand for the product or service, and its ability to produce efficiently. Efficient production
means maximizing output for a given level of input, or conversely, minimizing input for a given
level of output. Firms that consistently produce efficiently create a sound competitive advantage
for their enterprises.
A critical element of efficient production is the accurate and consistent measurement of inputs
and outputs. The often repeated axiom "what gets measured gets managed" has never been more
true. Without accurate cost information, it is difficult to adequately assess the profitability of a
product, a department, or a firm, and even more difficult to know what changes to make in order
to improve profitability in today's highly competitive business climate. Management accounting
systems can provide the information required to make those decisions.
Why Measure Environmental Costs?
Environmental costs are impacts incurred by society, an organization, or an individual resulting
from activities that affect environmental quality; these impacts can be expressed in monetary or
non-monetary terms. They include any such cost, direct or less tangible, with short- or long-
term financial consequences for the firm. These costs are often not tracked by or are hidden in
overhead accounts within traditional management accounting systems, but they can be a
significant component of a firm's overall cost structure. The failure to include them in financial
analyses has the effect of sending the wrong financial signals to managers making process
improvement, product mix, pricing, capital budgeting, and other routine decisions. In an
increasingly global economy, where labor, materials, and capital costs are likely to converge
over time, effective management of environmental costs and performance may become
increasingly important in determining corporate winners and corporate laggards.
Mounting pressures on industry to achieve strong environmental performance have a number of
ramifications for the business community. First, some costs of doing business that have
traditionally been external to the firm - e,g., health effects of air pollutants - are being shifted to
me firm's balance sheet and income statement through regulation. This shift is the result of
more stringent rules regarding pollutants already regulated and new rules affecting previously
unregulated pollutants.
Second, just as the outcry over questionable and secretive management of corporate finance led
to financial disclosure regulations early this century, today's stakeholders are demanding public
disclosure of environmental performance information. The result of this trend is that activities
with direct or indirect adverse environmental effects are becoming more costly to operations, to
capital budgets, and to stock prices'.
Even absent external pressure, the true costs of environmental impact - including the costs of
waste, of liability, of diminished image though often obscured by biases associated with
traditional systems are real and can be significant Actively managing these costs is therefore an
important aspect of maintaining a lean, profitable business. Whether driven by internal
1 FcMman, Stanley J,, Peter A, Soyka, & Paul Ameer. Does Improving A Firm's Environmental Management System and Environmental
Perfermsnee Kesult in a Higher Stock Price? ICF Kaiser Working Paper, 1996.
-------
Introduction
motivation or external concerns, a firm can create a sustained competitive advantage by
systematically reducing environmental costs. And the first and critical step of cost reduction is
improved cost identification and management.
What is Environmental Accounting?
Environmental Accounting (EA) is a broad-based term that refers to the incorporation of
environmental costs and information into a variety of accounting practices. Figure 1 below
depicts some of the different contexts in which EA is used. At a macroeconomic level, EA is
used to account for costs associated with a region's stocks and flows of natural resources. A
redefinition of national income that incorporates such environmental accounts into conventional
measures such as the Gross Domestic Product is an example of macroeconomic EA.
Environmental Accounting
Region/Nation
(macroeconomic)
Firm
(microeconomic)
Management
Accounting
Financial
Accounting
:
Materials Accounting
Environmental Cost
Accounting
Figure 1. Some Contexts of Environmental Accounting
At the microeconomic or firm level, EA can apply to both financial accounting and management
accounting. Financial accounting, whereby a firm reports its economic activity to an external
audience, has requirements for disclosure of environmental liabilities and certain environmental
costs. This application of EA is governed by the "Generally Accepted Accounting Principles"
which are established by the Federal Accounting Standards Board and the US Securities and
Exchange Commission.
-------
Introduction
In terms of management (or internal) accounting, EA is the way that businesses can account for
the material use and environmental costs of their operations. Materials accounting is a means of
tracking material flows through a facility in order to characterize inputs and outputs for purposes
of evaluating both resource efficiency and environmental improvement opportunities.
Environmental cost accounting (ECA) is how environmental costs - including those that are
often hidden in general overhead accounts - are identified and allocated to the material flows or
other physical aspects of a firm's operations (as might be identified via materials accounting).
The application of these internal EA concepts provides consistency between an organization's
environmental goals and its financial goals, meaning environmental improvement can directly
lead to financial improvement It is this direct link between the financial and the environmental
performance that makes robust environmental accounting practices so compelling.
Financial accounting and its environmental requirements have been standardized to provide
consistent and comparable information to investors, regulators and other stakeholders, while
management accounting practices vary widely from firm to firm. Likewise, the manner in which
firms apply EA principles differs, A few firms make efforts to identify their relevant
environmental costs and to use this additional information to guide business decisions. Most
firms, however, operate without recognizing the magnitude or source of these costs, which can
lead them to poorly informed decisions, Correcting this information gap is the primary purpose
ofEA.
How Can EA Support Business Decision Making?
The concepts of EA as they apply to internal management decisions are the focus of this
document In this context, EA concepts can be applied at all levels of an organization to help
make sound business decisions such as those in Table 1 below. Accurate, timely information is
the critical underpinning of business decision making, and EA practices provide means of
exposing information obscured by conventional management accounting practices.
Table 1. Business Decisions Supported by EAZ
Product Design
Process Design
j Capital Investments
I Cost Control
Facility Siting
Purchasing
I Waste Management
1 Cost Allocation
Product/Process Costing
Risk/Liability Management
Strategic Planning
Supplier Selection
Environmental Program Justification
! Product Retention/Mix
} Product Pricing
Performance Evaluations
Plant Expansion
The cases included in this document relate to only a few of these business decisions. While
applications relating to capital investments, product/process costing, and strategic planning have
1 Adapted from US EPA*s4« Introduction to Environmental Accounting As A Business Management Tool: Key Concepts and Terms (EPA 742-
R-9S-OTI), paged
-------
Introduction
been better documented than the rest, a broad range of business decisions can benefit from the
adoption of EA principles. As the preceding table and graphic indicate, environmental
accounting can play a role in many aspects of business management. To the extent that
environmental costs exist in almost every phase of a business' operations, EA practices can
support improved decision making in many different applications throughout an organization.
Following are descriptions of some of the more common applications to date.
EA Informs Product/Process Costing
Businesses generally look to the marketplace to gauge the demand for a product and, from that
demand, the price the market is willing to pay. They then compare that price to their cost of
making the product to determine whether or not there is adequate profitability to justify its
production. Of course, producers consider other factors - such as market positioning, customer
retention, and long-term sector growth - when deciding what and how much to produce, but the
costing of the product and the processes that produce it remains fundamental.
When environmental costs are not adequately allocated, cross-subsidization occurs between
products. In most cases, different products are made by different processes, and each process
tends to have a different environmental cost. For example, consider a facility with two
processes, A and B, that use the same number of direct labor hours for a batch of product.
Process A, however, uses hazardous chemicals whereas process B does not. The facility incurs
environmental costs from the use of the hazardous chemicals in a number of ways: specification
and procurement of the chemical which includes evaluation of Material Safety Data Sheets;
design of the process to minimize worker exposure; shipping costs associated with transporting
hazardous chemicals; monitoring, reporting, and permitting to meet applicable regulations;
employee training in handling and emergency response; storage and disposal costs; and liability
for the chemical from purchase to grave. In addition, there may be less tangible costs such as
tarnished corporate image and inability to meet delivery or quality requirements.
If all of these costs are bundled as 'environmental' overhead and allocated to processes A and B
on the basis of direct labor hours or production volume (both common practices), products made
by process B are in effect subsidizing those made by process A. In other words, a traditional
accounting system would show process B to be more costly than it really is and process A to be
less costly. Armed only with this information, managers are inclined to overestimate the
profitability of products made by process A and correspondingly underestimate the profitability
of those made by process B. Eventually, this type of accounting can put the firm at a
considerable competitive disadvantage. Conversely, by more accurately allocating these costs,
managers can make better decisions about product mix and about where cost-saving
opportunities lie, thereby putting their firms ahead of the competition.
EA Informs Capital Investment Decisions
Companies develop and enlarge their businesses by investing in their human and physical
capital. Their long-term financial viability hinges on the strength of these investments.
Generally, a company's investors demand at minimum a return comparable to that which they
can obtain through other investments. This demand places pressure on companies to invest their
limited capital funds wisely. Environmental costs are often a significant component of capital
and operating costs. There is often, therefore, a considerable financial return available to
companies that can reduce these costs. When environmental costs are properly accounted for,
-------
Introduction
investment analyses of environmental performance improvements provide managers with
information to determine whether and to what extent the benefits of such investments will
exceed the costs. But to achieve these results, managers must first be able to define and measure
these environmental costs in a systematic and consistent fashion.
One specific application of EA for capital investment analysis is Total Cost Assessment (TCA);
a method by which investments, particularly environmental investments, can be evaluated in a
way that more accurately reflects their profitability potential. The four basic elements of TCA
that make it more informative than conventional analysis are: (1) a more comprehensive cost
inventory that includes less direct, less tangible costs3; (2) allocation of costs that are typically
assigned to overhead accounts, and either allocated on the basis of an inappropriate cost driver or
not allocated at all; (3) evaluation of projects using longer time horizons in order to better
capture the full benefit of the investment, a significant portion of which may be realized after the
first 2-3 years; and (4) profitability indicators that account for the time value of money, making
the results more realistic and reflective of an investment's one cost or benefit.
Evaluating environmental projects using TCA helps put them on equal footing with other
projects competing for capital funds. Projects that appear to be financially weak using
conventional analyses may look considerably stronger and more competitive once their true
return has been identified. For example, an expensive investment in a process change to
accommodate a switch to an aqueous solvent may appear to be a poor investment with a long
payback if only direct labor and material costs are considered over a three-year time period.
However, if the full environmental costs of the existing process such as solvent disposal costs,
regulator}' permits, worker health, and liability for accidental spills or leaks - are allocated to the
process and included in the analysis, the less visible cost savings associated with the switch,
considered over a longer, 7-8 year period, may well yield an impressive rate of return and a
shorter-than-expected discounted payback. Of course, TCA does not ensure profitability a
priori. It does however ensure greater transparency, clarity, and rigor hi making capital
investment decisions.
EA Informs Strategic Planning
Understanding the nature and magnitude of its costs is vital to the successful, long-term
operation of any firm. When planning strategically, businesses look externally at the markets
they serve, and internally at the resources they control. They then are in a position to decide
where the best profit potential lies and what strategies will be necessary to achieve that potential.
Profit potential can be substantially affected by environmental costs and how they are managed.
In this way, EA is a critical strategic element of long-term commercial success.
Looking outward, many businesses see customers that are increasingly more demanding in terms
of quality., of which environmental performance is an integral component. Many companies that
produce consumer products are finding lucrative markets in green goods where customers, who
will often pay a premium for a green product, believe they can positively impact environmental
quality through their purchasing decisions. Similarly, companies producing raw materials and
intermediate goods are finding more stringent customer expectations with regard to
environmental performance of both their operations and their products. To many consumers and
3 See Appendix A of this document for a glossary of terms. Also wee US EPA's An Introduction to Environmental Accounting As A Business
Management Tool: Key Concepts and Terms pages 7-11 for a discussion of environmental costs.
-------
Introduction
buyers, good environmental management is indicative of a firm's general management and of its
ability to consistently produce reliable, high-quality products. To the extent that the application
of EA concepts encourages financially sound investment in the production of products of higher
environmental integrity, it can strategically position a business to seize this powerful market
opportunity.
Customers and other stakeholders, to varying degrees, are calling for increased environmental
responsibility on the part of businesses. Concepts of environmental accounting can be applied to
the development of environmental management systems, including those consistent with the
increasingly prevalent ISO 14000 standards, that enable strategies to answer that call. As firms
position themselves to enhance the structure of their systems, EA will be integral to their
development and capabilities. These systems coordinate EA-based data to provide managers
with information to better understand the impacts of their.decisions. This information can be
used strategically to drive improved environmental performance.
A strategic vision and corresponding management commitment is necessary to fully integrate
environmental costs into a company's business decisions. Viewed over the long term, those
firms that properly account for the true environmental costs of their operations will be in a
superior position to meet tomorrow's competitive challenges.
For a more complete description of EA concepts, readers are'encouraged to see EPA's An
Introduction to Environmental Accounting As A Business Management Tool: Key Concepts and
Terms (EPA 742-R-95-001), available on the Internet at http://www.epa.gov/opptintr/acctg/
7
-------
Introduction
-------
Overview of Cases
2. Overview of Cases
Case Selection
We selected cases from a broad survey of environmental cost accounting literature that
documents actual applications of EA. The selection represents the result of library and Internet
searches and discussions with EA practitioners. It contains a variety of applications of EA in a
number of different industries and, we believe, presents a fairly comprehensive compilation of
published EA cases as of the start of 1997. In addition, three cases were submitted by companies
with an ongoing interest in the Environmental Accounting Project.4 This collection is intended
to be the beginning of a living database of environmental accounting snapshots that demonstrate
results from applying EA to specific business decisions.5
We selected those cases that quantifiably demonstrate uses of EA in business decision-making.
These studies show how businesses more carefully account for costs that are typically left out of
conventional accounting practices and analyses. These costs, typically direct or indirect
environmental costs obscured in overhead accounts, were in most cases significant and material
to business decisions.
The cases reviewed in this report also tend to use profitability indicators that consider longer-
term implications for operating costs, and consider the time-value of money when assessing and
comparing profit and payback. Accounting practices that look beyond the next quarterly report
better reflect the true cost of the processes they measure. Environmental costs and benefits often
materialize over a time frame longer than that considered in conventional analyses. Applying
EA concepts in business decisions, as shown in these case studies, can improve upon
conventional systems by capturing these costs and savings to better inform management
decisions.
Generally, we included case studies that used environmental accounting to provide better
information about a product, a process, an investment, or a business operation. The cases
represent a variety of approaches to the application of EA, but all have in common the
incorporation of environmental costs into accounting practices, providing firms with both
economic and environmental incentives to reduce waste and produce more efficiently.
Organization of the Cases
Business Decisions Examined
The cases are organized into three groups, based on the business decisions analyzed using
environmental accounting concepts:
1. Capital Investments (24 cases). Many improvements to increase resource efficiency and
reduce material use and pollution require capital expenditures. Methods of investment
analysis, such as total cost assessment (TCA) a comprehensive approach to evaluate the
profitability of current business practices and pollution prevention (P2) investments are
4 One case by Chrysler Corporation and two by Bristol-Myers Squibb.
5 If you are interested in offering a snapshot of one of your firm's EA applications to the Environmental Accounting Project's Snapshot Database,
please contact the Environmental Accounting Project by phone at 202/260-4164 or by fax at 202/260-0178.
9
-------
Overview of Cases
particularly useful in capital budgeting decisions when a firm seeks to assess the profitability
of a potential investment or to choose between several potential investments.
2, Product/Process Costing (9 cases). Better information regarding operating costs is useful to
a variety of pricing, product mix, investment, and strategic decisions. Understanding the true
costs and risks of operations enables managers, engineers, and operators to make better
decisions about how to run and improve their businesses.
3, Strategic Planning (6 cases). Quantifying the relative environmental costs of different
processes and P2 opportunities provides the information necessary for prioritizing P2
projects, allocating resources, and determining a firm's environmental strategic direction.
For example, with scarce capital funds firms find the application of EA concepts to be a
valuable means of directing investment towards those opportunities that will provide the
greatest return. Measuring the environmental costs and benefits of various activities
throughout a facility or business gives managers information they need to plan strategically.
These three categories clearly overlap, and there are several case studies that could fit
comfortably into more than one. The purpose of classification is not to draw artificial
distinctions between types of EA applications, but to organize and illustrate the variety of
business decisions EA can support. In the end, EA concepts can be employed to manage
information that can be used in as many ways as businesses can creatively devise. A critical
element of being a successful manager is to know what needs to be known and to utilize
information about business operations to continuously improve them. The three categories cover
the major ways hi which environmental cost information has been used in the case studies.
Industry Sectors Examined
Within each section, the cases are grouped first by industry sector and then alphabetically. The
total of 39 cases breaks down in the following manner:
Table 2. BREAKDOWN OF CASES BY INDUSTRY SECTOR
NUMBER OF CASES
9
10
4
3
3
2
8
INDUSTRY SECTOR
Chemicals
Metal finishing/fabrication/use
Printing
Electronics
Paper
Electrical utilities
Other*
*includes, for example, pharmaceuiicals, health care products & auto manufacture
Size of Companies Examined
The companies in these case studies range in size from small, privately-held facilities with fewer
than 20 employees to large, multinational corporations, such as Polaroid, Baxter, and DuPont
Table 2 suggests the firms also represent a broad range of the commercial sector, supplying both
products and services to intermediate and end-use customers. This diversity demonstrates that
both large and small businesses can often benefit from increasing incorporation of environmental
10
-------
Overview of Cases
costs into business decisions. Potential EA applications lie along a spectrum of complexity and
can be tailored to the needs of each business. However, there are costs to applying EA concepts,
even on an ad-hoc basis, and these costs have to be measured against expected benefits. Some of
the cases, however, show the investment in systems that incorporate EA concepts to be a
worthwhile investment with initial costs that may be amortized over many years of improved
decisions and decision-making.
Profile of the Cases
Why Was the Case Study Performed?
What motivated firms in the case studies to experiment with, or adopt EA methods? The firms
listed here did so for a variety of reasons and in a variety of settings. Some were reporting on
broader company or government policy issues of which EA was an integral component.
Some of the cases report on EA applications implemented by teams assembled within a firm,
usually as part of a proactive management effort to improve cost accounting practices. The
underlying aim of many of these efforts was to improve management decision making
capabilities by providing a stronger foundation upon which smart decisions could be made. In
these cases, identification and understanding of environmental operating costs led to strategies
for making efficiency and environmental improvements. However, much of the reported EA
work was performed by, or in collaboration with, external research and consulting organizations,
owing to most firms' lack of experience in incorporating many of their environmental costs into
their business decisions. In some cases, an external organization approached a firm about
collaborating on a case study in conjunction with an EPA- or state-funded initiative.
In the cases where environmental costs were better integrated into business decisions with
external support, the case study usually reports on a financial analysis of an environmental
investment, often performed retrospectively (i.e., after the investment had already been made).
A retrospective analysis allows the use of real operating cost data instead of estimates from the
new investment in the financial analysis. These analyses help the firm to understand the full
economic impacts of its investment to inform future decisions, highlight the difference between
TCA and conventional accounting methods, and provide a model for other firms desiring to
perform their own analyses. Roughly 20% of the cases in this report document analyses that
were performed retrospectively.
Costs Considered
To what extent do the case studies embrace a wider range of costs beyond the conventional
(those typically recognized in cost analyses, such as raw materials and capital equipment)? We
earlier noted that an important element of EA is the consideration of a broader spectrum of costs.
However, the majority of the case studies include only conventional and non-
conventional/hidden costs6 in their quantitative analyses; a few include only conventional costs.
This suggests the difficult nature of identifying, isolating, allocating, and incorporating less
tangible costs (those relating to stakeholder relationships or other costs that may be significant
but similarly difficult to quantify) into a business decision. In many cases these less tangibles
were deemed unnecessary for the analysis. Indeed, many of the capital investments analyses
6 See the Glossary of Terms in Appendix A for a complete definition of these cost categories.
11
-------
Overview of Cases
showed a proposed investment to be sufficiently profitable even in the absence of less tangibles.
In other instances, firms that were unable to quantify liability/contingent and/or less-tangible
costs did consider them qualitatively, Like other management concepts, the application of EA
concepts supports decision-making but does not prescribe it. Ultimately, decisions are made
considering not only readily measurable cost, but also "softer" factors such as corporate image,
employee safety, or contingent environmental liability. In several of the capital budgeting
studies, qualitative considerations played an important role in persuading the company
management to make a P2 investment,
A number of cases quantify liability/contingent costs. For example, one firm considered the
potential liability of a PCB transformer spill or fire.7 Conservatively considering the
probabilities and associated costs of cleanup, litigation, and lost production, the analysis showed
an accelerated phase-out of the transformers to be cost-effective. This example shows how the
inclusion of costs omitted from conventional analyses might lead managers to sharper, more
proactive management strategies.
A few case studies identify other less-tangible costs and quantify them as part of an analysis.
One study of the impacts of a forestry company on the commercial value of the forest estimated
values of wildlife and tourism costs.8 Two small printing companies estimated an increase in
product revenues from improved ability to meet customer demand.9 In these cases, cost
estimates admittedly are rough, but even a rough, conservative estimation reflects the true
economics of a current or proposed practice better than an estimation of zero, the value implied
by the exclusion of a less tangible cost.10
Financial Results
What is the range of outcomes reported in the
three categories of EA? The Capital
Investments cases evaluate the profitability of
past or proposed investments, or compare the
economics of several P2 investment
proposals. Almost all of the Capital
Investments analyses calculated a net present
value1' (NPV) for the project; these values
ranged from negative $1.4 million to
$11 million, with most in the range of
$10,000 to $100,000. Some of the highest
include; a 5-year NPV of $495,860 for a
screen printer; an 8-year NPV of $352,814 for
an electronic equipment manufacturer; and a 15-year NPV of $11,633,835 for a diversified
chemical company. Two of the 24 Capital Investments cases had negative NPVs, but both of
these projects contained significant qualitative benefits. One of the projects was approved on the
CAPITAL INVESTMENTS CASE HIGHLIGHTS
lowest investment NPV = negative $1,400,000
highest investment NPV = $11,600,000
typical investment NPV = $10,000 to $100,000
small firm (screen printer): dry film imaging system
investment, NPV = $496,000
medium-sized firm (electronics): ultrasonic
cleaning system investment, NPV = $352,000
large firm (chemical company): byproduct recovery
system investment, NPV = $11,600,000
? Sec the Large Firm in Auto Industry Snapshot on Page 88.
! Sec the A Forefiry Company Snapshot on Page 78.
s Sec the A Screen Printer and ,4 Smali Lithographic Printer Snapshots on pages 41 and 43,
* See the US EPA*s Valuing Potential Environmental Liabilities for Managerial Decision-Making: A Review of Available Techniques (EPA 742-
R-96-CKB) for references to means of estimating liabilities.
'' Sec the Glossary in Appendix A for a definition of this and other EA terms.
12
-------
Overview of Cases
basis of these qualitative benefits. Many of the analyses for which a discounted payback was
calculated would pay for themselves in under three years; all but two had paybacks under five
years. In a few cases, however, the encouraging financial analysis was insufficient to override
doubts about unproved technology, so project implementation was put on hold.
Product/Process Costing, the second category of EA cases, covers both facility-level and
product/process level analyses. Most of these studies were undertaken as collaborative efforts; a
number are part of a World Resources Institute study, one was funded by the UN to improve
accounting and reporting, and another was supported by the Illinois Waste Management and
Research Center to demonstrate improved process costing. Three studies in this category were
initiated through corporate programs to improve environmental cost accounting. The
Product/Process Costing cases all helped identify significant environmental costs that previously
had not been recognized. The results convinced some of the firms to pursue P2 projects or to
continue to refine their EA practices. Others assisted firms to consider potential benefits of
enhanced corporate image, of improved customer satisfaction and employee morale, and of the
competitive advantage from selling environmentally-friendly products.
Finally, the Strategic Planning cases also cover both facility-level and product/process-level
analyses. Several were performed as a result of the New Jersey Planning Process12, which
requires an assessment of the costs of using or generating hazardous substances for each process
in order to identify P2 opportunities. Others were motivated by corporate commitment to P2
and/or initiation of an accounting system that better incorporated environmental costs. Most of
the Strategic Planning cases showed that P2 investments could actually save money and that EA
helped the facility prioritize P2 options. These applications of EA tended to set the stage for a
systematized integration of improved cost accounting into ongoing business initiatives to
implement efficiency improvements.
12 These include Witco Corporation, Sandoz Pharmaceuticals, and Unifoil Corporation.
13
-------
Overview of Cases
14
-------
Environmental Cost Accounting Snapshots
3. Environmental Accounting Snapshots
Selection Rationale
To give readers more insight into the actual application of EA, 39 Snapshot summaries of the
case studies reviewed are presented in this section. These Snapshots cover a spectrum of
applications, and demonstrate the versatility of EA as well as the bottom-line outcomes of a
range of applications.
Each snapshot contains the following information:
Business Decision
Business Benefits
Company Profile
Why Was Project Performed?
Project Description
Analysis
Financial Parameters
Financial Results
Contact
Source(s)
In seven cases, a further section on Institutional Change is included.
15
-------
Environmental Cost Accounting Snapshots
16
-------
A DIVERSIFIED CHEMICAL COMPANY
., -* * X
BUSINESS
DECISION
BUSINESS
BENEFITS
CAPITAL INVESTMENTS
Study of a set of process changes that would,
among other things, convert byproduct into
useable input material, potentially decreasing
landfill waste by 3.8 million pounds per year.
For a capital investment required of $4.96
million, annual operating costs are expected to
decrease by $2.29 million.
COMPANY PROFILE
=> Location: About 450 facilities in 40
countries.
=> Size: Not reported
=> Annual Revenues: $12 billion
=> Business: Manufacturer of chemicals
for sale to industry.
WHY WAS
PROJECT
PERFORMED?
This $12 billion company has about 450 facilities around the US and throughout the world.
This particular project focuses on the activities at a group of three plants located in relatively
close physical proximity. Plant 1 manufactures an intermediate product /, which is delivered
to Plant 2 and Plant 3, each of which converts / into final product F. Not all of I is converted
to F, however. A portion remains as I, and a portion is unavoidably converted to a byproduct,
B. B and / are combined and returned to Plant 1 for reprocessing. Plant 1 recovers most of/,
while B and the unrecovered / are landfilled.
PROJECT In the mid-1970s, an alternative process was developed whereby B could be converted back
DESCRIPTION into /. This recovery facility would be located at Plant 2, and would process the effluent
streams from Plant 3 as well as that from Plant 2. The recovered / would be sent -to Plant 1
for purification. The recovery facility at Plant 2 would produce a waste stream that would
need to be landfilled. The waste disposed annually by Plant 1 would decrease by 4.3 million
pounds, while that disposed by Plant 2 would increase by 0.5 million pounds, resulting in an
overall waste decrease of 3.8 million pounds per year.
Initially, the company's consideration of the process change centered on recovery of
wastewaters containing B and /. However, during the mid-1980s, the company became
interested in converting B to / as a vehicle to increase production of /, in order to expand
production of F by Plant 2. A detailed study done at that time indicated a 29 percent return
on investment for the project. Although the group of plants as a whole would see a decrease
of 3.8 million pounds per year, no action was taken. This was in part because Plant 2, where
the investment would be made, would see increased operating costs due to operations at the
recovery facility plus the addition of 0.5 million pounds to its annual waste stream. Because
of this, Plant 2 opposed the implementation of the project.
ANALYSIS In addition to the recovery of/ and reduced waste generation, this project offers several other
benefits. First, since / and waste are removed from the wastewater at Plant 2, only / is
shipped to Plant 1, reducing shipment costs. Second, the flow to the /purification system at
Plant 1 is reduced, freeing up processing capacity in the system, and obviating the need for a
major capital expansion project in the event of the need to increase production. This
preserves and enhances the ability of the plants to respond to markets. Third, elimination of
unreacted / from Plant 1 results in improved system operations and reduced costs. Finally,
preliminary studies indicate that the / recovered from B at Plant 2 may be of sufficient purity
17
-------
A DIVERSIFIED CHEMICAL COMPANY
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
COST CONSIDERATIONS
Year One Savings
Recovered /
$2,470,000
Waste Management
$44,100
Total Savings
$2,514,100
\ ear One Oosls
Additional Labor
$220,500
Total Costs
$220,500
to recycle directly into Plant 2, further
lowering costs by reducing shipment and
purification costs.
The capital investment required is $4.96
million. Annual operating costs are expected
to decrease by $2.29 million. This decrease is
due primarily to the value of the recovered /,
$2,47 million annually. This value is modified
by a $220,500 increase in labor costs and a
$44,100 decrease in waste management costs.
The total cost analysis (TCA) makes no modifications to the company analysis discussed
above. However, an additional category of cost is considered: estimated potential liability
cost. This cost represents the financial liability which may be avoided by reducing the B
waste stream. At present, this waste is disposed in a privately owned industrial landfill.
Although the company has no reason to believe the landfill is now or may in the future be
subject to remedial action, this project may reduce a degree of incremental financial risk
which a conservative project analysis out to account for. This risk is represented by a one-
time $4.6 million cost in year ten of the investment.
The financial analysis uses a discount rate of 12 percent, an inflation rate of 5 percent, a net
tax rate of 34 percent, and double declining balance/straight line depreciation over a fifteen
year period.
For the TCA, the 15 year NPV is $11,633,835; the 15 year IRR is 41%; payback is 2,2 years.
The company's analysis, without the estimated potential liability cost, produces slightly
different results: the 15 year NPV is $10,035,274; the 15 year IRR is 40%; and the payback
period remains at 2.2 years.
CONTACT Deborah Savage, Tellus Institute, 617-266-5400
SOURCES White, Allen L., Monica Becker, and James Goldstein, Alternative Approaches to the
Financial Evaluation of Industrial Pollution Prevention Investments. Prepared for NJ DEP.
November 1991. And White, Allen L., Deborah Savage, and Monica Becker, Revised
Executive Summary. June 1993.
18
-------
POLAROID CORPORATION
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
COMPANY PROFILE
Location: Waltham, MA
Size: 11,000 employees
Annual Revenues: $2.4 billion
Business: Specialty chemical
manufacturing
"POLAROID ,
BUSINESS CAPITAL INVESTMENTS
DECISION A closed-loop batch still solvent recovery system
had been left only partially completed for several
years due to cash flow problems. Should the
project be permanently canceled or should
additional investments be made to complete the
project?
The benefits of completing the still are heavily
dependent on a number of decisions related to chemical production. Five different scenarios
were created and analyzed to represent these decisions, yielding 12-year net present values
ranging from -$ 1.4 million to +$3.4 million.
Polaroid had designed a state-of-the-art, closed-loop, multipurpose batch still solvent
recovery system for one of its facilities. At the time of the study, construction on the project
had stopped for several years due to cash flow problems. The company had invested
approximately six million dollars in the state-of-the-art system; an additional four million
dollars was needed to complete the system as designed, primarily for equipment and control
components.
During the construction delays changes to facility operations took place which, together with
the significant construction downtime, rendered invalid the firm's initial profitability analysis.
Tellus Institute was asked to revisit the original project analysis with a particular focus on
identifying andif warranted and feasiblequantifying less tangible cost items.
PROJECT When it was designed, the solvent recovery still was intended to provide two classes of
DESCRIPTION savings; (1) reduced waste disposal fee costs, and (2) reduced raw materials purchases.
During the construction delay, which lasted several years due to ongoing competition for
capital funds, facility production plans changed, clouding the question of how many waste
streams on site would be suitable for batch still recovery.
Adding to the complexity of the analysis were multi-facility production planning issues,
company and government hazardous waste reduction goals and air emission regulatory issues.
For example, the production facility at which the batch still had been partially constructed had
no other solvent recovery capacity on site. A second production site in the same region had
several operating recovery systems, but all were operating at full capacity. This limitation on
available solvent recovery capacity had clear production implications for production lines that
used expensive raw materials or that generated solvent wastes deemed too expensive to
simply ship off site for disposal. In addition, government regulations restricted shipment of
wastes between the two sites for solvent recovery, further constraining the company's
flexibility for planning production.
Having a batch still system on site would also affect the company's ability to meet both
internal, company-wide hazardous waste reduction goals, as well as similar state-mandated
19
-------
POLAROID CORPORATION
goals. The batch still was viewed internally as an important component of future hazardous
waste treatment and air emissions flexibility.
ANALYSIS Initially it was thought that easily quantifiable waste management costs, such as permit costs,
labor costs for shipment manifesting, etc., would play a significant role in the analysis. It
soon became clear that these costs, although relevant, were not decision drivers in an
investment of this size.
It became clear that the primary cost drivers were of two types:
(1) The handler for one of the facility's waste streams (designated Stream A) had had safety
problems in the past, and the facility's environmental manager would like an alternative
treatment option. In absence of the batch still, the only alternative was cement kiln
treatment, estimated to have a cost eight times that of the current handler.
(2) The ability of the facility to expand production to include a major intermediate product
(Product X) that the firm was currently buying from another manufacturer. Without the
batch still recovery system, the costs associated with waste disposal and raw material
would make in-house production too expensive.
In addition, the completion of the batch still could be carried out at lower cost by modifying
both its design and construction techniques. Five different scenarios were developed:
1) using the kiln to recover waste streams generated on-site, assuming they would otherwise
be handled as they currently are; 2) as (1), but assuming Stream A's would otherwise face
cement kiln disposal; 3) as (1), but implementing the lower cost completion method; 4)
handling waste from production of Product X with the still, thus enabling the savings this on-
site production would yield, and; 5) as (4), but implementing the lower cost completion
method.
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
Not provided.
12-year NPVs ranged from -$1.4 million [for (1)] to -+-$3.4 million [for (5)] for scenarios
representing different waste stream mixes, capital expenditure, etc. The TCA helped
illuminate the critical link between the batch still project and broader questions of production
planning capacity and flexibility. In order to preserve these competitive capabilities, upper
management approved funding for completion of the batch still project. The experience has
informed continuing refinement of company's cost accounting system.
Prior to the analysis of the batch still., Polaroid had looked at compliance without taking into
consideration any possible benefits other than compliance itself. This project showed
Polaroid that concurrent evaluation of compliance and engineering can enhance facility
performance. The comprehensive analysis used in this project serves as a model for how
Polaroid now analyzes all projects.
CONTACT Deborah E. Savage or Allen L. White, Tellus Institute, 617-266-5400,
INSTITUTIONAL
CHANGE
20
-------
POLAROID CORPORATION
SOURCES White, A.L., D.E. Savage, and A. Dierks, "Environmental Accounting: Principles for the
Sustainable Enterprise." Originally presented at the 1995 TAPPI International Environmental
Conference, Atlanta Georgia, May 7-10 1995.
White, Allen L. and Deborah E. Savage, "New Applications of Total Cost Assessment: An
Exploration of the P2-Production Interface." Pollution Prevention Review. Winter 1994-
1995.
21
-------
ALUMINUM PROCESSING COMPANY
BUSINESS
DECISION
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
PROJECT
DESCRIPTION
COMPANY PROFILE
Location: Subsidiary of Lightolier-
Genlyte in Fall River, MA.
Size: 500 employees
Annual Revenues: $110 million
(1990)
Business: Manufacturer of aluminum
reflectors for Lightolier's track &
recessed lighting product lines.
CAPITAL INVESTMENTS
What is the return on an investment in replacing
a vapor degreasing system with an aqueous
degreasing system?
For an initial investment of $155,365, the
company realizes savings in the first year of
$54,414. The 10 year net present value (NPV)
of the investment is $101,292.
The Aluminum Processing Company (APC),
based in Fall River, Massachusetts, is a subsidiary of Lightolier-Genlyte, a national
manufacturer and distributor of lighting products and accessories. APC fabricates aluminum
reflectors for Lightolier's track and recessed lighting products.
As a subsidiary of Lightolier-Genlyte (L-G), APC manufacturing processes are guided by the
L-G corporate environmental policy. To meet the corporate environmental objectives, APC
recently embarked on a pollution prevention program in its fabrication operations. The initial
pollution prevention project included assessing the replacement of a vapor degreasing system
with an aqueous degreasing system. The Massachusetts Office of Technical Assistance (MA
OTA) assisted APC carry out the analysis.
The manufacture of aluminum reflectors involves several steps. First, thin aluminum sheet is
cut to a specified diameter and passed on to a machine where they are pressed into the
reflector shape. The aluminum is coated with oil prior to entering the pressing process. The
newly formed reflectors are then cleaned (degreased), buffed, and either plated or painted
before packaging and shipping. Prior to this project, this manufacturing process involved the
production of pollutants at three points:
* a petroleum-based oil was used in the forming machinery,
4- the cleaning process employed vapor degreasers which used trichlorethylene
(TCE), and
* the paint spray booths produce toxic air emissions.
The use of TCE, in particular, was a concern to APC. In 1990, the company used 73.5 tons of
TCE at a cost of approximately $425 per ton. Of this, less than 10 percent was recovered and
recycled, and a cost of $425 per ton. In addition, the presence of TCE took a significant
amount of staff tune due to monitoring the degreasers, manifesting the TCE sent out for
recycling, reporting spill and leak incidents, and SARA Title three compliance reporting. In
addition, the presence of TCE required that all employees receive 8 hours of annual training.
Finally, every 50 gallon drum of TCA required about 20 minutes to label upon both receiving
and shipping.
In an effort to tackle all three problems simultaneously, APC decided to substitute a non-
petroleum-based oil in the forming machinery and replace one TCE-based degreaser with an
22
-------
ALUMINUM PROCESSING COMPANY
COST CONSIDERATIONS
Year One Savings
Solvent Purchase
$31,104
Solvent Disposal
$3,120
Eliminated Maintenance
$20,000
Labor
$11,850
Reduced Training
$900
Total Savings
$66,974
Year One Costs
Operating/Maintenance
$2,000
Detergent Purchases
$10,500
Total Costs
$12,500
aqueous solution model. Another degreaser
was replaced with an integrated aqueous
degreaser/electrostatic powder coater unit. The
powder coater is a method of applying a
coating that eliminates most of the emissions
associated with spray painting.
ANALYSIS The costs associated with purchasing and
installing the new equipment is estimated at
$155,365, of which $134,670 can be
capitalized and depreciated over the life of the
project. Annual operating and maintenance
costs associated with the new equipment total
$2,000. In addition, annual detergent purchase
costs for the aqueous degreaser total $10,500.
The annual cost savings associated with discontinuing the current process are greater than the
annual costs associated with the new equipment. The elimination of TCE purchase saves
$31,104 annually. Elimination of spent solvent disposal saves $3,120. Annual cost savings
from eliminating maintenance for the old system are approximately $20,000 per year. Labor
associated with TCE (incident reporting, monitoring/manifesting, labeling) are eliminated,
saving $11,850 annually. In addition, the absence of TCE reduces the time needed for
mandatory employee training, resulting in a $900 savings. Starting in year two,, APC saves
$1,100 annually in reduced regulatory fees paid to Massachusetts under the State's Toxic Use
Reduction Act.
Finally, the installation of the new equipment eliminates the need for an unavoidable overhaul
of the current equipment. This saves $40,000 in year two.
FINANCIAL The analysis uses a discount rate of 15 percent, an inflation rate of 5 percent, a net tax rate of
PARAMETERS 39 percent, and straight line depreciation over a ten year period.
FINANCIAL The 10 year net present value of the project is $101,292.
RESULTS
CONTACT Not provided.
SOURCE Northeast Waste Management Officials' Association and the Massachusetts Office of
Technical Assistance, Improving Your Competitive Position: Strategic and Financial
Assessment of Pollution Prevention Projects: Instructor's Guide. 1994.
23
-------
DEBOURGH
BUSINESS CAPITAL INVESTMENTS
DECISION Are the following investments justified:
(1) conversion from a high solids, baked enamel
paint to TGIC polyester powder coatings; and (2)
insulation of paint drying and curing ovens.
BUSINESS For an initial investment of $289,029, DeBourgh
BENEFITS saves $142,673 in operating costs in the first
year, The discounted payback period is 4.17
years.
COMPANY PROFILE
Location: La Junta, CO
Size: 80 employees
Annual Revenues: $6 million
Business: Manufacturer of all-
welded athletic and corridor lockers
for schools and industry.
WHY WAS
PROJECT
PERFORMED?
DeBourgh Manufacturing Company is located in La Junta in Southeastern Colorado, The
firm manufactures all-welded athletic and corridor lockers for schools and industry.
DeBourgh has 80 employees, and its annual sales are around $6 million,
DeBourgh has an active resource management program responsible for finding ways to
increase profits through pollution prevention and energy efficiency improvements, DeBourgh
is a partner in the DOE Climate Wise program,
PROJECT DeBourgh has also participated in the DOE Energy Conservation/Pollution Prevention
DESCRIPTION Assistance for Industry program. A 1995 assessment performed by Colorado State University
(CSU) helped DeBourgh personnel identify a number of pollution prevention and energy
efficiency projects that offered and increases in productivity and profit.
The project analyzed here is a combination of two recommendations from the CSU report.
The report recommended that DeBourgh (1) convert from a high solids, baked enamel paint
to TGIC polyester powder coatings and (2) that the paint drying and curing ovens be
insulated.
Together these efforts demonstrate the effects of materials substitution and process
improvements on raw materials and energy usage, waste disposal, and other operating costs.
DeBourgh completed the paint conversion hi February-March, 1996 and the oven insulation
modification hi April, 1996. Both projects were financed internally.
ANALYSIS The powder coating system installed by DeBourgh is a feature-enhanced, custom designed,
semiautomatic system with oscillating spray guns and three manual stations. The system is
used for roughly 75% of DeBourgh's production (the remaining 25% of products require
liquid paint). The new electrostatic system doubles DeBourgh's painting capacity and
reduces the number of rejects by almost 50% with absolutely no hazardous emissions to the
outside environment. The total cost of the powder coating system, including installation,
delivery, associated upgrades to the fire system, and purchasing expenses, is $289,029.
The oven insulation reduces heat loss from the existing paint drying and curing ovens.
Including installation, the cost is $18,340.
24
-------
DEBOURGH
COST CONSIDERATIONS
Year One Savings
Raw Materials
$39,000
Labor
$73,000
Waste Management
$12,000
Utilities
$14,673
Regulatory Compliance
$4,000
Total
$142,673
A variety of annual cost savings are associated
with the conversion from liquid (solvent-
based) paint to powder paint. Firstalthough
the costs per unit of powder paint and liquid
paint are similarless powder paint is wasted
because it has a higher transfer efficiency, thus
less is purchased. Powder paint's higher
transfer efficiency also allows DeBourgh to
replace the paint booth air filters less often.
DeBourgh expects no change in paint storage costs or in paint equipment electricity use.
Powder paint equipment can be cleaned with compressed air, so DeBourgh reduces its
purchases of xylene, which is used as a cleaning solvent for the liquid paint equipment.
DeBourgh has an in-house solvent recycling unit that allows xylene to be reused, but the
recycling process produces a hazardous sludge waste. This waste is regulated under RCRA,
and is expensive to dispose. The reduction in solvent use allows DeBourgh to save on these
disposal costs, regulatory paperwork, storage, and liabilityas well as on the electricity and
labor required by the recycling unit.
Other labor cost savings result from increased painting automation and reduced paint booth
cleanup. Worker health and productivity should also improve, because there will be fewer
hazardous air emissions from the liquid paint and cleaning solvent (powder paint has no air
emissions). In addition, the reduction in air emissions allows DeBourgh to save on annual air
emissions fees, air quality monitoring, regulatory paperwork, and plant air ventilation (which
includes heating the make-up air).
In total, DeBourgh. is able to quantify $132,463 of savings associated with the powder coating
system. However, this figure does not include unquantified savings such as improved
throughput, quality, and productivity; reduced liability, storage costs, and regulatory
paperwork; and reduced worker exposure to VOC emissions. The oven insulation reduces
DeBourgh's reliance on natural gas by $10,210 annually.
FINANCIAL The analysis uses a project lifetime of 10 years, real cost of capital of 9%, a net tax rate of
PARAMETERS 39%. Capital costs are depreciated over 10 years using the straight line method.
FINANCIAL The 10-year NPV is $264,865; the 10-year IRR is 26.8%; the discounted payback period is
RESULTS 4.17 years.
CONTACT Deborah Savage, Tellus Institute, (617) 266-5400.
SOURCES Colorado State University Industrial Assessment Center, Energy Conservation & Pollution
Prevention Assessment Report No. COOS32. March 1995.
Savage, Deborah, and David Miller, "Workshop on Innovative Financing Results".
Originally presented at the "Energy Efficiency & Pollution Prevention" conference sponsored
by the Department of Energy. Denver CO, January 23, 1997.
25
-------
HYDE TOOLS, INC,
BUSINESS
BENEFITS
WHYWAS
PROJECT
PERFORMED?
COMPANY PROFILE
Location*, Southbridge, MA
Size: 250 employees
Annual Revenues: Not reported
Business: Family-owned
manufacturer of surface preparation
and maintenance hand tools.
BUSINESS CAPITAL INVESTMENTS
DECISION Analysis of the purchase of system to recycle
wash and rinse water, and quench oil from a heat
treating process line.
The initial investment of $20,055 accrues annual
savings of $9,360. The 10 year net present value
of the hi vestment is $14,601.
Hyde Tools is a third generation, family-owned
manufacturer of a range of surface preparation and maintenance hand tools. The company is
a major employer in Southbridge, and has always striven to provide comfortable working
conditions for its employees. The company's purchasing manager has taken an active interest
in pollution prevention and Hyde, and has implemented a number of low-tech low-cost
pollution prevention projects.
In 1990, the company set a goal of zero discharge by 1992, The plan to attain the goal had a
number of components, many of which were intended to reduce the use of town water and
sewage services. The company first decided to address discharges from the heat treatment
process lias for the company's knives and scrapers. The Massachusetts Office of Technology
Assistance helped the company carry out a total cost analysis (TCA) of this project,
PROJECT Hyde Tools manufactures a number of wall scrapers and blades in several different sizes and
DESCRIPTION shapes. All of these blades are made of carbon steel, and undergo a heat treatment process to
improve the performance of the material. This process is as follows: blades are loaded onto
racks which take submerge them hi a tank filled with molten salt (1600-1800°F). The rack is
then plunged into a 500 gallon tank of quench oil in order to cool the blades. The blades are
then washed and rinsed twice to remove the oil.
The heat treatment process accumulates 12 drums of equal parts water and oil every six
weeks. The waste is sent off site for reclamation and water removal. The company
determined that in-process recycling offered the best solution to eliminate this discharge.
This recycling system would not only recycle wash and rinse waters, but would also recycle
the quench oil. The proposed system would reduce the cost if reclaiming the quench oil,
eliminate the pumping of oil to the drum, and recirculate wash and rinse water to the extent
feasible, without discharging to the sewage system.
ANALYSIS The total expenditure for the purchase of the filtration and recycling equipment is $20,055.
This price includes training hi the use and monitoring of the system. Installation costs
amount to about $5,000. In addition, a float switch and associated alarm system (for the
purpose of monitoring fluid levels) need to be purchased ($250) and installed ($500).
Annual operating costs associated with the new system total $3,900, and comprises purchase
of filtration medium ($1,300) and disposal of used filtration medium ($2,600).
26
-------
FINANCIAL
PARAMETERS
HYDE TOOLS, INC.
COST CONSIDERATIONS
Annual Savings
Water Usage
$8,760
Reduced Permit Fees
$4,200
Reduced Testing
$300
Total Savings
These increased costs are offset by annual
savings of $13,260 incurred due to
discontinuing the current process. This total is
embodies the following: 20 percent reduction
in water usage ($8,760); permit fee savings
incurred due to moving from a major to low
discharge water user ($4,200); and, savings
associated with reduced testing requirements
($300).
The analysis uses the following economic
parameters: 40 percent net tax rate; 15 percent discount rate; 5 percent inflation; straight line
depreciation over ten years.
$13,260
Annual Costs
Filtration Medium
$2,600
Filter Disposal
$1,300
Total Costs
$3,900
FINANCIAL The 10 year net present value of the investment is $14,601. The project was approved on the
RESULTS basis of its quantitative and qualitative merits, and installed in May 1991.
INSTITUTIONAL The success of this project demonstrated to Hyde the potential benefits that pollution
CHANGE prevention projects can provide. The results of this project encouraged Hyde to carry out
several additional pollution prevention projects, including the following:
Change in procedures to prevent plant spills from being discharged into the town's
sewer system;
Elimination of the use of 1,1,1 trichloroethane;
Replacement of kerosene with a water-based cleaner for removing polishing
compounds ($12,825 annual savings);
Replacement of fluorescent lighting with high pressure sodium or metal halide
lighting ($48,000 annual savings)
CONTACT Not provided.
SOURCE Northeast Waste Management Officials' Association and the Massachusetts Office of
Technical Assistance, Improving Your Competitive Position: Strategic and Financial
Assessment of Pollution Prevention Projects: Instructor's Guide. 1994.
27
-------
A JEWELRY COMPANY
BUSINESS
DECISION
BUSINESS
BENEFITS
WHYlA/AS
PROJECT
PERFORMED?
COMPANY PROFILE
Location: Sutton, MA
Size: 500 employees
Annual Revenues: Not reported
Business: Manufacturer and
distributor of jewelry, personal
leather goods, and personal accessory
items
CAPITAL
Is a capital investment in a chemical-reducing
ethyl acetate still financially justified?
For an investment of $16,000, the company
would realize annual operating savings of
$18,000 in each of the first five years.
This company has long demonstrated a genuine
concern for the well-being of its employees and
its community. It has taken an active posture in
addressing the environmental concerns of the town in which it operates, often acting well in
advance of regulations. Although the facility was in compliance with all applicable
regulations, the Environmental Manager was eager to reduce the volume of ethyl acetate used
to strip lacquer from its plating racks. The high cost of both the purchase and disposal of the
ethyl acetate presented an opportunity for cost savings,
The analysis was conducted by the company's VP of Environmental Affairs with the help of a
Massachusetts Office of Technical Assistance representative. A previously submitted
proposal for an investment to enable reduced ethyl acetate use had not received corporate
approval, despite an estimated 11 -month payback. The VP wanted to resubmit the proposal
using a more formal financial analysis. The study was included in a training manual for using
financial assessment for pollution prevention projects prepared by the Northeast Waste
Management Officials' Association.
To produce jewelry with a white finish, the facility had determined that silver was the best
metal in terms of both aesthetics and manufacturability. To prevent tarnishing, silver-plated
pieces must be coated in lacquer prior to finishing. To perform this process, the pieces are
placed in plating racks that are dipped in lacquer. After the pieces have been removed, the
racks are stripped of the lacquer using ethyl acetate. Once the ethyl acetate is exhausted, it is
disposed of as hazardous waste.
The facility investigated options for reducing the volume of ethyl acetate it purchased and
disposed of and decided that a solvent recovery still offered the best solution. Several
vendors presented bids, among which was a $14,000 unit with a $2,000 installation cost that
the facility chose. The new system would be placed in-line with the lacquer dipping
operation and would allow the ethyl acetate to be recovered and reused until it lost its ability
to strip the lacquer.
ANALYSIS The investment in a solvent recovery still was evaluated using a financial assessment method
intended to include environmentally-related costs that are often omitted from investment
analyses. The only initial investment cost was the purchase of the still and its installation.
Annual operating cost savings from anticipated reductions in ethyl acetate purchases, disposal
of spent ethyl acetate, manifesting labor, and Toxics Use Reduction Act fees. The additional
costs from operation of the still are an increase in utility costs to power the equipment and
PROJECT
DESCRIPTION
28
-------
A JEWELRY COMPANY
COST CONSIDERATIONS |
Year One Savings
Materials
Chemical Disposal
Manifesting
Compliance
Total Savings
Waste Disposal
Utilities
Total Costs
$ 19,000
$11,000
$400
$ 1,000
$ 31,400
Year One Costs
$ 13,000
$200
$ 13,200
costs of disposing the still bottoms.
FINANCIAL The analysis incorporates these costs in a
PARAMETERS discounted cash flow model that assumes a
five-year useful life of the equipment. The
model uses a discount rate of 15% to
represent the firm's cost of capital, an
inflation rate of 5%, and a corporate income
tax rate of 40%. The model also considers the
tax savings from a straight-line depreciation
of the solvent recovery still investment.
FINANCIAL The discounted cash flow analysis yields a net present value (NPV) of $28,279 for the initial
RESULTS $16,000 investment. Compared to the 11-month simple payback calculated in the original
company analysis, the discounted payback of this analysis shows that the investment would
pay for itself in less than seven months. The weekly operating savings expected from the still
installation is estimated to be over $300 just from purchase and disposal costs. The inclusion
of depreciation tax savings contributes over $4,000 to the investment's NPV.
CONTACT Northeast Waste Management Officials' Association (617) 367-8558
Massachusetts Office of Technical Assistance (617) 727-3260
SOURCE Northeast Waste Management Officials' Association and the Massachusetts Office of
Technical Assistance, Improving your Competitive Position: Strategic and Financial
Assessment of Pollution Prevention Projects: Training Manual. 1994.
29
-------
MAJESTIC METALS
BUSINESS CAPITAL INVESTMENTS
DECISION is the capital investment in high volume, low
pressure spray guns to replace conventional
paints spray guns justified?
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
COMPANY PROFILE
=> Location: Denver, Colorado
=> Size; 100 employees in 2 shifts
=> Annual Revenues: Not reported
=> Business: Manufacturer of precision
sheet metal primarily for the medical
and electronics industries.
For a capital investment of $3,002, Majestic
Metals sees operating costs savings of $40,298 in
the first year.
Majestic Metals, Inc., located in Denver,
Colorado, is a precision sheet metal manufacturer primarily serving the medical and
electronics industries. Majestic Metals, Inc., has a complex operation that includes shearing,
punching, forming, welding, painting, and silk-screening. Over 750,000 parts are produced
annually, and more man 1,400 parts are in the facility at any given time. The firm has a
workforce of about 100 and works two shifts.
Majestic Metals, Inc., is committed to pollution prevention, waste minimization, and energy
efficiency, and believes this commitment can contribute substantially to the bottom line.
As a result of this commitment, Majestic Metals realizes annual savings of over $40,000 and
is recognized by customers and within the community as a leader in this area. The company
has developed major new customers as a result of its environmental efforts. Worker safety
programs have reduced accidents by 75 percent in the last four years and the company reports
productivity gains due to improved employee awareness and participation in pollution
prevention projects.
Majestic Metals is a partner in the DOE Climate Wise program. Majestic Metals has also
participated in the DOE Energy Conservation/Pollution Prevention Assistance for Industry
program. A 1992 assessment performed by Colorado State University (CSU) helped identify
a number of pollution prevention and energy efficiency projects that offered increased
production capacity and lower cost through improved process design and recycling of
valuable materials. The paint gun conversion discussed in this snapshot is one of the
modifications recommended in the CSU report.
PROJECT The project in this snapshot is the replacement of conventional paint spray guns with high
DESCRIPTION volume, low pressure (HVLP) spray guns for painting parts and completed systems. This
equipment change, financed with internal funds, allowed significant reductions in both raw
material usage and volatile organic compound (VOC) emissions from solvent evaporation.
Painting consists of three basic steps: surface preparation, paint application, and cleaning. In
preparing a part for painting, workers manually plug holes and tape over sections that will not
be painted. Workers also mix the base paint with solvent mixing materials to achieve the
proper viscosity. Paint application occurs in a three-sided paint booth, which is equipped
with a large (8'xlO1) filter to remove paint particles from the air. Parts are carried into the
booth on an overhead conveyor system, and painted using paint spray guns aimed in the
30
-------
MAJESTIC METALS
direction of -the filter. The paint guns are
cleaned before each color change by spraying
pure solvent through them.
ANALYSIS The HVLP paint guns installed by Majestic
Metals transfer paint to parts more efficiently
than conventional paint guns because the paint
travels through the air at lower velocity and is
less likely to bounce off the surface being
painted. HVLP paint guns have a transfer
efficiency rating of roughly 55%, while
conventional guns have a rating of about 30%.
COST CONSIDERATIONS
Year One Savings
Raw Materials:
Paint
$27,170
Mixing Materials
$3,532
Paint Booth Filters
$8,136
Labor:
Paint Gun Washing
$730
Paint Mixing
$730
Net Savings
$40,298
The total cost of the seven HVLP guns is
$3,002. Installation is simple and is not significant enough to be included in the analysis.
Majestic Metals achieves a variety of savings in annual operating costs due to the higher
efficiency of HVLP paint guns. Most importantly, HVLP paint guns use less paint and
mixing materials than conventional guns. HVLP guns also reduce the burden on paint booth
air filters, so that they can be replaced less often. Together, the annual cost of raw materials
are reduced by $38,838from $82,266 to $43,428. Like conventional paint guns, HVLP
guns are cleaned with solvents (produced by Majestic Metals' on-site solvent recycling
system), however HVLP paint guns require less labor to clean than conventional guns. There
is also a labor savings due to reduced paint mixing time. Together, annual labor costs are
reduced by $1,460from $5,100 to $3,640. It does take slightly longer to paint parts with
HVLP guns. This does not present a throughput problem, however, because the primary
bottleneck in the paint department is in preparing and masking parts before they are painted.
Because paint use declines, solvent air emissions also decline, contributing to improved
worker health and productivity. Estimated air emissions are reduced by 5,040 pounds per
year. The HVLP paint gun project also plays a role in maintaining Majestic Metals' P2
leadership role: the company reports that is has gained at least two major new customers
from publicity surrounding its various P2 efforts. These effects are not quantified.
FINANCIAL The analysis uses a project lifetime of 8 years, cost of capital of 12%, a 3.3% inflation rate, a
PARAMETERS net tax rate of 39%. Capital costs are expensed.
FINANCIAL The 8-year NPV is $140,900; the 8-year IRR is 906%; the discounted payback period is 0.12
RESULTS years.
INSTITUTIONAL
CHANGE
Majestic Metals experience with EGA in this case has had a moderate impact on the
company's internal financial analysis and other practices. As a custom manufacturer,
Majestic Metals does little product design, so most analysis is related to process changes.
Environmental issues and new equipment are high priority. Longer time horizons are of
"interest" to the company, but stated guidelines have not been modified. Indicators now
calculated include raw material considerations.
CONTACT Deborah Savage, Tellus Institute, (617) 266-5400.
31
-------
MAJESTIC METALS
SOURCES Colorado State University Waste Minimization Assessment Center, Waste Minimization
Assessment Report No. 56-33. July 1992,
Savage, Deborah, and David Miller, "Workshop on Innovative Financing Results", Originally
presented at the "Energy Efficiency & Pollution Prevention" conference sponsored by the
Department of Energy. Denver CO, January 23,1997.
Denton R. Johnson, Majestic Metals, November 12,1997,
32
-------
MANUFACTURER OF PRECISION METAL PARTS
BUSINESS CAPITAL INVESTMENTS
DECISION Which of three possible alternatives to the CFC
degreaser is best: (1) alkaline cleaner with off-
site disposal; (2) alkaline cleaner with discharge
to sewer; (3) alkaline cleaner with in-house
recycling?
BUSINESS For an investment in equipment of $11,400, the
BENEFITS manufacturer realizes an annual cash flow
reduction of over $25,000. An investment of an
additional $4,000 in recycling equipment realizes
$1,000. The 8-year net present values of the
$73,531; (3) $76,926.
COMPANY PROFILE
Location: Massachusetts
Size: 16 employees
Annual Revenues: Not reported
Business: Milling, tapping, reaming,
and lathe work with brass, aluminum,
stainless, or cast metals.
an additional cash flow reduction of about
three alternatives were: (1) $77,400; (2)
WHY WAS
PROJECT
PERFORMED?
PROJECT
DESCRIPTION
This manufacturer needs to clean petroleum-based threading and cutting lubricants, as well as
water-based machine tool coolants from large quantities of small parts made of brass,
aluminum, stainless steel, or cast metals. Due to both regulatory considerations and the
company president's commitrnent to environmental stewardship, the company wished to
identify an alternative to its CFC-based vapor degreaser. P2 Consulting conducted a
comprehensive financial analysis comparing the CFC-based cleaning system with an alkaline
aqueous cleaning methodology. Three disposal options for the waste cleaner were analyzed:
(1) off-site disposal; (2) discharge to sewer; (3) in-house recycling.
In 1989, this small manufacturer of precision metal parts used 2,673 pounds of Freon TF in its
vapor degreaser for cleaning lubricants and coolants from product. Purchases of this CFC
cleaning material cost the company $27,907 annually. In 1990, the company began looking
for an alternative cleaning process. Although continuing to use the CFC-based vapor
degreasing process remained financially feasible, it was ruled out because of regulatory
considerations and because of the company president's commitment to environmental
stewardship.
Research and experimentation revealed that a mild alkaline detergent was effective for
cleaning. Three options were available for disposing the waste alkaline cleaner: (1) off-site
disposal; (2) discharge to sewer; (3) in-house recycling.
ANALYSIS In addition to the annual CFC purchase cost of $27,907, the manufacturer also faced off-site
disposal costs of $365 per drum of waste CFCs. At the time of the analysis, the facility was
considered a "very small" generator of wastes under Massachusetts law. Thus, time and costs
associated with paperwork were minimal.
The CFC degreaser required maintenance several times a year at an estimated annual cost of
$320. Other miscellaneous costs associated with the CFC degreaser bring its total annual
operating cost to $28,627.
33
-------
MANUFACTURER OF PRECISION METAL PARTS
COST CONSIDERATIONS
Annual Savings
CFC Degreaser Costs
$28,627
Total Savings
Disposal Option
$28,627
Annual Cost
Off-Site Disposal
$1,645
Discharge to Sewer
$2,857
Recycling
$810
Moving to the alkaline cleaning system
requires a capital expenditure of $11,400, and
results in an annual savings of the $28,627
operating costs associated with the CFC
degreaser. These savings are offset somewhat
by costs associated with the disposal options.
These costs are described in detail below.
(1) Sending the Waste Cleaner Off Site
Because the facility is already shipping other
waste off site, little additional effort would be required to implement this option. However,
the increase hi waste generated would change the facility's status from that of a 'Very small"
to a "small" quantity generator, meaning greater exposure to liabilities. Annual costs
associated with this option total $1,645, and include an annual laboratory testing fee of $400
to assure the hauler of waste specifications., a disposal fee of $210, and maintenance costs of
$860,
(2) Discharging the Waste Cleaner to the Sewer
The company estimated the waste cleaner would need to be discharge six times a year. The
addition of spent cleaner would not significantly change the facility's discharge flow to the
local sewage treatment plant As a good-faith gesture on the company's behalf, as well as a
protection against potential legal challenges, this option would require a $300 laboratory
testing fee for each discharge, totaling $1,800 a year. Other costs would be substantially the
same as for the off-site disposal option, resulting in total annual costs of $2,857.
(3) Recycling the Waste Cleaner
Recycling the waste cleaner would require the purchase of a small ultrafiltration unit at a cost
of $4,000, Not only would this enable the recycling of the waste clean, but it would also
allow the recycling of spent machine coolant, resulting in a net annual savings of $265.
Labor and other costs offset this savings to result in net annual costs of $810.
The analysis uses straight-line depreciation, a 40% corporate tax rate, and a 10% discount
rate.
The switch to the alkaline cleaning system results in an annual savings of $28,627, This
savings is offset by annual disposal costs of $810 to $2,857, depending on the option selected,
resulting net annual savings of $25,770 to $27,817, The 8-year net present values of the three
options were: (1) $77,400; (2) $73,531; (3) $76,926. The company implemented option (3).
The company felt the overall environmental benefits were a sound business reason to select
this option.
CONTACT Not provided.
SOURCE Kennedy, Mitchell, "Getting to the Bottom Line: How TCA Shows the Real Cost of Solvent
Substitution." Pollution Prevention Review, Spring 1994.
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
34
-------
A METAL FABRICATION COMPANY
BUSINESS
DECISION
BUSINESS
BENEFITS
CAPITAL INVESTMENTS
Study of an investment in equipment to separate
water from paint washwater and oil/water wastes
to reduce disposal costs.
For and initial investment of $19,659, this
company saves $5,234 in the first year. Using
total cost assessment (TCA) method; simple
payback is 3.8 years. The company's initial
analysis yields a payback period of 4.3 years.
WHYWAS
PROJECT
PERFORMED?
PROJECT
DESCRIPTION
COMPANY PROFILE
Location: New Jersey
Size: 200-300 employees
Annual Revenues: Not reported
Business: Metal fabrication,
primarily for a computer
manufacturer.
This privately owned company operates as a metal fabrication shop for a major computer
manufacturer (which represents 90 percent of the company's sales), and an office furniture
maker. Because of this close business link, the two customers have a strong influence on the
company's processes and materials. For example, the office furniture manufacture has
specified and paid for the installation of a powder coating line. Similarly, at the
recommendation of the computer maker, the company replaced low efficiency spray
equipment with high efficiency equipment.
The company's metal fabrication and painting activities generate a variety of waste streams,
including: scrap, metal; spent solvent from vapor degreasing; nitric acid and sodium
hydroxide from etchants; cutting oil and fluid from metal working; lubrication oil;
ammonium hydroxide from water-based paint clean-up; organic solvents from paint clean-
ups; fiberglass filters coated with paint from spray boots; and waste paint from overspray,
cleanup, and expired inventory. Approximately $60,000 is spent annually for waste disposal.
Management learned that a similar company was using a paint/water separator to reduce
washwater disposal costs. After some preliminary investigations, management decided to
prepare a cost analysis of the project. The TCA was conducted as part of a pilot to study the
potential for TCA application in New Jersey.
The company generates about 1,600 gallons of water-based paint washwater annually in the
course of flushing spray paint guns. This waste stream (95% water, 4% ammonia, 1% water-
based paint pigments) is currently disposed of by the company in an incinerator at an annual
cost of $7,022. In addition, the company's metal grinding operations generates about 2,900
gallons of water soluble oil from lubrication and cooling. This waste stream is also disposed
of by incineration at an annual cost of $1,884.
The project under evaluation is a 100 gallon batch system for separating the waste water into
three components: oil, paint solids, and filtered water warranted to meet discharge standards.
The system consists of two tanks, stacked vertically with a filter between them. Waste water
is mixed with treatment chemicals in the upper tank. Once flocculation has occurred, a valve
on the bottom of the top tank is opened, and the sludge is captured in a filter.
35
-------
A METAL FABRICATION COMPANY
COST CONSIDERATIONS
Year One Sa\ mas
Waste Management
$6,135
Regulatory Compliance
$194
Total Savings
$6,329
Year One Costs
Materials
Utilities
Labor
Total Costs
$218
$163
$714
$1,095
ANALYSIS The preliminary financial analysis performed
by the company calculates the initial purchase
equipment costs as $18,880. In addition, $779
worth of materials and supplies (i.e., chemicals
and filter paper) are required as working
capital, making the total investment $19,659,
Increased annual costs associated with the
separator include $218 in materials and
supplies (i.e., chemicals and filter paper), $136
in increased utility costs, and $714 in increased
labor costs. These annual costs are offset by a
$5,651 savings hi waste management costs.
The net annual cost savings are estimated at $4,583,
The in-depth total cost assessment (TCA) reveals additional costs and savings. Additional
investment costs total $74$15 for installation and $59 for trainingfor a total of $19,733.
Additional annual operating costs revealed by TCA total $221, and include additional waste
management costs ($138), additional utility costs ($27), and additional regulatory compliance
costs ($29), Additional annual savings revealed by TCA total $845, and include: additional
reduced waste management costs ($622) and reduced regulatory compliance costs ($223).
The net annual cost savings are estimated at $5,234,
FINANCIAL The analysis uses a 12 percent cost of capital. The net income tax rate is assumed to be 48
PARAMETERS percent. Capital is depreciated over seven years, using the double declining balance/straight
line method.
FINANCIAL The company's initial analysis yields: 15-year NPV of $9,332; 15-year IRR of 20%, and
RESULTS payback of 4.3 years. Using total cost assessment (TCA) method, the analysis is similar,
although slightly more favorable: 15 year net present value (NPV) is $12,436; the 15 year
internal rate of return (IRR) is 23%; simple payback is 3.8 years.
CONTACT Deborah Savage, Tellus Institute (617)266-5400.
SOURCE White, Allen L., Monica Becker, and James Goldstein, Alternative Approaches to the
Financial Evaluation of Industrial Pollution Prevention Investments. Prepared for NJ DEP.
November 1991. Also: White, Allen L., Deborah Savage, and Monica Becker, Revised
Executive Summary, June 1993.
36
-------
PRODUCTION PLATING, INC.
BUSINESS CAPITAL INVESTMENTS
DECISION Are capital ' investments in a less-polluting
powder recovery unit and rinsewater recycling
system financially justified?
BUSINESS An $8,000 investment yielded annual operating
BENEFITS savings of $10-15,000. For a second investment
of $129,000, Production Plating would realize
annual operating savings of over $50,000.
COMPANY PROFILE
=> Location: Mukilteo & Redmond, WA
=> Size: 100 employees
=> Annual Revenues: $5,000,000
=> Business: Metal finishing, powder
coating
WHY WAS
PROJECT
PERFORMED?
Production Plating is committed to making pollution prevention (P2) investments to improve
its environmental performance while improving operating efficiency and reducing costs. The
company believes these initiatives to reduce pollution will make it more competitive and
better positioned to respond to future regulatory requirements. The company had recently
invested in a powder coating capture and reuse system at the Redmond facility and was
considering a rinsewater recycling system at the Mukilteo site. The company hoped to use
this analysis to assess the economic viability of the projects.
The analysis was conducted jointly by the company and the Pacific Northwest Pollution
Prevention Resource Center (PPRC) to assess the feasibility of total cost assessment (TCA), a
decision method designed to enhance capital budgeting decisions in connection with P2
projects. The study was undertaken in response to needs identified by the local metal
finishing industry to have access to an effective, practical P2 cost evaluation method.
Production Plating volunteered its proposed projects for analysis.
PROJECT The first investment was for a powder coating recovery system. Powder coating is a dry
DESCRIPTION painting process in which the powder is applied to metal parts using a spray gun. The
recovery system is coupled to the spray booth's existing filtration system to capture sprayed
powder and return it to the spray gun feed container for reuse. The system reduces the total
amount of powder needed and the amount of spent powder that has to be sent to landfills as
non-hazardous waste.
The second investment was for plant-wide plating rinsewater recycling. The facility had
established a goal to reduce the amount of water used and discharged by the rinsewater
process. The water is collected in sludge tanks as non-heavy metal, acid/chrome, mildly
alkaline/cleaner, or alkaline. These four waste streams go through various treatment and
disposal processes that physically occupy five percent of the facility's operating space. An
alternative to the current processes was a rinsewater ultrafiltration recycling system that
would reduce the volume of water discharged by 90%, increase floor space, and reduce
treatment chemical handling and use.
ANALYSIS Both projects were evaluated using Total Cost Assessment (TCA), a method to enhance
capital budgeting decisions in connection with P2 projects. The powder coating recovery
system was analyzed in terms of its costs for coating one representative part for which pre-
and post-system data were available. The costs of the unit and of subsequent filter
37
-------
PRODUCTION PLATING, INC.
COST CONSIDERATIONS
Powder Recover? . Year One Savings
Paint Savings
$ 10,900
Total Savings
Rirm'water Svsteni
$ 10,900
Year
Saviags
Labor
$ 15,600
Materials
$ 48,400
Sludge Disposal
$ 5,000
Fines/Penalties
$ 3,000
Total Savings
S 72,000
replacements and the cost savings from less
wasted powder, including lower purchase
and disposal costs, were the key cost
components included in the analysis. Also
included was a tax exemption for which
Production Plating was qualified.
Contingent/liability and less-tangible costs -
including materials handling, future
liability, corporate image, customer
response, and market share were
considered qualitatively to provide a broader
perspective on less tangible costs and
savings. The cost of the recovery unit was depreciated on a straight-line basis.
Hie rinsewater ultrafiltration system was evaluated by comparing current operating costs with
expected costs of the new system. The main cost components for this analysis were treatment
chemicals, worker and management labor, monitoring costs, filter costs, current and future
violation penalties, testing and reporting labor, and sludge disposal costs. The company also
qualitatively considered many less tangible benefits such as improved air quality, lower
accident risk, freed-up work space, reduced liability, fewer worker injuries, and enhanced
employee morale. The cost of the system itself was included and depreciated on a straight-
line basis.
The analysis uses an inflation rate of 5% and a discount rate of 15%.
The powder recovery system investment yielded a five-year net present value (NPV) of
$18,334 with a discounted payback under 15 months. The analysis assumed a certain
production level, paint cost, powder savings, and equipment life. A sensitivity analysis
showed the production level to be the dominant profitability driver; a reduction by 50% in the
assumed production level would raise the payback to 2,5 years.
The annual cost of the existing rinsewater system was estimated at approximately $123,000,
driven largely by water usage. Projecting over a ten-year period, a TCA analysis of the
proposed ultrafiltration system yielded a NPV of $168,697 with a discounted payback period
of 2,3 years. This analysis also used an inflation rate of 5% and a discount rate of 15%.
CONTACT Chris Montovino, PPRC (206) 223-1151
Mark Wilsen, Production Plating, Inc. (206) 347-4635
SOURCE Pacific Northwest Pollution Prevention Resource Center, Analysis of Pollution Prevention
Investments Using Total Cost Assessment: A Case Study in the Metal Finishing Industry. July
1996.
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
38
-------
WILLIAMS PRECISION VALVE COMPANY, INC.
wet
BUSINESS
DECISION
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
PROJECT
DESCRIPTION
COMPANY PROFILE
Location: U.S. subsidiary of
European multinational with plants in
Rundel and Fairhaven, MA
Size: ~1,000 employees
Annual Revenues: ~$150 million in
sales in U.S. in 1990
Business: Manufacturer of precision
industrial valves and actuators for
chemical, pulp and paper, railroad,
and oil industries.
vrfSvMy »WVW S
CAPITAL INVESTMENTS
Study of a closed-loop system on zinc phosphate
plating line to eliminate plant's discharge to
sewer.
The purchase cost of the waste water
recirculation system is $55,000. Associated net
annual savings total $26,272.
Williams Valve produces high performance
valves that meet rigid specifications. Their
products are used in critical operations where
exacting tolerances must be adhered to.
Williams operates at the high end of the valve
market, where quality and service, rather than price, are the criteria of competition. It has
positioned itself as a designer and supplier of one-of-a-kind products developed for highly
specialized operations.
Williams operates under environmental guidelines provided by the corporate parent.
Williams has translated these guidelines into a set of policies and practices that encourage a
proactive approach to environmental management. The company has created a team of high
level management personnel charged with overseeing environmental compliance and
initiating pollution prevention initiatives.
The primary source of wastewater in Williams' production operations are associated with the
process of coating parts with zinc phosphate to inhibit corrosion. The processes consists of a
series of cleaning and rinsing step both prior to and following the actual zinc phosphate
plating itself. The waste stream from this process is combined with other wastestreams prior
to pretreatment and discharge to POTW for treatment. The combined wastestream contains
alkaline cleaners, synthetic oils, fats, zinc traces, grease, and an unacceptable pH level.
Pretreatment skims oil, adjusts pH, and allows sludge to settle out. Sludge and oil skimmings
are manifested as regulated recyclable material.
In early 1991, the company was facing the possibility that new regulations on zinc discharges
might require additional treatment in the future. In order to eliminate this uncertainty, as well
as reduce water and sewer costs, the company investigated installation of a closed-loop
wastewater treatment system.
Based on technical information received from vendors, the company selected a proposal from
a company specializing in water purification systems for further consideration. The particular
technology had never been installed on a zinc phosphate plating line. Nonetheless, the vendor
had tested Williams effluent, and determined that its treatment process was effective.
Williams asked the Massachusetts Office of Technical' Assistance to help analyze the
financial impact of the project.
39
-------
WILLIAMS PRECISION VALVE COMPANY, INC.
COST CONSIDERATIONS
Annual Savings
Water Use
$4,800
Sludge Disposal
$11.1-85
Operation & Maintenance
$28,800
Discharge Analyses
$810
Sampling of Discharge
$2,640
Regulatory Fees
$2,400
ANALYSIS The purchase cost of the waste water
recirculation system is $55,000, including
delivery and installation.
In addition, the new system will require
S20»000 in increased annual operation and
maintenance costs, as well as the annual
purchase of $5,000 worth of filtration medium.
These cost increases are offset by several cost
reductions due to discontinuing the current
process. These cost reductions total $51,272,
comprise the following: reduced water bill
($4,800); elimination of sludge disposal
($11,185); elimination of operation and
maintenance associated with the old system
($28,800); elimination of lab analyses of discharge ($810); elimination of sampling ($2,640);
reduced regulatory fees ($2,400); elimination of chemical purchases ($637).
Chemical Purchases
$637
Total Savings
$51,272
Annual Costs
Operation & Maintenance
$20,000
Filtration Medium
$5,000
Total Costs
$25,000
FINANCIAL
PARAMETERS
The financial analysis uses the following economic parameters: 40 percent net tax rate; 15
percent discount rate; 5 percent inflation; straight line depreciation over ten years.
FINANCIAL The 10 year net present value of the investment is $54,913,
RESULTS
Despite this very attractive economic analysis, the company decided to not proceed with the
closed-loop system. Because the system had not yet been tested on a full-scale zinc
phosphate plating line, the company's environmental team thought it would be inappropriate
to serve as a test site. There were also concerns that the technology might introduce variation
into the production process that could have an impact on the quality of Williams' products.
Because the company competes primarily on the basis of quality, it could not risk
jeopardizing its competitive advantage.
Nonetheless, the company is continuing to investigate the closed loop concept, and is looking
for examples of such systems installed on process lines similar to theirs.
CONTACT Not provided.
SOURCE Northeast Waste Management Officials' Association and the Massachusetts Office of
Technical Assistance, Improving Your Competitive Position: Strategic and Financial
Assessment of Pollution Prevention Projects: Instructor's Guide. 1994.
40
-------
A FLEXOGRAPHIC PRINTER
A FLEXQGRATfflC PRINTER ~? '
BUSINESS CAPITAL INVESTMENTS
DECISION is the capital investment in an in-line solvent
recovery still to replace an existing mobile
solvent recovery service justified?
BUSINESS For a $26,200 initial investment, the company
BENEFITS would realize annual operating savings of
$24,537 in the first year, and $20,641 in
subsequent years with a 57.34%. internal rate of return over 15 years.
present value is $99,879. Payback period is 1.06 years.
COMPANY PROFILE
Location: Midwest United States
Size: 36 employees
Annual Revenues: $15 million
Business: Flexographic printing
The 15-year net
WHY WAS
PROJECT
PERFORMED?
This flexographic printer upgraded its platemaking process in 1995 to eliminate the use of
perchloroethylene, or perc, in order to "do the right thing environmentally" and to improve
the work environment. The firm was considering replacing its existing mobile solvent
recovery service with an in-line still for solvent recovery.
Tellus Institute cooperated with the flexographic printer to analyze this decision as a User's
Guide case study for a Tellus P2/FINANCE software package. The printer benefited from
having the results of the Total Cost Assessment (TCA) before making any purchase decisions.
PROJECT The new platemaking process uses Optisol. A mobile service recycles the spent solvent on
DESCRIPTION site every other month, recovering approximately 89% of the solvent as clean, reusable
product. However, this service is costly and the recovery rate is not optimal.
Prompted by costly solvent recovery charges and increasing solvent purchase costs, this
flexographic printer began examining options for reducing these costs. This printer
occasionally works with another flexographic printer. The other printer has also upgraded to
a perchloroethylene-free platemaking process, but instead of using a mobile recovery service,
it recycles solvent using a distillation system with a recovery rate of at least 95%. Based
upon the other printer's experience, this printer's technical director decided to explore the
profitability of installing a distillation system to recycle spent solvent.
ANALYSIS The investment analysis for conversion to an in-line solvent recovery still used a TCA, a
method to enhance capital budgeting decisions with connection to P2 projects. TCA assured
inclusion of costs which traditional cost analysis might have missed.
For the existing mobile solvent recovery service, the solvent purchase cost was based on the
amount of solvent required every year to replace losses during the recycling process
(assuming an 89% recovery rate) and losses to the air during the platemaking process
(determined from the company's air emissions permit). The recycling cost was based on the
total volume recycled per year, and the still bottoms disposal cost was based on the amount of
solvent not recovered by the recycling process (11%).
For the distillation system under consideration, the purchase and other start-up costs were all
incurred in the first year. The solvent purchase cost was based on a 95% recovery rate and
took into account that 4 of the 10 inventory drums could be used up in Year 1 (as the new
41
-------
A FLEXOGRAPHIC PRINTER
COST CONSIDERATIONS
Year One Savings
Chemicals
$ 8.835
Disposal
$527
Mobile Recovery Service
$18,075
Total Savings
$27,437
Year One Costs
FINANCIAL
PARAMETERS
system only requires 6 drams of inventory
- after Year 1 those 4 drums must be
purchased every year). The analysis
assumed that losses to air remain
unchanged. The still bottoms disposal cost
was based on the amount of solvent not
recovered by the still (5%). Annual
operating costs for the distillation system
also included maintenance (oil changes,
replacement filters)* and electricity cost.
Labor (both operating and maintenance)
and water costs will not differ significantly
from those under the old system. Therefore, these costs are not included.
The analysis used a cost of capital of 10%, a 4% inflation rate, a Federal tax rate of 38%, a
State tax rate of 7.25%, a salvage value of $2,620 and used straight-line depreciation over 7
years.
Maintenance Supplies
$ 2,659
Electricity
$241
Total Costs
$2,900
FINANCIAL The TCA for the company switching to the distillation system indicated it would realize
RESULTS annual operating savings of $24,537 in the first year, and $20,641 in subsequent years with a
57.34%. internal rate of return over 15 years. The 15-year net present value is $99,879, The
payback period for the investment is L06 years.
The main savings from the switch would come from reduced purchase of chemicals, due to
the higher recovery rate of the distillation system, as well as the elimination of the annual fee
for the mobile recovery service. The capital investment in the distillation system, as well as
the increased cost of maintenance and electricity required by this system, is more than offset
by the savings.
CONTACT Karen Shapiro, Tellus Institute (617) 266-5400.
SOURCE Tellus Institute, P2/FINANCBforFlexographicPrinters: User's Guide. 1996.
42
-------
A SCREEN PRINTER
BUSINESS
DECISION
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
PROJECT
DESCRIPTION
CAPITAL INVESTMENTS
Is the capital investment in dry film imaging
system to reduce the current service bureau
charges and darkroom costs justified?
COMPANY PROFILE
Location: Not reported
Size: 40 employees
Annual Revenues: $3 million
Business: Screen printing
For an initial investment of $31,300, the
company realizes year one net savings of
$139,390. The 5-year net present value (NPV) of
the investment is $495,860. The 5-year internal rate of return (IRR) is 446%. Payback is
0.25 years.
This screen printer is a digital shop; however, it does not have a high resolution output device.
This requires the use of service bureaus to generate camera-ready art, and also the generation
of positives from camera-ready art using gelatin silver photographic film. The company
president began changes that would decrease its reliance on waste haulers and service
bureaus, and thereby reduce the related costs. A dry film imaging system would enable the
company to generate positives directly from a computer, not only reducing service bureau
charges, but also potentially darkroom and waste disposal costs.
Tellus Institute cooperated with the screen printer to develop a User's Guide case study for a
Tellus P2/FINANCE software package. The printer benefited from having the results of the
analysis before making its purchase decision.
This screen printer is a digital shopmost jobs either come in on disk or are scanned into the
computer. However, because the printer does not have a high resolution output device, it uses
service bureaus to generate camera-ready art and proofs (as needed). Service bureau charges
are approximately $89,000 per year.
The printer currently generates positives from camera-ready art using gelatin silver
photographic film. Because the printer uses an on-site septic system, it is prohibited from
disposing process water from its darkroom down the drain. Silver is recovered from
washwater, and washwater and fixer are separately collected for off-site disposal.
Prompted by increasing waste disposal costs and costly service bureau charges, the
company's president began examining production changes that would decrease its reliance on
waste haulers and service bureaus. One option identified was the purchase of a dry film
imaging system, enabling the shop to generate positives directly from a computer, and thus
by-pass the darkroom. This option would not only reduce service bureau charges, but also
potentially reduce darkroom and waste disposal costs.
As the company explored this production change, it discovered an important limitation
while it currently produces jobs up to 48 inches in width, the maximum width of dry film is
currently 42 inches. Thus, the dry film imaging system could be used for producing only
about 85% of the firm's jobs, representing approximately 60% of its annual square footage
yield.
43
-------
A SCREEN PRINTER
COST CONSIDERATIONS
Year One Savjims
Waste Management
$ 315
Service Bureau Costs
69,755
Increased Revenue
150,000
Total Savings
$220,070
Year One Cmts
Materials
$22,330
Labor
55,650
Maintenance
2,700
Total Costs
$80,680
ANALYSIS The company estimates the initial capital
Investment to be $30,000 for die system, plus
SI,300 for training costs. The system is
expected to have significant impact on annual
operating costs:
» Materials: The use of silver film and
chemicals is expected to decrease by
$33,670. However, the annual cost of dry
film is expected to be $56,000, resulting in a
net increase of $22,330 in materials costs.
Labor: The switch from service bureau to
in-house provision of these services will
increase annual labor costs by $55,650.
* Maintenance: The dry film imaging system requires an annual maintenance contract
totaling $2,700.
» Waste Management: Washwater and fixer disposal costs are expect to decrease slightly,
from $3,315 to $3,000, a decrease of $315.
Service Bureau Costs: Decreased use of service bureau assistance will result in a net
savings of $69,755, from $91,355 to $21,600.
Increased Revenue: The dry film imaging system will allow the printer to get its jobs to
press faster by avoiding the minimum 24-hour turnaround time required when using
service bureaus. The company president expects the new capabilities and reduced
turnaround time will net the company an additional $150,000 in earnings,
FINANCIAL The analysis uses a project lifetime of 5 years, cost of capital of 12%, a 3% inflation rate, a
PARAMETERS net tax rate of 3,6%, and used double declining balance depreciation over 7 years.
FINANCIAL Year one project savings are $220,070; year one project costs are $80,680. Thus, year one net
RESULTS savings are $139,390. The 5-year net present value (NPV) of the investment Is $495,860.
The 5-year Internal rate of return (IRR) is 446%. Payback is 0.25 years,
CONTACT Karen Shapiro, Tellus Institute (617) 266-5400.
SOURCE Tellus Institute, P2/FINANCEfor Screen Printers: User's Guide. 1997.
44
-------
A SMALL LITHOGRAPHIC PRINTER
COMPANY PROFILE
Location: Northern Illinois
Size: 15 employees
Annual Revenues: $1 million
Business: Printing of one- to four-
color posters, cards, and booklets.
WHY WAS
PROJECT
PERFORMED?
BUSINESS CAPITAL INVESTMENTS
DECISION is the capital investment in a computerized pre-
press system justified?
BUSINESS Total cost assessment (TCA) yielded a 5-year net
BENEFITS present value (NPV) of $187,700 on an initial
investment of $49,310. The 5-year internal rate
of return (IRR) is 132%. Discounted payback
period is 0.82 years. The conventional analysis
by the company yielded a 5-year NPV of $58,358, a 5-year IRR of 51%, and payback of 2.14
years.
This printer provides traditional lithographic printing, including pre-press, printing, and some
post-press processing. Prior to purchase of the computerized pre-press system, when the
company received jobs on diskette, it needed to send them to a service bureau to produce film
for platemaking. This type of work is increasing rapidly. As a result, the company invested
in a computer pre-press system that is able to process jobs submitted by customers on disk as
well as process incoming camera-ready artwork without intermediate darkroom chemistry.
The company had conducted a conventional financial analysis for the project. The Illinois
Waste Management and Research Center funded a TCA of the project as part of a set of case
studies of TCA applications in capital budgeting. This study was conducted retrospectively to
analyze a recent investment.
PROJECT The printer's clients include community groups, political groups, and non-profit
DESCRIPTION organizations, as well as commercial clients. The printer was operated as a non-profit
organization until the mid-1980s, at which time it was incorporated as a for-profit cooperative
in order to gain access to financing otherwise unavailable.
At the time the company began considering the investment in a computer pre-press system,
about two-thirds of its work came in on disk. Between 1994 and 1996, the costs of using the
service bureau to process these jobs had increased from $1,500 to $48,000. The remaining
work came in on conventional media (e.g., paper). This material was photographed and the
film processed in-house. Developing film produces spent fixer and developer. Some silver
recovery took place; however, the Production Manager felt the recovery unit was likely too
old to recover much silver. Spent developer was poured down the drain, although the
Production Manager was unsure of the regulations.
The computer-based pre-press system is able to directly process jobs that customers submit
on disk; camera-ready artwork can be scanned into the system and then processed. As noted
above, this system eliminates the need for intermediate films, and produces the platemaking
film as part of the system.
45
-------
A SMALL LITHOGRAPHIC PRINTER
ANALYSIS "The quick financial analysis carried out by the
company calculated the initial capital cost of the
new system as $49,310, Annual savings due to
reduced use of the service bureau were
estimated at $22,500, This estimate is below
the full service bureau costs due to constraints
in both the new system's capabilities and in the
ability of staff to use the new equipment for
more complex jobs. In addition, the company's
annual courier charges are estimated to decrease
by $1,500,
The in-depth TCA revealed additional costs and
savings. Additional investment costs totaled
roughly $2,500, and included the time required
by the print shop to solicit and consider bids,
COST CONSIDERATIONS
Year One Savings
Service Bureau Costs
$22,500
Courier Charges
1,500
Pre-press Darkroom
and Stripping Labor
11,783
Supervision Costs
2,360
Darkroom Chemicals
1,500
External Typesetting
1,710
Increased Revenue
110,000
Total Savings
$151,353
ear One
Pre-press Labor
$19,672
Film
12,600
Total Costs
$32,272
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
contractor work associated with accommodating the new equipment, and initial training costs.
Additional annual operating costs revealed by TCA total $32,272, and include new computer
pre-press labor ($19,672) and increased film costs ($12,600). Additional annual savings
revealed by TCA total $17,353, and include: reduced labor for pre-press darkroom and
stripping operations ($11,783); reduced supervision cost ($2,360); reduced use of darkroom
chemicals ($1,500); reduced use of external typesetting services ($1,710).
However, the single largest change to a conventional financial analysis was an anticipated
increase in annual revenues. Prior to bringing computer pre-press operations in-house,
service bureau operations required a 24-hour turnaround. Digital capabilities also enable the
company to provide its customers with services they would otherwise acquire elsewhere.
Finally, ending reliance on an external service bureau gives the company better overall
process control. Together, the company's increased capabilities, faster turnaround, and better
process control would lead to an annual incremental revenue of 10%, or $110,000.
The analysis uses an inflation rate of 3%, an income tax rate of 37.94%, and a 12% discount
rate, A 5-year project life was selected due to fast technology turnover hi the industry.
The 5- year net present value (NPV) of the project is $187,700. The 5-year internal rate of
return (IRR) is 132%. The discounted payback period is 0.82 years. The conventional
analysis by company yielded a 5-year NPV of $58,358, a 5-year IRR of 51%, and a payback
period of 2.14 years).
CONTACT Deborah Savage or Edward Reiskin, Tellus Institute (617) 266-5400.
SOURCE Savage, Deborah, et al., Total Cost Assessment; Catalyzing Corporate Commitment to
Pollution Prevention in Illinois. For Illinois Waste Management and Research Center, April
1997.
46
-------
QUEBECOR PRINTING MODNT MORRIS, INC.
BUSINESS
DECISION
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
QUEBECOR PRINTING MOTNT MQRR|S,INfc
CAPITAL INVESTMENTS
Is the capital investment in a continuous
membrane filter waste water treatment system to
replace the current batch system justified?
PROJECT
DESCRIPTION
COMPANY PROFILE
Location: Illinois
Size: 650 employees
Annual Revenues: $95 million
Business: Printing of catalogs,
magazines, and advertisement inserts
The 10-year net present value (NPV) of the
investment is $81,152. The 10-year internal rate
of return (IRR) is 17.8%. Payback is 5.66 years.
The conventional analysis by company yielded a
10-year NPV of $51,887; a 10-year IRR of 14.7%, and payback of 6.94 years.
Quebecor Printing Mount Morris, Inc. (QPMMI) provides pre-press, printing, post-press, and
distribution services for high-volume customers. QPMMI has direct-to-plate (for web offset)
and direct-to-cylinder (for roto-gravure) capabilities. The roto-gravure cylinders are steel,
electroplated with copper. They are electro-mechanically engraved and the image area is
coated with a five-micron layer of chromium for wear-resistance. Cylinders are reused
indefinitely (i.e., they are physical capital), while the scrap copper is sold for recycling.
The gravure cylinder waste streams - about 1 million gallons per year - are contaminated
with copper, chromium, and other metals, and are sent to the on-site waste water treatment
system. These waste streams are highly acidic and, in addition to high levels of metals,
contain some dissolved VOCs and oily waste. The treatment system removes about 99% of
the dissolved metals and oily waste, and raises the pH to between 6 and 9. The system
consists of a 750-gallon chromium reduction tank, two 5,000-gallon batch settling tanks, an
oily waste separation tank, a 1,320-gallon sludge storage tank, and a filter press. The sludge
from the settlement tanks, about 12,000 gallons per year, is sent through the filter press to be
compressed and dried. A small amount of oil is collected and disposed of as hazardous waste.
The solid sludge "cake" is bagged and sent off-site as hazardous waste.
Chemicals for operating this system cost about $11,500 per year. QPMMFs Environmental
Coordinator estimates the labor costs involved in water treatment are close to $60,000 per
year. The cost of the off-site waste disposal from this operation is over $11,000 per year.
The Environmental Coordinator would like to improve QPMMI's waste water treatment
system by replacing the current batch system with a continuous membrane filtration system
that would precipitate and remove dissolved metals. Waste water from the chromium
reduction tank and other gravure cylinder waste water would be transferred to one of the
existing 5000 gallon settling tanks, which would be used as a holding tank to equalize the
flow into the new membrane filtration system. The new system performs two distinct
functions. First, the pH is adjusted and metal hydroxide precipitates are formed, then the
metal precipitates are removed using membrane filters. The precipitates would be
concentrated and dewatered in the existing filter press. The clean water would be pumped to
the second existing settling tank, which would be used as a holding tank so that the outgoing
water could be tested before release to the sewer.
47
-------
QUJEBECOR PRINTING MOUNT MORRIS, INC.
The direct capital cost of the new system is $ 120,000 for the equipment, plus approximately
$60,000 For accessory equipment and installation. The new system would use less treatment
chemicals than the existing system. Instead of generating sludge requiring treatment as a
hazardous waste, the new system would generate a metal concentrate that QPMMI hopes to
sell to a metal recycler. In addition, the new system requires much less labor than the old. As
a continuous, automatically regulated system, there is little need for oversight.
ANALYSIS The preliminary financial analysis performed by
the company's Environmental Coordinator
calculated the initial purchase equipment costs,
as specified in vendor quotes, as $119,590.
Initial system installation costs were estimated
at $58,700, Annual savings from a reduction in
direct operating labor was estimated at $24,328,
and annual savings from avoided hazardous
waste disposal at $10,753. Without considering
depreciation, inflation, or a discount rate, the
Environmental Coordinator calculated a simple
payback of just over five years, considerably
Management did not wish to devote resources
unlikely approval.
COST CONSIDERATIONS
Year One Savings
Operating Labor
$24,328
Haz. Waste Disposal
10,753
Waste Water
Treatment Chemicals
12,800
Supervision Costs
3,150
Paperwork
1,352
Maintenance
1,352
Total Savings
$53,735
above the payback for approved projects.
to pursuing this project further due to its
The in-depth total cost assessment (TCA) revealed additional costs and savings. Additional
investment costs totaled $18,797, and included the time required to plan and design the new
system, solicit and consider bids, supervise installation, prepare new environmental operating
permits, train operators, and start-up labor time. Additional annual savings revealed by TCA
total $18,654, and include: reduced use of waste water treatment chemicals ($12,800);
reduced supervisory labor ($3,150); reduced paperwork ($1,352); and reduced maintenance
costs ($1,352). No additional annual operating costs were revealed by TCA,
Investigation into recycling the metal concentrate generated by the system found that its value
would be sufficient only to cover the costs of removing it from the site. In addition, the
reduction in the facility's overall hazardous waste would not be significant enough to change
its hazardous waste generator status; therefore, liability reduction was not included.
FINANCIAL The analysis uses no inflation, a 37% income tax rate, and an 8!/2% discount rate.
PARAMETERS
FINANCIAL The 10-year NPV of the investment is $81,152. The 10-year IRR is 17.8%. Payback is 5,66
RESULTS years. The conventional analysis by company yielded a 10-year NPV of $51,887; a 10-year
ERR of 14,7%, and payback of 6.94 years.
Although the TCA revealed useful mformation regarding the costs and savings associated
with the project, the investment was judged by the company as not sufficiently profitable to
receive capital funds. Advances hi treatment or metal recycling technology may render this
investment profitable in the future.
48
-------
QUEBECOR PRINTING MOUNT MORRIS, INC.
CONTACT Deborah Savage or Edward Reiskin, Tellus Institute (617) 266-5400.
SOURCE Savage, Deborah, et al., Total Cost Assessment: Catalyzing Corporate Commitment to
Pollution Prevention in Illinois. For Illinois Waste Management and Research Center, April
1997.
49
-------
MANUFACTURER OF MILITARY AND CIVILIAN ELECTRONIC EQUIPMENT
BUSINESS CAPITAL INVESTMENTS
DECISION What are the savings realized from investment in
the following two successive stages of
alternatives to a CFC vapor degreaser (1) bench-
top degreasers using HCFCs; (2) an ultrasonic
cleaning system using terpenes?
BUSINESS For the bench-top degreaser, the total capital cost
BENEFITS Of $58,250 resulted in a reduction in annual
operating costs of $126,263. The 8-year net
present value of this investment was $93,446,
For the ultrasonic cleaning system, the total capital
annual operating costs of $128,895, The 8-year
$352,814.
COMPANY PROFILE
=> Location: Massachusetts
:=> Size: Medium-sized facility
=> Annual Revenues: Not reported
=$ Business: Products include power
supplies for night vision goggles,
channel electron multipliers, and high
ohmic resistors.
cost of $34,034 resulted in a reduction in
net present value of this investment was
WHY WAS
PROJECT
PERFORMED?
This manufacturer needs to clean solder and flux from printed circuit board assemblies. Due
to regulatory and cost considerations, the company sought to identify an alternative to its
CFC-based vapor degreaser. The company decided to move to an ultrasonic cleaning system.
However, while it was researching the proper chemistry for that system, bench-top degreasers
using HCFCs were used, P2 Consulting conducted a comprehensive financial analysis
comparing the CFC-based cleaning system with each of these successive stages.
PROJECT Between 1990 and 1992, this medium-sized manufacturer of military and civilian electronic
DESCRIPTION equipment used an average of 14,043 pounds of CFC-113 in its vapor degreaser for cleaning
solder and flux from printed circuit board assemblies. Purchases of this CFC cleaning
material cost the company $120,348 annually. In 1992, the company began looking for an
alternative cleaning process.
Research indicated that the change required a two-stage approach. First, the company
purchased an ultrasonic cleaner. However, it was determined that establishing a suitable
chemical for the new unit would take approximately 2 years. In the interim, HCFC 141b was
brought in as a replacement CFC-113. This required installing customized bench-top vapor
degreasers,
ANALYSIS In addition to the annual CFC purchase cost of $120,348, the manufacturer also faced annual
regulatory compliance costs totaling $10,150. At the time of the analysis, the facility was
required to file under Massachusetts' Toxic Use Reduction Act (TURA).
The CFC degreaser required a full-time operator, as well as maintenance and utility costs.
Other miscellaneous costs associated with the CFC degreaser bring its total annual operating
cost to $163,228.
50
-------
MANUFACTURER OF MILITARY AND CIVILIAN ELECTRONIC EQUIPMENT
COST CONSIDERATIONS
Annual Savings
CFC Degreaser Costs
$163,228
Annual Costs
HCFC Degreaser
$36,965
The HCFC degreasers require a capital
expenditure of $58,250. This total comprises
$48,000 in research and design, $9,810 in in-
house equipment fabrications, and $440 in
other costs. The chemical costs for this
equipment total $37,800, a savings of $82,548
compared to the CFC degreaser. In addition,
this option eliminates the need for the full-time operator as well as significant regulatory
costs, as TURA reporting is no longer required. In total, the lower operating costs associated
with the HCFC degreasers result in an annual savings of the $126,263 compared to the CFC
degreaser.
The ultrasonic cleaner requires a capital expenditure of $34,034. The bulk of this cost,
$25,525, is due to equipment purchase. The remainder is related to associated research and
design costs, and minor changes required to the building. The chemical costs for this
equipment total $1,400, a savings of $118,948 compared to the CFC degreaser. In addition,
this option also significantly reduces regulatory costs, as TURA reporting is no longer
required. The analysis assumed that full-time operator would be required. Annual
maintenance costs for the ultrasonic cleaner were somewhat higher than the other options
($2,086) due to the need to regularly replace filters. In total, the lower operating costs
associated with the ultrasonic cleaner result in an annual savings of the $128,895 compared to
the CFC degreaser.
An additional benefit not quantified is increased productivity due to assembly workers' ability
to clean parts at their convenience without waiting.
FINANCIAL The analysis used straight-line depreciation, a 40% corporate tax rate, and a 10% discount
PARAMETERS rate.
FINANCIAL The 8-year net present value of the two stages was: (1) $93,446 for the HCFC degreaser, and
RESULTS (2) $3 52,814 for the ultrasonic cleaner.
CONTACT Not provided.
SOURCE Kennedy, Mitchell, "Getting to the Bottom Line: How TCA Shows the Real Cost of Solvent
Substitution." Pollution Prevention Review. Spring 1994.
51
-------
PRECISION CIRCUITS, INC,
BUSINESS CAPITAL INVESTMENTS
DECISION What are the savings realized from the following
two investments? (1) New plastic-coated racks
used to carry circuit board panels through a series
of baths and rinses. The old stainless steel racks
had to be cleaned with nitric acid. (2) New waste
water treatment process that produces less waste
water sludge and fewer waste streams.
COMPANY PROFILE
=> Location: Lynnwood, WA
=> Size: 30 employees
=> Annual Revenues: Not reported
=> Business: Circuit board
manufacturer.
BUSINESS (1) 5-year Net Present Value is $33,589; 5-year IRR is 66%. Payback is just over one year. A
BENEFITS portion of these savings is attributable to quality improvements. (2) This relatively
inexpensive change has a 5-year Net Present Value of $62,824. The 5-year IRR is 1,886%.
Payback is well under one year.
WHYWAS Precision Circuits' management policy statement describes the company's commitment to
PROJECT protect the emdronment as well as the health and safety of its workers and neighbors,
PERFORMED? Precision Circuits prepared and submitted a Pollution Prevention Plan in 1993 to the
Washington Department of the Environment, with a stated goal of reducing its use and
generation of hazardous materials and waste by 50%. In 1994, Precision Circuits initiated
two changes with positive environmental impacts: (1) they purchased new plastic-coated
racks, eliminating nitric acid from the workplace, and (2) a new waste water treatment
process was put in place that produces less waste water sludge and fewer waste streams.
The Pacific Northwest Pollution Prevention Resource Center worked with Precision Circuits
to demonstrate the use of Total Cost Analysis (TCA) and illustrate its value as an effective
decision-making tool for small firms evaluating the costs and benefits of pollution prevention
opportunities.
PROJECT (1) Use of New Plastic-Coated Racks
DESCRIPTION in the manufacture of used circuit boards, the board panels undergo a number of plating and
rinsing processes. The boards are carried tihrough these baths on racks. Prior to installing the
new plastic-coated racks, the stainless steel racks used required rinsing in solution of nitric
acid to clear them of any metals accumulated during the plating process, and thus prevent
contamination of the boards and baths during the next plating cycle. The shift to the plastic
racks produces three significant benefits: 1) removal of nitric acid from the workplace, 2)
elimination of the need to strip the racks, and 3) production of a better product due to the
electrical properties of the plastic-coated racks,
(2) Change in Waste Water Treatment Process
A vendor presented Precision Circuits with a new waste water treatment process that results
in smaller volume of waste water sludge. Implementing this new process involved relatively
minor changes: In addition to replacing one chemical and eliminating another, process steps
required minor modification to suit the new treatment chemistry.
52
-------
ANALYSIS
FINANCIAL
PARAMETERS
PRECISION CIRCUITS, INC.
COST CONSIDERATIONS
Plastic Coated Racks Year One Savings
Materials
$5,262
Disposal
$4,445
Quality
$8,660
Employee Productivity
$7,525
Total Savings
$25,892
Year One Costs
Maintenance
$3,674
(1) Use of New Plastic-Coated Racks
The cost of switching to the plastic coated
racks was estimated by Precision Circuits as
$22,522. The primary direct savings to the
company came from reduced materials and
disposal costs related to eliminating nitric
acid. Additional savings came from a
reduction in the number of defective boards
and increased employee productivity.
(2) Change in Waste Water Treatment
Process
The investment associated with implementing the new waste water treatment process was
estimated at $900. This small investment yielded significant benefits: Net annual costs for
treatment chemicals were reduced by $17,697 (current dollars). In addition, net annual
disposal costs were reduced by $10,526 (current dollars). The new process resulted in an
annual $150 (current dollars) increase in maintenance costs.
The analysis of the two investments used a cost of capital of 15%, an inflation rate of 10% on
disposal costs and 5% on all other items, a tax rate of 40%, and used straight-line depreciation
over 5 years.
Total Costs
$3,674
FINANCIAL (1) Use of New Plastic-Coated Racks
RESULTS The 5-year net present value of this investment is $33,589. The 5-year internal rate of return
is 66%. Straight payback time is just over 1 year. A portion of these savings are attributable
to quality improvements.
(2) Change in Waste Water Treatment Process
This relatively inexpensive change has a 5-year net present value of $62,824. The 5-year
internal rate of return is 1,886%. Straight payback time is well under 1 year.
CONTACT Not provided.
SOURCE Pacific Northwest Pollution Prevention Resource Center, Analysis of Pollution Prevention
and Waste Minimization Opportunities Using Total Cost Assessment: A Case Study in the
Electronics Industry. September 1995.
53
-------
SAE CIRCUITS
BUSINESS CAPITAL INVESTMENTS
DECISION Study of replacing the ventilation system in the
facility's plating area. Two options for
replacement were analyzed: (1) a system with
single-speed motors and (2) a system with dual-
speed motors.
COMPANY PROFILE
=> Location; Boulder, CO
=> Size: 80 employees
=> Annual Revenues: over $6 million
Business: Manufacturer of double-
sided and multi-layer printed circuit
boards for supply to fabricators.
BUSINESS For option (1) the 15 year net present value
BENEFITS (jqpv) is -$171,782. For option (2) the 15 year
NPV is -$143,424. Note that although the NPV
of both options is negative, the NPV of option (2) is $28,358 greater than that of option (1),
WHY WAS SAE Circuits Inc. has been in business since 1972 and is located in Boulder, Colorado. The
PROJECT firm manufactures double-sided and multi-layer printed circuit boards for supply to
PERFORMED? fabricators. Since beginning as a regional supplier, SAE Circuits has expanded to national
sales and is beginning to sell internationally. The firm produced nearly 980,000 boards in
1994 and over 1,300,000 in 1995, SAE Circuits has 80 employees, runs multiple shifts in its
32,000 square foot facility, and has annual sales of over $6 million.
In 1983, SAE Circuits started an active environmental and safety program dedicated to
improving productivity and efficiency through pollution prevention and energy efficiency
projects and has built on this program by completing such projects each year. SAE Circuits is
a partner in the DOE Climate Wise program.
PROJECT SAE Circuits has also participated in the DOE Energy Conservation/Pollution Prevention
DESCRIPTION Assistance for Industry program. A 1995 assessment performed by Colorado State University
(CSU) helped SAE Circuits personnel identify a number of pollution prevention and energy
efficiency projects that offered increased production capacity through unproved processes and
employee productivity at lower cost.
The project analyzed here is the replacement of the process ventilation system in the plating
area. SAE Circuits' existing ventilation system in the wet process area dated to the initial
construction of the facility. Since then, production had increased substantially and ventilation
loads exceeded the system's capacity. The system provided 4,500 cubic feet per minute (cfm)
of exhaust, while the make-up air system replenished the area with 5,400 cfm of fresh air.
This exhaust shortfall caused a positive pressure within the plating area, which at times
allowed fumes to migrate throughout the facility. The assessment indicated that ammonium
chloride (NH4C1) vapor concentrations in the wet process area exceeded regulatory standards
by 50% at times, SAE Circuits additionally found that NH4C1 had begun to cause serious
corrosion to the electrical equipment in an adjoining room.
SAE Circuits undertook the installation of a new process ventilation system, consisting of a
16,000 cfm exhaust system and a 14,000 cfm make-up air system, plus a positive pressure
system for the adjacent electrical equipment room. The system is designed to be able to
54
-------
SAE CIRCUITS
accommodate a central air scrubber to remove pollutants from the exhaust air if emissions
standards become more stringent in the future.
The make-up and exhaust fans should be kept running at all times, but during non-production
hours the needed capacity is only about 5,000 cfm. Thus designers recommended the
purchase of more expensive dual-speed motors to save on electricity and make-up air heating
during non-work hours. The dual-speed motors collectively cost $7,200 more than the single-
speed motors originally considered.
ANALYSIS The initial investment costs of the two options differ only in the higher cost of the dual-speed
motors (plus sales tax). The investment cost for the basic system (option 1) has an equipment
cost of $115,395. For the dual-speed system (option 2), the equipment cost is $122,775. For
both systems, the labor costs associated with planning, engineering, and installation come to
$65,620, and the construction permit adds a cost of $7,800. To keep the existing (inadequate)
system would entail an investment of $8,055 to replace the old motors.
Annual operating costs of the basic system (option 1) are $21,577 for utilities to heat the
make-up air and operate the motors. The dual-speed motors (option 2) have much lower
operating costs during non-work hours, lowering annual operating costs to $15,097. The
annual utility operating costs for the existing (inadequate) system are $8,135.
Replacing the existing system would remove a variety of continuing costs in the future. First,
the company estimated that further corrosion of electrical and other equipment could cost up
to $5,000 per year. Second, as production increased, indoor concentrations of NH4C1 and
other pollutants would increase as well, eventually triggering regulatory action. Third, high
indoor pollutant concentrations threatened worker health and would reduce productivity.
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
The analysis uses a discount rate of 11.7 percent, an inflation rate of 3 percent, a net tax rate
of 39 percent, and double declining balance depreciation over a seven year period.
The 15 year NPV of option (1) is -$171,782. For option (2), the 15 year NPV is -$143,424.
Although the NPV of both options is negative, the company managers decided to make the
invest in option (2), which has an NPV $28,358 greater than that of option (1) for an
additional investment of $7,200. The primary reason was to allow SAE Circuits to expand
production while maintaining compliance.
CONTACT Deborah Savage, Tellus Institute, 617-266-5400.
SOURCE Performance Technologies, Inc., Process Energy Audit: SAE Circuits Colorado, Inc. For
Public Service Company of Colorado. 1996.
Savage, Deborah, and David Miller, "Workshop on Innovative Financing Results". Originally
presented at the "Energy Efficiency & Pollution Prevention" conference sponsored by the
Department of Energy. Denver CO, January 23,1997.
55
-------
A PAPER COATING MILL
BUSINESS CAPITAL INVESTMENTS
DECISION Is a capital investment in a less-polluting
aqueous coating process financially justified?
BUSINESS For a $900,000 investment, the mill would
BENEFITS realize annual operating savings of just under
$80,000 with a 6% internal rate of return over 15
years.
WHY WAS
PROJECT
PERFORMED?
COMPANY PROFILE
Location: Northeast US
Size: 900 employees
Annual Revenues: Not reported
Business: Coating, laminating, and
converting film, paper, and foil
substrates
The mill coats paper with both white grade and
color grade coatings, The white grades are made with an aqueous-based coating, the color
grades contain solvents and some heavy metal-based pigment. The mill had considered
converting its color grades to an aqueous/heavy metal-free coating to develop manufacturing
flexibility, respond to emerging demand for aqueous/heavy metal-free coated paper, reduce
environmental impacts, and improve worker health and safety.
After spending more than $200,000 three years earlier to convert to aqueous, the mill halted
the project due to a possible plant relocation and quality problems during aqueous trial runs.
The conversion was later restarted, but was progressing slowly due to capital and labor
constraints, operating cost and wastewater volume concerns, and slow manufacturing rates.
The mill's Environmental Manager hoped a better financial analysis of the project would
reveal a higher economic value, thereby justifying an accelerated conversion.
PROJECT The first step of the conventional paper coating process is the application of the pigmented
DESCRIPTION base coat, which consists of a number of solvents and heavy metals. The base-coated paper
goes through a dryer where most of the solvent evaporates and the remainder of the coating
sets on the paper. The vaporized solvent is sent to a solvent recovery system where it is
drummed for reuse. The 2,220 drums of still bottoms generated by the mill annually from
this process consist of residual solvent, pigments, and other impurities, and are incinerated off
site as hazardous waste. Some of the volatile organic compound (VOC) emissions generated
both during the coating and recovery processes are ultimately vented to the atmosphere.
The aqueous coating process uses a base coat made from water, acrylic latex resin, and a
small amount of ammonia and solvent. Once the full conversion to aqueous is complete, the
wash water will be sent to an on-site ultrafiltration system from which the water will be
sewered and the solids reused or disposed of as non-hazardous waste. Because the aqueous
coating has a shorter shelf life, a certain amount of spoilage is expected. Moreover, since this
coating has a relatively high freezing point, a new heating system has to be installed in the
storage area. Finally, to overcome drying problems, the base coat dryer must be upgraded,
ANALYSIS The investment analysis for a conversion to an aqueous/heavy metal-free process uses Total
Cost Assessment (TCA), a method to enhance capital budgeting decisions in connection with
P2 projects. This TCA includes many costs omitted from the company's original analysis.
The cost of new utility systems, for example, was added to the oflier initial investment costs
of equipment, engineering, and training. The company's analysis includes annual operating
costs only for labor and some raw materials and waste disposal. The TCA includes annual
56
-------
A PAPER COATING MILL
COST CONSIDERATIONS
Year One Savings
Waste Management
$ 243,900
Materials
$ 85,000
Labor
$11,000
Equipment
$ 35,000
Total Savings
$ 374,900
Year One Costs
Raw Material
$ 27,000
Utilities
$ 87,000
Labor
$ 8,000
Total Costs
$ 122,000
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
costs of waste management, utilities, solvent
recovery/ultrafiltration, regulatory compliance,
and a one-time future liability savings.
Significant reduction in hazardous waste
generation represents a decrease in future
liability. The analysis captures this decrease by
generating an estimate based on the toxicity
and final disposition of hazardous waste. The
waste reduction also creates regulatory
compliance savings from reduced time spent
manifesting and testing hazardous waste.
Other considerations identified but not
quantified include possible shutdown of the solvent recovery process; enhanced worker safety
from reduced flammability, improved industrial hygiene, fewer material handling problems;
and the potential for improved product quality.
The analysis uses a 16% cost of capital, a 5% inflation rate, a 40% corporate income tax rate,
double declining balance depreciation, and 10- and 15-year project time horizons.
The TCA for the conversion project yields a 15-year net present value (NPV) of negative
$395,625, as compared to an NPV of negative $203,643 calculated by the company's
analysis. The simple payback for the conversion jumps from 7.6 years in the company's
analysis to 11.7 years in the TCA. While the TCA shows the project to be more costly than
the previous analysis did, it provides the management with a clearer and more comprehensive
picture of both current process costs and the economics of the proposed improvement.
The main savings from the conversion would come from waste management and solvent
recovery/ultrafiltration. After the conversion, costs associated with the handling, storage, and
transportation of hazardous waste drums as well as waste fees would drop significantly.
Operating costs of the ultrafiltration system would be more than offset by the reduced use of
the solvent recovery system. However, the conversion would substantially increase utilities
costs, including steam, water, electricity, and wastewater generation. The increase in utility
costs would be greater than all of the operating cost savings, accounting for the negative
NPV.
CONTACT Allen White or Deborah Savage, Tellus Institute (617) 266-5400
SOURCES White, Allen L., Monica Becker, and James Goldstein, Alternative Approaches to the
Financial Evaluation of Industrial Pollution Prevention.Investments. For NJ DEP. November
1991. And White, Allen L., Deborah Savage, and Monica Becker, Revised Executive
Summary. June 1993.
White, Allen L., Monica Becker, and James Goldstein, Total Cost Assessment: Accelerating
Industrial Pollution Prevention Through Innovative Project Financial Analysis: with
Applications to the Pulp and Paper Industry. For US EPA. December 1991. And White,
Allen, L., Deborah Savage, and Monica Becker, Revised Executive Summary. June 1993.
57
-------
A SPECIALTY PAPER MILL
COMPANY PROFILE
=> Location: United States
=> Size: One mill of larger corporation.
This mill produces approximately
190 tons of paper per year
=> Annual Revenues: Not reported
=> Business: Manufacturer of a variety
of specialty papers
WHY WAS
PROJECT
PERFORMED?
BUSINESS CAPITAL INVESTMENTS
DECISION Study of process modifications to a paper
manufacturing machinery to allow fiber, filler,
and water reuse on 2 machines at all times, even
when they are running different grades of paper.
BUSINESS The project has total capital costs of $1.47
BENEFITS million. The net annual savings associated with
the investment are $911,240. Total cost analysis
(TCA) indicates a simple payback period is 1.6
years. The company's conventional analysis
yields a payback period of 4.2 years.
This specialty paper mill is part of a larger corporation that Includes pulp, paper, and coating
mills. The mill produces a "variety of papers, bom coated and uncoated. This mill does not
manufacture pulp, but instead purchases it, via pipeline, from an neighboring pulp mill. The
also does not have a wastewater treatment system. Instead, it pumps its wastewater to the
neighboring pulp mill for treatment. Although this wastewater constitutes just over 10
percent of the neighboring mill's wastewater flow, it reportedly has TSS and BOD higher
then average. The contract governing wastewater treatment charges to the paper mill was up
for renegotiation. The neighboring mill was facing a requirement to reduce it effluent BOD
load, and in turn required the paper mill to reduce the BOD content of the wastewater sent to
the neighboring mill. This project was driven in part by this requirement.
PROJECT In the manufacture of paper, a mixture of water and residual fiber and filler drains out of the
DESCRIPTION sheet as it passes through the paper making machinery. This liquid, known as white water, Is
usually captured by a white water collection system dedicated to one paper machine. White
water may also be passed through a screening device that separates the white water into its
separate streams of clear water and fiber and filler. These components can then be recycled
back Into the system.
In this mill, two paper machines share a common white water system. One machine also has
the screening device installed. If the two machines are producing similar grades of paper, a
significant amount of the white water can be recycled. However, when the two machines are
producing different grades of paper, the mixed white water is not reusable and must be
sewered. Not only does this result in the loss of a large flow of potentially reusable water,
fiber, and filler, it also increases the BOD content of the wastewater.
The proposed project is to split the white water systems, so that each machine would have a
dedicated system. In addition, a screening device would be installed on the second machine.
This would permit fiber, filler, and water reuse on both machines at all times.
58
-------
^^f^^^^^^^w^^x^Lfy^^f*^
S^^Wl»f&lS^^(J^I^^»«ls^^- 'AX WiMSt '
A SPECIALTY PAPER MILL
ANALYSIS The project as described has total capital costs
of $1.47 million. The company developed a '
financial analysis that captured those operating
costs and savings typically including in their
analyses. The more detailed total cost analysis
(TCA) included these costs as well as
additional costs and savings.
The TCA includes the following annual .
savings:
A reduction in fiber and filler loss
of 1 ,200 tons per year ($42 1 ,530);
COST CONSIDERATIONS |
Fiber and Filler
Annual Savings
$421,530
H2O Pumping/Treatment $ 1 1 2,420
H2O Heating
Wastewater Costs
$393,400
$122,990
Total Savings $1,050,340
Aunua! Costs
Chemicals
Electricity
Labor
$28,700
$107,280
$3,120
Total Costs $139,100
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
A reduction in fresh water usage of
1 million gallons per day and a commensurate reduction in fresh water treatment
and pumping costs ($112,420);
A reduction in energy use for fresh water heating ($393,400);
A reduction in wastewater generation of 1 million gallons per day, resulting in
saving $54,750 in wastewater pumping and $68,240 in wastewater treatment.
Annual operating costs are expected to increase in the following areas:
Chemical flocculating agents used in the screening filter ($28,700);
Electric costs to operate the new equipment ($107,280);
Labor required to operate the new equipment ($3,120).
Thus, the net annual savings associated with the $1.47 million investment are $911,240. A
number of these costs, totaling $560,570, are omitted from .the company's analysis. These
savings include those associated with fiber and filler recovery, fresh water heating, and
pumping and treatment of both fresh water and wastewater.
Not provided.
The TCA indicates a 15 year NPV of $2.85 million and a 15 year ERR of 48%. Simple
payback period is 1.6 years. The company's initial conventional analysis yields a 15 year
NPV of $360,301, a 15 year IRR of 21%, and a payback period of 4.2 years.
CONTACT Deborah Savage, Tellus Institute, 617-266-5400
SOURCES White, A., D. Savage, and A. Dierks, "Environmental Accounting: Principles for the
Sustainable Enterprise". Originally presented at the 1995 TAPPI International Environmental
Conference, Atlanta Georgia, May 7-10 1995.
i
White, Allen L., Monica Becker, and James Goldstein, Total Cost Assessment: Accelerating
Industrial Pollution Prevention Through Innovative Project Financial Analysis: with
59
-------
A SPECIALTY PAPER MILL
Applications to the Pulp and Paper Industry. Prepared for US EPA. December 1991. Also:
White, A.s D, Savage, and M. Becker, Revised Executive Summary. June 1993.
White, A., M. Becker, and D. Savage, "Environmentally Smart Accounting Using Total Cost
Assessment to Advance Pollution Prevention". Pollution Prevention Review, Summer 1993.
60
-------
NIAGARA MOHAWK POWER COMPANY
BUSINESS CAPITAL INVESTMENTS
DECISION Analysis of the feasibility of co-firing a fossil-
fuel generating plant to produce bioenergy from
willow.
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
An investment of $2 million will result in annual
savings of $1.1 million. Net present value of
expected net benefit stream is $793,000.
COMPANY PROFILE
=> Location: Syracuse, New York
=5> Size: 8,600 Employees
=> Annual Revenues: $4 billion
=> Business: Supplier of electricity and
natural gas in upstate New York.
PROJECT
DESCRIPTION
The Niagara Mohawk Power Company (NMPC) is among the leaders in reporting on
environmental externalities and using them in the capital investment process. The analysis
discussed here is one of several reviewed in a major study of best practices for costing and
managing an effective environmental strategy. NMPC makes use of a standard "Benefit
Assessment Worksheet" to evaluate capital investment decisions. This snapshot is based on
such a worksheet.
This particular project is a proposed pilot to assess the feasibility of producing bioenergy by
co-firing a fossil-fuel generating plant with coal and willow. NMPC proposes testing this co-
firing at its Dunkirk 2 facility in Tully, New York.
ANALYSIS During 1992, the plant produced 619,120 MWh with 242,914 tons of coal. A total of 9,884
tons of SO2 was produced as a result of those operations. The proposed project would replace
10 percent of the coal with biomass in the form of willow. The investment required to retrofit
the coal plant so it is capable of co-firing biomass is estimated at $200 per kW of capacity.
The Dunkirk 2 facility has a capacity of 100 MW, so retrofitting is estimated to cost
$2,000,000. In the analysis, the retrofit is expected to occur in 1999.
Because biomass combustion produces very little SO2, the replacement would result in a ten
percent reduction in SO2, or a 988 ton reduction. At the time of the analysis, a permit to emit
one ton of SO2 was valued at $175. Thus the project would result in annual savings of
$172,900 due to reduced SO2 emissions.
In addition, the National Energy Policy Act of 1992 provides a tax credit of 1.5 cents per kWh
for electric power generated in a "closed-cycle-fuels production/utilization system." In this
case, 10 percent of the generated power, or 61,912 MWh of energy, is eligible for this credit,
for an annual savings of $928,988. This tax credit is due to expire in 2007.
Thus, the total annual benefit is $1,101,588 ( = $172,900 + $928,988), and starts in 1999.
Note that a fuel costs are not included in the analysis.
FINANCIAL The study uses a discount rate of 10.2 percent, and depreciates the investment in 5 years.
PARAMETERS
FINANCIAL The net present value (NPV) of the investment is $2,642,650. The analysis further assumes
RESULTS that the benefit has a 30 percent chance of being achieved (the reason for this probability is
61
-------
NIAGARA MOHAWK POWER COMPANY
not provided). The study applies this factor, reducing the NPV to $792,975,
The Benefit Assessment Worksheet also notes, but does not quantify, a number of additional
benefits that may accrue due to the project For example, it notes that the use of biomass as
fuel has essentially no net effect on atmospheric CO2 levels when the fuel is grown at a
sustained level (Le., the carbon sequestered as new trees are grown to replace those harvested
offsets the carbon released through combustion).
CONTACT Not provided.
SOURCE Epstein, Marc L, Measuring Corporate Environmental Performance: Best Practices for
Costing and Managing an Effective Environmental Strategy. For the Institute of Management
Accountants. Chicago: Irwin, 1996, pp. 183-187,
62
-------
BRISTOL-MYERS SQUIBB COMPANY
BUSINESS
DECISION
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
PROJECT
DESCRIPTION
COMPANY PROFILE
Location: 33 countries worldwide
Size: 51,200 employees
Annual Revenues: $15.1 billion
Business: Diversified worldwide,
healthcare company with extensive
consumer product lines.
CAPITAL INVESTMENTS
Will the investment in developing a database
system for making innovative, cost-effective
solutions to commonly encountered EHS
operating challenges accessible company-wide
decrease costs (monetary and environmental) and
increase productivity?
The system, known as the Best Practices
Database, provides a range of benefits: improves
productivity; facilitates communication; leverages resources; saves costs and time; enhances
EHS performance. Annual savings are estimated at $675,000. The process has recently been
expanded to include a total of 20 business functions (e.g., manufacturing, research &
development). Since 1993 the Company's Best Practices Sharing database has helped BMS
account for over $2.9 million in innovative, cost-saving solutions to commonly encountered
operating challenges. The system has been improved over time to enhance its utility.
A database called "EHS Best Practices" was developed to identify, summarize, and share
environmental, health, and safety (EHS) operating solutions among Bristol-Myers Squibb
(BMS) facilities worldwide. The database tracks company-wide EHS activities with regard to
BMS business mission, goals, and activities to support the company's 16 EHS Codes of
Practice (based on the 16 International Chamber of Commerce Principles for Sustainable
Development), and provides financial costs and benefits data. Specifically tailored data for
individual business groups and divisions are also provided.
This system drives improvement in productivity by leveraging resources and ideas company-
wide. It also supports timely, consistent, cost-effective regulatory compliance.
A "Best Practice" is a unique way to solve a problem or address an issue that may be faced by
other BMS facilities. Best Practices are identified during routine company-wide EHS
management systems audits or are self-nominated by facilities. Practices are reviewed for
completeness and transferability prior to final posting hi the database.
The BMS Best Practices database is designed to cost-effectively share solutions throughout
the company among employees supporting core manufacturing and other business functions
of the Company. Best Practices for overcoming common business challenges can be
researched or entered by virtually any BMS employee with a computer. There are currently
214 Best Practices available which address 20 business functional areas.
For example, one such Best Practice describes the recycling of solvents used in high
performance liquid chromatography (HPLC), a standard laboratory analysis technique. In
BMS's New Brunswick, NJ, laboratories, installation of the solvent recycling system cost
about $12,500 and resulted in savings of $35,000.
63
-------
BRISTOL-MYERS SQUIBB COMPANY
Documents in the database provide users with an overview of each practice, and names
individuals to contact for more details. The goal is to facilitate direct transfer of technology
among individuals involved with implementing solutions to commonly faced problems,
ANALYSIS The initial cost of implementing the Best Practices database was $40,000. This figure
accounted for the development of me Best Practices database structure by an outside
consulting firm. An additional $20,000 was invested in improving and expanding Best
Practices. This further development was performed internally. Based on $2.9 million in
savings currently available for sharing by the database, and 214 Best Practices in final form,
the average benefit to the company per practice is approximately $13,500. BMS estimates
that annually a minimum of 25 posted Best Practices will be used by at least 2 facilities. This
estimate implies an annual savings to BMS of:
(25 Best Practices/year) * (2 facilities via sharing) * ($13,500 saving per Best Practice) = $675,QOO/year.
BMS believes this figure to be conservative. Since 1993 the Best Practices database has
reflected only EHS-related solutions. As other business functions begin using Best Practices,
BMS anticipates even greater business benefit
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
Not provided.
By sharing cost saving and cost avoiding solutions among several sites, the benefits achieved
by implementing a Best Practice can be multiplied many times over. BMS estimates the
system results in an annual savings to the company of at least $675,000.
CONTACT Clinton Allen
Bristol-Myers Squibb
Compliance Assurance Services
P.O. Box 182
East Syracuse, NY 13057
Phone:(315)-432-2615
Fax;(315)-432-4761
e-mail: callen@usccmail.bms.com
SOURCE For further information please visit the BMS website at: http://www.bms.com
64
-------
BRISTOL-MYERS SQUIBB COMPANY
COMPANY PROFILE
=> Location: 33 countries worldwide
=> Size: 51,200 employees
=> Annual Revenues: $15.1 billion
=> Business: Diversified worldwide,
healthcare company with extensive
consumer product lines.
WHY WAS
PROJECT
PERFORMED?
BMSTOL-MYERS SQUIBB COMPANt
BUSINESS CAPITAL INVESTMENTS
DECISION Does consideration of environmental, health, and
safety (EHS) impacts at each step of a product's
life cycle enhance both environmental and
monetary savings?
BUSINESS Analyzing every step of a product's life cycle has
BENEFITS allowed Bristol-Myers Squibb to identify and
reduce negative EHS impacts at each stage. The
company estimates that each product life cycle
review performed costs about $25,000 and results in cost savings averaging $340,000.
Bristol-Myers Squibb's (BMS) business strategy is one of EHS leadership going beyond
compliance. This strategy is characterized by a strong management system coupled with
measurable standards. In 1991, BMS established a company-wide commitment to leadership
in environmental, health, and safety (EHS) management. As part of this commitment,
product life cycle (PLC) management was undertaken. PLC review has the goal of
minimizing the environmental impacts of BMS products by evaluating opportunities for
improvement at each stage of the product's life cycle, including design, manufacturing,
packaging, distribution, use, and ultimate disposal. Bristol-Myers Squibb has conducted PLC
reviews of all its major product lines.
Also in 1991, BMS endorsed the International Chamber of Commerce (ICC) Business Charter
for Sustainable Development, a set of 16 principles guiding EHS management of businesses.
The business charter calls on industry to "develop and provide products or services that have
no undue environmental impact and are safe in their intended use; that are efficient in their
consumption of energy and natural resources; and that can be recycled, reused or disposed of
safely." PLC assessment is a means of meeting EHS leadership goals as well as complying
with ICC principles.
PROJECT The concept of product life cycle review is fairly simple: define each stage of the product's
DESCRIPTION life and conduct an in-depth analysis of impacts at each stage. The stages identified by BMS
are: research and product development; marketing; packaging; sales, distribution, and
transportation; consumer use; and final disposition. BMS forms a PLC review team that
incorporates members with expertise at each stage of the product's life cycle.
PLC reviews comprised several steps typically spanning four to six monthly meetings of the
project team. Over the course of the meetings, the team is educated about the company's
EHS goals, and the role of PLC reviews in meeting those goals. PLC team members identify
and evaluate EHS impacts and potential product and process improvements using an iterative
process. Team members review supporting document to assist them in identifying EHS issues
relevant to their segment of the product life cycle, and in identifying potential opportunities
for improving the product's EHS profile. Estimates are made of material and energy savings,
avoided pollution, and costs and savings incurred by each opportunity. Team members then
present their findings to the group. Ensuing discussions provide cross-fertilization of ideas-
65
-------
BRISTOL-MYERS SQUIBB COMPANY
and feedback, generating new ideas and identifying additional information and data. Each
option is evaluated using three criteria: (1) ease or difficulty of implementing; (2) costs of
implementing; and (3) benefits of implementing the option (e.g., reduced costs, increased
productivity). Based upon these criteria, the team collectively decides which improvements
to recommend to management.
Time and resources required for implementing an improvement are important drivers for
determining ease or difficulty of implementing an option. Anticipated costs and benefits of
an improvement option include one-time capital costs and annual operating costs, including
those that may arise from production effects (e.g., decreased cycle time, increased
performance); changes in energy and raw material requirements; and changes in amounts and
types of releases to the environment (including the work environment). Only the easily
quantifiable raw material cost savings are monetized, whereas the decrease in process time is
estimated, but not monetized. Energy savings are neither quantified nor monetized. Health
and safety improvements share equal emphasis with monetary improvements. Evaluated
improvements are prioritized as either high, medium, or low. The improvements deemed
high priority are then recommended for approval by management. These options are
identified and evaluated in the final report at the end of the PLC review.
ANALYSIS The Product Life Cycle review projects have proven to be a tremendous success. The average
implementation cost of each product life cycle innovation is approximately $25,000/review.
The PLC reviews which have been completed resulted in cost savings opportunities averaging
$340,000 per review, for a net savings of about $315,000 per review. Total potential savings
for all reviews exceeds $7 million.
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
Not provided.
As noted., the net savings per PLC review is approximately $315,000, In addition, BMS has
completed its corporate goal of completing Product Life Cycle reviews of all product lines.
The company believes that the financial and business communities realize that BMS'
commitment toward the environment and to the health and safety of its employees has an
impact on long-term performance.
CONTACT Jerry Schinaman
Bristol-Myers Squibb
Compliance Assurance Services
P.O. Box 182
East Syracuse, NY 13057
Phone:(315)-432-2331
Fax:(315)-432-4761
SOURCE For further information please visit the BMS website at: http://www.bms.com
66
-------
Tiz's DOOR SALES, INC.
BUSINESS
DECISION
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
PROJECT
DESCRIPTION
TIZ'S BOOM SABES. INC.
~, «* ~w», i^o. W
-------
^":--" -'::::l
2:-*.: XJElll
Tiz's DOOR SALES, INC.
initial investment costs include not only
equipment, materials, and installation, but
also utility connections, site preparation,
and savings in permitting costs and
insurance. The savings would result from
reduced toxic emissions that would
eliminate the need for an air permit and
would lower explosion risk.
Since the conversion would not affect many
of Tiz's operating costs, the analysis
focused only on those costs that would
chance as a result of the investment.
COST CONSIDERATIONS
Permits/Insurance
Materials
Labor
Equipment
Tax
Total Savings
Utilities
Rework
Total Costs
Year One Savings
$ 4,300
$ 124,000
$44,800
$ 3,300
$11,900
$ 188,300
Year One Costs
$ 3,000
$ 48,000
$ 51,000
1
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
These costs included utilities and rework, and savings in lacquer costs, labor, and equipment
replacement. In addition, the tax savings from the equipment depreciation were included.
The analysis used a 6% discount rate.
Different scenarios reflect different potential cash flow streams. Each allowed for different
equipment costs, insurance savings, rework costs (with the new system, pieces that are coated
improperly cannot be reworked and must be scrapped), and depreciation tax savings. Each
scenario was run for both a five-year and a ten-year project life. Across all scenarios, the net
present values (NPVs) ranged from $240,420 to $1,817,834 for which the investment would
pay for itself, on a discounted basis, in one to two years.
A number of critical assumptions underlying the analysis were individually tested to
determine their effect on profitability. These included the expected cost of the new lacquer,
the cost of rework, the depreciation method, and the discount rate. Of these, the expected cost
of the UV-curable lacquer was the most significant driver, reducing the NPV in one scenario
from $450,000 to $100,000 when the lacquer cost rose from $25 per gallon to $30.
This project has had a substantial impact on the way Tiz's Door Sales analyzes capital
investments. The company now routinely includes on their cost list indirect cost items, such
as liability, "green" product markets, and avoided raw material costs. They are currently
investigating replacing their diesel delivery vehicles with alternative-fueled vehicles, and are
using EGA to evaluate options for replacing high-volume low-pressure (HVLP) spray guns,
CONTACT Chris Montovino, PPRC (206) 223-1151
Greg Tisdel, Tiz's Door Sales, Inc. (425) 621-8369
SOURCE Pacific Northwest Pollution Prevention Resource Center, Economic Analysis: Converting
from Petroleum-Based to Ultraviolet-Light Cured Coating System for Medium-Size Wood
Products Manufacturers, 1994.
INSTITUTIONAL
CHANGE
68
-------
AMOCO OIL COMPANY
BUSINESS
DECISION
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
PROJECT
DESCRIPTION
COMPANY PROFILE
Location: Yorktown, Virginia
Size: 53,000 barrels per day
Annual Revenues: Corporation as
whole$10.8 billion worldwide
Business: Integrated
petroleum/chemical company
AMOCO OprCOMPAJfYl; * V.- ^
PRODUCT/PROCESS COSTING
Facility-wide study of oil refinery to gain insight
into environmental cost accounting in a highly
integrated oil refinery.
Analysis of environmental costs indicated such
costs were over six times higher than Amoco
EHS staff provided in an initial, informal
estimate. This meant that returns on investments
to reduce environmental costs were consistently
underestimated. Environmental accounting techniques allow a more accurate understanding
of the business benefits of such investments.
The Amoco Corporation is a worldwide integrated petroleum and chemical company.
Amoco Oil Company is one of three major operating companies of the corporation (the others
are Amoco Production Company and Amoco Chemical Company). At the time of this study,
Amoco Oil operated five refineries in the United States, with a total capacity of just under 1
million barrels per day.
This case study focused on a single refinery, in Yorktown, VA. Although this is a small
refinery (53,000 barrels/day) relative to Amoco's larger facilities (over 400,000 barrels/day),
it is nonetheless considered a "complex" refinery. In addition, the Yorktown facility makes a
rich subject for this case study because it was the setting for the unprecedented collaborative
Amoco/Environmental Protection Agency. This project quantified air emissions, water
discharges, and other wastes generated at the facility. Moreover, it identified a range of
options to reduce or prevent those releases, some of which appeared more cost-effective that
those required by existing rules.
As a part of a major study of corporate environmental accounting, the World Resources
Institute built on the Amoco/EPA study to evaluate the environmental costs associated with
the complex, highly integrated refinery.
Crude oil and natural gas provide a raw material of diverse hydrocarbons. The refining
process uses both thermal and chemical processes to separate this mixture into "fractions" of
more homogenous mixtures. Separation typically occurs according to the boiling points of
the components, with lighter fractions (including those used to make gasoline) separated at
lower temperatures and heavier fractions (such as those used to make jet fuels, kerosene, and
fuel oil) separated at higher temperatures. Additional products can be recovered from the
residuals using a wide variety of techniques, including the use of catalysts.
Determining the mix of outputs to be produced by a given refinery involves an extremely
complex decision-making process that uses as inputs market demands, product margins,
transportation costs, refinery technology, and price and availability of crude. In addition,
refinery operations are highly interrelated, with the input to one operation dependent on the
output of one or more previous operations.
69
-------
AMOCO OIL COMPANY
This degree of integration posed obstacles to
early attempts to trace environmental costs to
products, raw materials, capital project
decisions, or specific units or processes. None
of these attempts were satisfactory, due either
to difficulties associated with the integrated
nature of operations, or failure to capture a
sufficient fraction of refinery environmental
costs.
COST CONSIDERATIONS
Environmental
Cost Category
Percentage of
1993 Non-Crude
Operating Costs
Waste Treatment
4.9
Maintenance
3.3
Product Requirements
2.7
Depreciation
2.5
Administration,
Compliance
2.4
Sulphur Recovery
Waste Disposal
Non-Recurring Costs
Total
1.1
0.7
4.0
21.9
The study instead looked at environmental
costs on a refinery-wide basis. The approach
entailed analyzing accounts contained in the
facility's general financial system and
determining what portion, if any, of each cost
item was environmental. This information was supplemented by other sources such as the
company's Maintenance Management System.
ANALYSIS At most refineries, operating costs are dominated by crude oil. Thus, even small fluctuations
in the price of crude can overshadow other operating costs of the refinery. As a result, it is
the custom at the refinery level to track "non-crude operating costs," excluding the costs of
feedstock.
The analysis estimates that total environmentally related costs are 21.9 percent of total non-
crude operating costs. This total focuses primarily on capital, operating, and maintenance
costs, and excludes contingent liability costs. If these costs were added, the total could be
higher. Remediation expenses are recorded as "non-recurring costs" .
Note that maintenance costs, estimated at 3.3 percent of non-crude operating costs, far exceed
the sum of waste disposal, fees, fines, and penalties. 2.7 percent of non-crude operating costs
is attributed to complying with environmental regulations associated with product
specifications.
At the outset of the project, prior to conducting the analysis, environmental personnel
estimated informally estimated environmentally related costs at only three percent of total
non-crude operating costs. The magnitude of this difference, as well as the magnitude of the
costs, indicates the value of identifying and tracking environmental costs.
FINANCIAL Not applicable,
PARAMETERS
FINANCIAL Not applicable.
RESULTS
CONTACT Not provided.
SOURCE Ditz, Daryl, Janet Ranganathan, and R. Darryl Banks, Green Ledgers: Case Studies in
Corporate Environmental Accounting. World Resources Institute, May 1995.
70
-------
CIBA-GEIGY (NOVARTIS)
BUSINESS PRODUCT/PROCESS COSTING
DECISION Study of the environmental costs associated with
the production of a single chemical additive used
to increase stability of plastics.
BUSINESS
BENEFITS
COMPANY PROFILE
=> Location: 60 countries
=> Size: 92,000 employees
=> Annual Revenues: Not provided
=> Business: Manufacturer of
diversified chemical products.
WHY WAS
PROJECT
PERFORMED?
The study reveals that, with minor changes, the
Ciba-Geigy accounting system could make better
use of information already reported to provide
better environmental cost information for
managerial decision making.
Ciba-Geigy (now merged with Sandoz as Novartis) is an internationally diversified company
headquartered in Basel, Switzerland operating with 92,000 employees in 60 countries. Ciba
is a major producer of Pharmaceuticals, specialty chemicals and agricultural products,
diagnostic products, plant protection and animal health products, seeds, dyes, chemicals,
additives, pigments, and polymers. The company's worldwide operations range from mature,
low-growth products in the commodity chemical divisions to higher growth specialty or niche
chemicals, including value-added special formulations to meet individual customers' needs,
to advanced technology-based high-growth Pharmaceuticals. The company is vertically
integrated, producing may of its own intermediate chemicals.
Ciba has a stated goal of reducing energy consumption and waste in all forms. It has
committed to develop new processes for reclamation, reprocessing, and recycling emissions
and effluents. It also has a goal to remove solvents and other highly reactive compounds
from production processes as soon as possible.
As a part of a major study of corporate environmental accounting, the World Resources
Institute evaluated Ciba-Geigy's environmental management accounting practices.
PROJECT As a sample exercise in environmental accounting, the researchers carried out an analysis of
DESCRIPTION me environmental costs associated with manufacturing a single chemical additive, given the
fictitious name Stabilan, that is used to increase the shelf life and stability of a wide range of
products. Stabilan is one of several substances produced by Ciba's Additives Division. The
product is manufactured on a batch basis on any of several flexible processing lines that are
also used to produced other additives.
Stabilan is used in products that come in contact with food. As such, it meets Food and Drug
Administration guidelines for comestible products. However, the complex manufacturing
process for Stabilan requires the use of three compounds that have significant environmental,
health, or safety implications. One, a highly reactive substance, is a key building block in
production of the intermediate; the other two, both solvents, generate volatile organic
compound (VOC) emissions. In addition, VOC residues in waste water effluents result from
production and flushing of lines for product changeovers. This effluent is processed at an on-
site wastewater treatment facility.
71
-------
CIBA-GEIGY (NOVARTIS)
Information on environment-driven activities and costs associated with was gathered from
discussions with Additive Division employees as well as with service providers to the
Division.
ANALYSIS Cost components are assigned to one of 15 categories (e.g., solvents, packaging materials,
materials handling, overhead, steam, etc.), and identified as being one of four types of costs:
direct variable; indirect variable; indirect fixed; or, historical. Raw material costs are
excluded from the analysis to safeguard potentially confidential data.
Two of these cost componentssolvent recovery and wastewater treatment chargesare
flagged as being fully attributable as environmental costs. Together they total 15 percent of
the of the total manufacturing costs ofStabilan, excluding raw material costs.
Ciba's accounting system does not permit an accurate estimation of the upper and lower
bound for the environmental portion of a majority of cost elements. Thus, in order to provide
a conservative analysis, the remaining cost components are assigned an "estimated
environmental portion," which in most cases Is a range representing theoretical limits (i.e., 0
to 100 percent). Based on this analysis, environmental costs are estimated to range between
19 and 72 percent of the total manufacturing costs afStabilan, excluding raw material costs.
Among the recommendations of the researchers is that Ciba managers consider further
analysis and refinement of the bounds of the environmental costs range assigned to the
various components. Availability of improved estimates would enhance the quality of
environmental Information available to managers.
The overall recommendation of the researchers is that Ciba explore the possibility of making
minor changes to its current information system to enhance its ability to provide relevant
information to support decisions. Ciba already has a comprehensive, fully integrated general
ledger system in use at all sites worldwide. Currently, however, the system aggregates many
costs into overhead categories prior to reporting them out. The researchers note that in many
cases the input of an additional code at the time of data entry is all that is required to achieve
this enhancement.
FINANCIAL Not applicable.
PARAMETERS
FINANCIAL Not published in study at request of Ciba-Geigy.
RESULTS
CONTACT Not provided.
SOURCE Ditz, Daryl, Janet Ranganathan, and R. Darryl Banks, Green Ledgers: Case Studies in
Corporate Environmental Accounting. World Resources Institute, May 1995.
72
-------
A RESINS MANUFACTURER
BUSINESS
DECISION
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
COMPANY PROFILE
Location: Midwest US
Size: 220 employees
Annual Revenues: $300,000,000
Business: Manufacturer of resin
products used in paints, coatings, and
reinforced fiberglass
PRODUCT/PROCESS COSTING
Does improved estimation of operating costs
enhance the firm's ability to identify pollution
prevention opportunities?
This manufacturer found that its product costing,
in one case, significantly misrepresented the
actual cost of producing the product.
In accord with the company's commitment to an
aggressive pollution prevention (P2) program, the facility in this study joined with the Illinois
Waste Management Research Center to more rigorously cost one of its products, Resin A.
The exercise entailed a technical evaluation of the manufacturing process and a financial
analysis of the product line to determine the cost of waste. The purpose was to improve the
facility's understanding of the process to identify and later implement P2 opportunities.
The project sought to identify opportunities to improve Resin A's manufacturing process
through capital purchases or optimization of its operating parameters. A longer-term
objective was to improve costing systems to facilitate P2 throughout the company. Tellus
Institute worked with the company to characterize the existing allocation system and suggest
ideas for improvement. In addition to looking at the company's method of allocation, the
analysis evaluated the effect of enhanced allocation methods on product costs.
Resin A is part of the alkyd resins family of products, one of four the facility produces. The
resin products are processed in batch reactor vessels where the raw materials are heated. A
solvent solution is added to the reacted resin mixture to change its physical properties. The
process generates air emissions and various streams of hazardous and non-hazardous waste.
Unlike most of the resin products, Resin A undergoes a final filtering process to remove an
unwanted by-product; a process step that generates additional waste. It is because Resin A
requires this extra step that it was selected as the focus for the facility's study.
The first stage of the project was to calculate the cost of manufacturing Resin A based on the
facility's existing costing methods. This stage would serve as the baseline against which
recommended enhancements could be compared. The subsequent stage evaluated alternative
methods of costing to more accurately reflect the cost of the product. Rather than develop a
new method of process costing, the evaluation began with the existing system and built upon
it. Two separate analyses, a surcharge analysis and an allocation analysis, were run to
respectively evaluate the impact of (1) the facility's surcharge system whereby cost
adjustments are applied to processes thought to have unusually high costs, and (2) the
allocation system used to assign indirect costs.
ANALYSIS The facility organizes cost data into waste cost and conversion cost. The waste cost includes
disposal and transportation fees for off-site disposal and utility costs for on-site treatment. A
waste tracking system determines the waste cost for the facility organized by waste type. The
conversion cost comprises indirect operating costs that are assigned to individual products.
PROJECT
DESCRIPTION
73
-------
A RESINS MANUFACTURER
COST CONSIDERATIONS
FU&liocalion Savings
Labor
$ 125,000
Total Savings
$ 125,000
Reallocatlon Costs
Conversion Cost
$ 26,000
Waste
$ 22,000
Total Costs
$48,000
Conversion costs are allocated as direct
costs (labor, utilities, equipment
depreciation) on the basis of reaction time,
as overhead (waste management,
administration) on the basis of number of
batches, or as fixed costs (safety materials,
shipping labor) on the basis of product
volume, A surcharge is added on top of
these costs when a product requires extra
steps, such as filtration, in its processing.
Using mis method, the facility determines the cost of producing Resin A. Despite Resin A's
extra filtration step, it did not receive a surcharge.
The process of manufacturing Resin A was reevaluated to identify any surcharges that might
be warranted. The filtration step at the end of the process did represent an extra cost that was
not being charged back to the process. This comprised the cost of the filtration labor, filter
paper and powder, and filtration waste disposal. The allocation of costs was also reevaluated
for three of the process's major costs; operating labor, waste disposal, and environmental
management labor. As an alternative method, operating labor was estimated based on actual
labor spent on the process rather than an allocation based on the product's reaction time.
Similarly* waste disposal costs were estimated based on actual waste generated versus an
allocation based on the number of batches produced. Finally, environmental management
labor was estimated by determining the portion of the environmental engineer's time spent on
the Resin A process rather than by allocation on a product volume basis,
FINANCIAL Not applicable,
PARAMETERS
FINANCIAL The facility's conversion cost for Resin A is $257,000 for the four million pounds of product
RESULTS manufactured and the waste cost assigned is just under $30,000. The surcharge analysis
calculated a filtration step cost of over $650 per batch, which effectively increases Resin A's
conversion cost by 10%. Omission of the surcharge therefore put the product's assigned cost
significantly below its actual cost.
The allocation analysis found the actual cost of operating labor to manufacture Resin A to be
close to $20,000 compared to the facility's allocation of $145,000. Because the process to
manufacture Resin A generates substantial hazardous waste, the bottom-up estimate of waste
disposal showed actual costs to be $52,000 compared the facility's estimate of $30,000. The
facility's focus on waste minimization meant that the environmental engineer spent
proportionally more of her time on the Resin A line because the facility had targeted it for
improvements. As a result, almost 18% of her time was actually spent on the process as
opposed to the 4% assigned via the facility's allocation system. Based on the information
uncovered by this project, management can reevaluate the cost of Resin A and better asses the
economic value of reducing the product's environmental impacts,
INSTITUTIONAL This project has a modest effect on the way this company carries out internal financial
CHANGE analysis. They have expanded their cost list in cost accounting activities to include avoided
74
-------
A RESINS MANUFACTURER
raw material costs. Otherwise, the company has not changed its practices.
CONTACT Deborah Savage, Tellus Institute (617) 266-5400
SOURCE Savage, Deborah, et al., Total Cost Assessment: Catalyzing Corporate Commitment to
Pollution Prevention in Illinois. For Illinois Waste Management and Research Center, April
1997.
75
-------
S.C. JOHNSON WAX
COMPANY PROFILE
Location: Facilities in 49 countries
Size: 13,000 employees
Annual Revenues: Not reported
Business: Manufacturer of chemical
specialty products for home care,
insect control, and personal care.
, ,
BUSINESS PRODUCT/PROCESS COSTING
DECISION Study of the environmental costs associated with
one household pesticide product.
BUSINESS Analysis using environmental accounting
BENEFITS techniques indicated environmentally related
costs were actually about 50 percent greater than
indicated by the current accounting system. This
meant that returns on investments to reduce
environmental costs were consistently
underestimated. Environmental accounting techniques allow a more accurate understanding
of the business benefits of such investments.
WHY WAS S. C. Johnson Wax (SCJ) is a large, privately held corporation. The company is one of the
PROJECT world's leading providers of chemical specialty products for the home and workplace. The
PERFORMED? corporations has several divisions. This case study focuses on production by the Insect
Control Business. This division faces a range of environmental challenges arising from
product registration, marketing,, and post-consumer product management (such as recycling of
aerosol cans). Proliferating state regulations on pesticide labeling and use represent a major
issue for the company. Regulation affects lead times for registering products and developing
formulations, which in turn affects the incentive to develop new active ingredients.
As a part of a major study of corporate environmental accounting, the World Resources
Institute evaluated SCJ's environmental management accounting practices. The
described below is a part of this study.
case
PROJECT As a sample exercise in environmental accounting, the researchers carried out an analysis of
DESCRIPTION fhe environmental costs associated with production and sales of a single household pesticide
product manufactured by SCJ's Waxdale, Wisconsin, manufacturing facility. The specific
product considered is one of several aerosols produced by the facility, and the aerosol
production lines are only one part of the manufacturing facility,
ANALYSIS Department personnel were interviewed and asked to conduct self-audits of their time in order
to estimate the portion of staff time spent in environmental activities. Documents such as
departmental expense statements and manufacturing overhead studies were also reviewed to
gather information on other costs. Costs related to Sales, R&D, and Administrative
Management personnel were not estimated in the analysis.
This analysis reveals that waste processing and other non-personnel-related environmental
expenses associated with manufacturing are relatively low, totaling only 0.25 percent of
manufacturing costs-of-sales. The analysis also reveals that manufacturing personnel costs
associated with environmental initiatives total 2.7 percent of operating expenses. Both of
these costs are captured by the corporation's current accounting system.
76
-------
S.C. JOHNSON WAX
However, the analysis indicates several additional environmental related costs are not
captured by the accounting system. These include the registration fees and mill taxes,
environmental R&D projects, allocated Environmental and Safety Actions expenses, and
directly identifiable legal expenses. These costs total only 0.04 percent of manufacturing
costs-of-sales; however the registration fees and mill taxes alone comprise fully 17 percent of
marketing administration. In addition, about 21 percent of marketing administration
personnel expenses are associated with environmental concerns, totaling 1.6 percent of
operating expenses. Together, these costs not captured by the accounting system as
environmentally related total over 50 percent of the costs that are captured.
This result indicates that in at least some cases, environmental costs resulting from
manufacturing operations are not captured by the current accounting system. If the results of
the analysis of this single chemical are typical of the corporation as a whole, it may indicate
that the current accounting system undervalues investments in environmental improvements.
That is, if the result for this one product are typical, the savings that would accrue from
environmental improvements would be at least 50 percent greater than the current system
indicates.
FINANCIAL Not applicable.
PARAMETERS
FINANCIAL Not applicable.
RESULTS
CONTACT Not provided.
SOURCE Ditz, Daryl, Janet Ranganathan, and R. Darryl Banks, Green Ledgers: Case Studies in
Corporate Environmental Accounting. World Resources Institute, May 1995.
77
-------
A FORESTRY COMPANY
BUSINESS PRODUCT/PROCESS COSTING
DECISION Study of three forestry options: (1) business as
usual (full compliance with current government
guidelines); (2) full compliance plus selective
response to public concerns over sustainable
development; (3) full implementation of
sustainable development (i.e,, preserve forest's
natural growth cycle).
COMPANY PROFILE
=$> Location: Ontario, Canada
=> Size: 6,500 sq. miles of forest
=> Annual Revenues: Not provided
=> Business: Lumber & pulp mill
operations,
BUSINESS The study provides an initial attempt to develop accounting techniques that address issues of
BENEFITS sustainability. As such, it provides insight into questions that arise with increasing frequency
as corporations and society become increasingly concerned with non-commercial matters
such as preservation of the environment, employment equity, and worker safety.
WHY WAS The author of this study is a principal in the Canadian Office of the Auditor General, and is a
PROJECT chartered accountant. He views our society as entering a new epoch of accounting for wealth,
PERFORMED? m Wbich business is becoming increasingly accountable for a growing range of intangibles.
There is thus a need for accountants to make the necessary conceptual adjustments and
develop the tools needed to account for these new business realities.
In part due to earlier work related to the damage to natural capital in the Exxon Valdez oil
spill, the author was invited by the UN's Center on Transnational Corporations to conduct a
pilot project on accounting for sustainable development The project had five goals: 1) use
data from operations of a real resource company; 2) determine costs of implementing
sustainable development; 3) determine the company's *'sustainable income" (i.e,, reported
bottom line income adjusted to reflect the potential cost of damage to the company's natural
capital); 4) expand me traditional definition of assets to encompass the overall environment
upon which the company depends to remain in business; 5) create a reporting package to
summarize information on the company's environmental stewardship.
Specifically, the author chose to analyze a large forestry company which leases 6,500 square
miles of forest land from the province of Ontario, Cut timber supplies the company's sawmill
and pulp mill. The CEO of the company was excited at the opportunity to participate in the
study, as traditional accounting methods failed to provide him with information he needed to
engage fully hi the debate regarding the environmental issues surrounding forestry.
PROJECT Due to the considerable ambiguity surrounding the concept of sustainable development, and
DESCRIPTION me formidable information requirements facing even a limited analysis, the project studied
three forestry options: (1) business as usualfull compliance with current government
guidelines without implementing sustainable development; (2) full compliance plus selective
response to public concerns over sustainable development; (3) full implementation of
sustainable development (i,e., harvest quantity and technology used would be determined so
as to preserve the forest's natural growth cycle).
78
-------
A FORESTRY COMPANY
ANALYSIS The analysis required making a large number of decisions regarding the boundaries and scope
of the study. The researcher first decided that the accounting entity would be the traditional
assets plus the 6,500 square miles of natural capital on which it depends. It was decided that
including the entire boreal forest as context was too ambitious for a pilot project.
To analyze costs of the three forestry management options outlined above required additional
decisions. First, it was decided to use the abatement cost approachusing the estimated the
cost of fixing an environmental problem as a proxy for the cost of damage. This approach
was chosen because it is much simpler than the damage costing approachwhere actual cost
of damage to the environmental and human health are estimated directly. The analysis
indicates that Option 2 would increase annual operating costs by $8.8 million; Option 3
would require a $22.3 million increase. These costs reflect changes to both forestry and pulp
mill operations; saw mill operations would remain unchanged under the different options.
For the "Balance Sheet of Natural Forest Capital," the year end commercial value of the
forest is recorded as an asset with value $40 million, the present value calculated by the
company's chief cost accountant. Another important decision is assigning ownership of the
forest. If the forest belongs to our parents, then it is an inheritance, and should be entered as
equity. If, however, ownership is assigned to our children, then it should be entered as a
liabilitya loan to us from them. Although this decision is ultimately based on our values,
the accounting principal of conservatism requires it to be treated as a liability. To account for
damage done to the forest due to actions of this generation, an account receivable from the
current generation of $7 million was entered. This value was calculated based on the money
the company would have spent if it had been implementing the sustainable development
option (Option 3).
Finally, the cost associated with risk to the ecosystem was estimated based on a number of
factors, including the capitalized value for the forest (based on company annualized earnings)
and estimates of the ecological impacts associated with the three options. This amount, which
serves as a crude proxy for a depletion cost for the ecosystem. As expected, the depletion
cost is greatest for Option 1 ($10.6 million) and lowest for Option 3 ($2.7 million).
Not provided.
In essence, what the analysis shows is that return on investments range from 27.0 percent for
Option 1 being implemented in both the Forestry and Pulp Mill operations, to 15.6 percent for
Option 3 being implemented in both operations. Including the depletion of the natural
resource base reduces the rate of return to Option 1 to 23.7 percent, and the return to Option 3
to 14.8 percent. The much lower decline in this Full Cost Rate of Return in Option 3 is
attributable to its much lower impact on resource depletion.
CONTACT Daniel Blake Rubenstein, Office of the Auditor General, Ottawa, Canada.
SOURCE Rubenstein, Daniel Blake, "One Man's Attempt to Reconcile the World of Accounting with
his Love of the Forest". CA Magazine. October 1994.
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
79
-------
SOUTHWEST HYDRO, INC.
BUSINESS PRODUCT/PROCESS COSTING
DECISION Does improved estimation of operating costs
enhance the utility's ability to identify
environmental savings?
in
BUSINESS By measuring the C$10.4 million
BENEFITS environmental costs. Southwest Hydro identified
CS1-3 million in potential savings.
COMPANY PROFILE
=> Location: Southwestern Ontario
=> Size: 75,000 customers
=> Annual Revenues: C$148,500,000
=i> Business: Retail arm of North
America's largest utility
WHY WAS In conjunction with its parent, Ontario Hydro
PROJECT Retail, and the Environment and Sustainable Development Division of Ontario Hydro (OH),
PERFORMED? SWH undertook a pilot project to review and analyze the environmental impacts of the
utility's operations, The purpose of the project was to identify the operations' environmental
costs and to develop recommendations for process improvements to reduce or avoid costs,
increase revenues, reduce waste, and enhance SWH's image in its host communities. The
intended outcome would enable SWH to better manage its environmental costs and future
liabilities and to establish benchmarks for other utilities in Ontario Hydro Retail.
The project was a part of the Sustainable Energy Development Strategy at Ontario Hydro. OH
and its business units have been developing methods to integrate environmental
considerations into its decision making. This study is a pilot of one method, called Full Cost
Accounting (FCA) by OH, which ultimately is intended for deployment throughout the
corporation. The FCA was part of former Chairman Maurice Strong's strategy to restructure
the company to meet the dual challenges of a dynamic utility industry and sustainable
development
PROJECT The project collected and analyzed the costs of SWH processes and operations with direct or
DESCRIPTION indirect environmental impacts, Environmental costs, hi this context, are defined as capital
and operating expenditures of initiatives to protect and restore the environment. It did not
quantitatively include external environmental costs, or externalities.
The collection and compilation of these costs was hampered by the absence of a separate
record of environment-related expenditures. Once the operations having environmental
impacts were identified, environmental costs were estimated from available data, including
interviews with utility personnel and actual expenditures data from 1994-5. These costs, and
their associated drivers, were quantified to develop recommendations to lessen the
environmental impacts of SWH's processes and operations.
ANALYSIS The internal review of environmental costs thoroughly examined SWH's operations. The
utility developed an input/output model of its operations in which six major categories of
processes were identified. Within these categories reside the activities that drive
environmental expenditures due to their environmental impacts. The costs associated with
these activities were ascertained to the extent possible and included in the overall assessment
of SWH's environmental costs. For two of the categories, discrete environmental costs could
not be separately identified; hi these cases, the full costs of the processes were included.
Capital costs were annualized based on the expected frequency of occurrence.
80
-------
SOUTHWEST HYDRO, INC.
COST CONSIDERATIONS
Annual Savings
Line Loss Reduction
$ 1,000,000 to
2,000,000
Fuel Efficiency
$ 30,000 to
80,000
Transformer Mgmt.
$ 50,000
Solid Waste Reduction
$ 20,000
Haz. Waste Reduction
$ 10,000
Landscaping
$ 25,000 to
50,000
PCB Management
$ 25,000 to
50,000
Total Savings
$1,160,000 to
$2,260,000
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
For each of the processes, the utility
identified the inputs and outputs associated
with the relevant activities, i.e., those having
an environmental impact. Costs were
assigned to these inputs and outputs based
on available data and estimation providing
widely varying degrees of quantitative rigor.
For the six environmental cost categories, a
total of 23 activities were included in the
analysis, although 11 of these did not
represent a measurable cost or, in some
cases, represented a cost avoidance. The
activities covered a variety of environmental
costs as diverse as 'green' procurement,
herbicide use, contaminated land
management, settlements with Aboriginal
peoples, and renewable technology development.
Not applicable.
The total cost of SWH's operations and processes that have environmental impacts was
estimated to be nearly C$10.4 million, roughly 8% of total operating costs. Costs associated
with waste management accounted for C$7.7 million of that total, driven largely by the costs
associated with energy loss from distribution inefficiencies. Land use management accounted
for another C$1.5 million due in large part to the costs of line clearing and other forestry
work.
This costing exercise enabled the identification of opportunities for cost reduction and
avoidance, revenue generation, and environmental improvement. These opportunities have a
potential cost savings totaling C$1.2 million to C$2.8 million, which would increase net
income by 5-15%. These numbers did not include savings that could not be readily quantified
nor those attributable to intangible benefits such as improved corporate image and
electromagnetic field reduction. The study concludes with both specific and general
recommendations for achieving cost savings and for continuing to improve SWH's ability to
track and manage environmental costs.
CONTACT Ali Khan, Southwest Hydro, (416) 592-4788
Head Office, Ontario Hydro, (416) 592-5111
SOURCES Southwest Hydro and Ontario Hydro Retail, Internal Environmental Cost Review of
Southwest Hydro. May 1996.
US Environmental Protection Agency, Environmental Accounting Case Studies: Full Cost
Accounting for Decision Making at Ontario Hydro. EPA 742-R-95-004,1996.
81
-------
BAXTER INTERNATIONAL
BUSINESS PRODUCT/PROCESS COSTING
DECISION Are expenditures on an internal environmental
management program financially justified?
BUSINESS From proactive spending of $22.2 million, Baxter
BENEFITS realized annual environmental income, savings,
and cost avoidance of $23.4 million, plus another
S5L2 million in cost avoidances from previous
years.
COMPANY PROFILE
Location: Deerfield, IL
Size; 184 sites worldwide
Annual Revenues: >$9 billion
Business: Producer of products and
services used in hospitals and other
health care facilities
WHY WAS Over the years, Baxter has demonstrated a strong commitment to improving its environmental
PROJECT performance. In setting and achieving waste reduction goals, making voluntary
PERFORMED? environmental commitments, and adopting a progressive environmental policy, Baxter has
taken strides to go beyond compliance and to integrate environmental considerations into its
business. It has developed a number of specific initiatives to improve its environmental
performance as part of the normal course of doing business.
One of these initiatives was the development of a financial statement of the company's costs
and cost savings associated with its environmental activities. Referred to internally as the
environmental balance sheet, the statement has been refined and upgraded, and has been
published for external audiences since 1992. The UK telecommunications company, British
Telecom, sponsored this case study of Baxter's environmental financial statement as part of a
research effort to improve its own environmental reporting.
PROJECT The central theme of Baxter's environmental financial statement is that environmental
DESCRIPTION considerations are an integral part of running its business. Furthermore, good environmental
management requires not just the consideration of environmental issues, but their translation
into bottom-line language that speaks to upper management. The environmental balance sheet
is a demonstration of the economic benefit of the firm's environmental activities.
The statement serves multiple purposes within the company, and these are mostly for internal
uses. The first is to reinforce the firm's commitment to total quality management and its
logical extension to environmental management. By measuring the costs of action and
inaction, the case that good environmental management is consistent with good business is
made more compelling. Such measurement induces managers to take positive actions that
can yield simultaneous environmental and economic benefits. Other purposes of the balance
sheet are to identify future cost savings opportunities and to enhance the credibility and
perceived value of environmental staff. The statement also serves the purpose of informing
its external stakeholders of its financial commitment to environmental performance.
ANALYSIS The development of the statement requires the identification, collection, and assembly of
financial data associated with all aspects of environmental affairs. The statement separates
the data into two categories: environmental costs; and total income, savings, and cost
avoidance for initiatives undertaken in a reporting year. The cost avoidances from previous
years are then added to arrive at the total benefit of Baxter's environmental initiatives. The,
82
-------
BAXTER INTERNATIONAL
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
INSTITUTIONAL
CHANGE
CONTACT
SOURCES
COST CONSIDERATIONS
1994 Savings
Materials/Disposal
$ 9,100,000-
Recycling Income
$ 3,500,000
Energy Conservation
$ 300,000
Packaging
$ 10,500,000
Total Savings
$23,400,000
1994 Costs
Corporate, Etc.
$ 2,800,000
Programs
$ 9,100,000
Pollution Control
$ 10,300,000
Total Costs $22,200,000
estimation of cost avoidances does not include
costs that would have been eliminated through
other means. The data collection is an annual
process facilitated by a form distributed to all
Baxter divisions. Corporate staff synthesizes and
verifies the data to the extent possible in order to
maintain the statement's credibility.
The environmental costs are split into the proactive
costs of the basic environmental program and the
reactive costs of remediation and waste disposal.
These costs are measured in terms of the quantity
of the resource used (e.g., materials, equipment, or
staff time) and the price the company pays for the
resource. Environmental benefits include cost reductions of ozone-depleting substances,
hazardous and non-hazardous waste, and packaging; income from recycling; and cost savings
from energy conservation. Although the statement aims to be comprehensive, certain cost
elements are excluded from the analysis for a number of reasons. These items include
reduction of liability exposure, increased goodwill and employee morale, capital cost
differential for environmentally superior lighting, and costs of environmentally-driven R&D.
Baxter sees these costs/savings as offset by non-environmental costs/savings, as relatively
minor, or as too difficult to quantify.
Not provided.
The study provided environmental financial statements for 1994, 1993, and 1992. The total
income, savings, and cost avoidance in 1994 was $74.6 million, up from $31.0 million in
1992. The 1994 environmental proactive costs were $22.2 million while the reactive program
costs were $5.4 million. These costs were nearly offset by the year's savings and income of
$17.7 and cost avoidances of $5.7, amounting to a total of $23.4 million. From these
numbers alone, the investment in the proactive program was covered by the benefits it yields.
The statement also reports another $51.2 million of cost avoidance in 1994 from efforts
initiated in prior years (dating back to 1989). This figure represents waste reduction
initiatives from previous years that continue to represent money the company does not have to
spend, but would have if the initiatives had not been taken.
Baxter has integrated environmental considerations into its business at all levels. The
company continues to publish a comprehensive annual environmental performance report.
William Blackburn, Baxter International, (847) 948-4962
Baxter International, Inc., Baxter Environmental Performance Report 1995. 1996.
Bennet, Martin and Peter James, Baxter International Inc. Environmental Financial
Statement. Study for British Telecommunications, March 1996.
83
-------
CHRYSLER CORPORATION
BUSINESS PRODUCT/PROCESS COSTING
DECISION Should a mercury switch in an under-hood
convenience lighting package for the calendar
year 1997 Neon he selected over the other
mercury-free alternative?
COMPANY PROFILE
=> Location: Auburn Hills, Ml
=> Size: 120,000 employees
=> Annual Revenues: $40 Billion
=> Business: Car and Light Truck
Manufacturer
BUSINESS The apparent piece price difference was $0,12 in
BENEFITS favor of the mercury switch; however, the
relative cost savings when a total life cycle
analysis was conducted indicated a $0.12 advantage for the rolling ball switch, the mercury-
free alternative.
WHY WAS Chrysler Corporation relies on a large automotive supplier base to manufacture its products.
PROJECT Chrysler evaluates the various components available from different suppliers by performing
PERFORMED? Life Cycle Management (LCM) studies, which compare components on the basis of not only
piece price, but also environmental, health, safety, and recycling considerations in a
systematic business decision framework. In addition to assisting with sound business
decisions, environmental factors help measure Chrysler's readiness to comply with upcoming
regulatory requirements and internal engineering standards,
LCM focuses on comparative evaluations of key life cycle segments. Chrysler developed an
LCM model for evaluating production components with Franklin Associates, Ltd. In addition
to piece price, inputs of the model include: recyclability and disassembly ratings, and
recycled content data from Chrysler's Regulated Substance and Recyclability Certification
(RSRC) Data Collection and Reporting System; tooling costs; component weight; substances
of concern contained in the component; labeling requirements; storage costs; packaging costs;
insurance premiums; environmental training; personal protective equipment; record-keeping
and reporting; add-on environmental controls; end-of-life disposal and recycling costs; long-
term liability; and emissions. The model results in a cost comparison of two or more
available alternatives,
PROJECT Convenience under-hood lighting systems have been available on the Neon for several years.
DESCRIPTION The switches used to turn the under-hood lights on and off have historically contained
mercury, a substance gaining more and more attention from environmental regulators. A Life
Cycle Management study was conducted by Chrysler to evaluate the hidden costs associated
with continued use of the mercury switches compared to other available lighting alternatives,
and to determine the least expensive alternative.
ANALYSIS Several alternative designs for convenience under-hood lighting systems are available in the
automotive manufacturing industry. Options for mercury-free switches include pendulum,
rolling ball, transistor, and limit switches.
The State of Minnesota has a statute in place prohibiting the crushing of a motor vehicle
without prior removal of all mercury switches. Wisconsin and Michigan are following
Minnesota's lead. Sweden has also banned mercury from motor vehicles sold in that country
84
-------
CHRYSLER CORPORATION
COST CONSIDERATIONS
Mercury vs. Rolling Ball Switch (Mercury-free)
Piece Price $-0.11
Acquisition Price
-0.01
Identification and Tracking
+ 0.24
The Total LCM Cost Advantage of
the Rolling Ball Switch is;
+ 0.12 per unit
To evaluate the cost impact to
Chrysler Corporation, an LCM case
study evaluated a mercury switch
currently in use, and two possible
'alternatives. Piece prices of the
mercury switches are one-third to
one-half of the piece prices of
mercury-free switches. A cost
savings can also be recognized by using similar switches across all Chrysler platforms, and
getting volume discounts. No additional tooling costs are required for either type of switch,
because both are currently manufactured by Chrysler.
Significant identification and tracking requirements are associated with mercury switches,
and costs associated with tooling to manufacture labels, label piece price, and labor to install
labels are calculated and included in the LCM cost. Product Destination Software will also be
required for the mercury switches. This software is required to identify labels which are
required or proposed for sales of vehicles in three states. The cost of labeling is related to the
variety and difference required by the states. Additional environmental support from
Chrysler's corporate staff to address regulatory and reporting issues will be required the first
year of regulation.
FINANCIAL Not provided.
PARAMETERS
FINANCIAL The comparison results in a significant cost savings by using the mercury-free rolling ball
switch The savings is $0.12 per unit, or about $18,000 per year. The costs were driven to a
large degree by labeling costs associated with a -variety of requirements stipulated by three
states. In addition to this cost savings, using the mercury-free switch supports Chrysler's
internal engineering design standards, reduces potential liability, and reduces its regulatory
burden.
RESULTS
INSTITUTIONAL
CHANGE
CONTACT
Chrysler has incorporated ECA into the set of decision tools is uses. It also makes extensive
use of life cycle management. ECA has changed how Chrysler measures costs, but has not
affected cost allocation.
Wendy S. White, The Traverse Group, Ann Arbor, MI (313) 747-9301
Dr. Robert J. Kainz, Chrysler Corporation, Auburn Hills, MI (248) 576-5496
Susan G. Yester, Chrysler Corporation, Auburn Hills, MI (248) 576-8038
SOURCE Pollution Prevention and Remediation, Chrysler Corporation, Life Cycle Programs
85
-------
LARGE FIRM IN ADTO INDUSTRY
BUSINESS PRODUCT/PROCESS COSTING
DECISION Can improved estimation of potential
environmental liability costs enhance the firm's
to identify environmental savings?
BUSINESS A thorough analysis of potential environmental
BENEFITS liability costs projected savings of over
$1,000,000 per year,
WHY WAS
PROJECT
PERFORMED?
COMPANY PROFILE
=> Location: Midwest US
=> Size: >100 facilities worldwide
=> Annual Revenues: >$ 10 billion
=> Business: Manufacturer in
automobile industry
This firm was concerned about managing
potential environmental liability costs associated with the continued use of transformers
containing PCBs. An internal environmental team previously conducted a life-cycle analysis
of thebusiness-as-usual scenario of replacing the PCB transformers through normal attrition.
This preliminary analysis included both conventional costs as well as what the team called
environmental costs and risks, but failed to provide sufficient financial justification for a
managed corporate-wide phase-out.
Because the project would require an investment of tens of millions of dollars, management
wanted to be sure the financial analysis was thorough, conservative, and sound. With
assistance from Tellus Institute, the firm sought to assess the previous analysis and develop a
methodology for the consideration of contingent liability costs. Tellus worked with the firm
to identify these costs and reassess the financial viability of a managed phase-out program.
PROJECT At the time of the study, this firm managed hundreds of PCB-containing transformers. The
DESCRIPTION project aimed to fully assess the liability the company faced as a result of maintaining these
transformers during their normal lifetime. Allowing the transformers to be gradually phased
out, the business-as-usual scenario, would take an estimated 30 years, whereas the managed
phase-out would be completed in 5 years.
To support its economic evaluation, the firm sought to determine the probability and costs of
acute events related to the PCB-containing transformers; including costs of insurance,
litigation, clean-up, production shutdown, regulatory penalties, and possible effects on the
firm's corporate image. The original economic analysis accounted for liability resulting from
leaks, spills, and ruptures, but failed to consider transformer fires. Furthermore, the previous
analysis did not consider repercussions in the production chain in this vertically-integrated
company, effects that could have significant financial impact. The credibility and validity of
liability estimates would have to be defensible and acceptable to obtain upper management's
approval.
ANALYSIS The analysis used actuarial techniques as the basis for developing expected values for
contingent liability costs. Historical information was gathered from a number of sources to
estimate and substantiate the probability and associated costs of various events, A
framework was first established to identify the potential costs of an acute event, thereby
suggesting the types of data necessary to estimate such costs. The most significant costs were
the clean-up, insurance, litigation, and production shutdown and losses that would result from
86
-------
LARGE FIRM IN AUTO INDUSTRY
a transformer fire or spill. All of these
costs, therefore, were contingent on the
occurrence of each of the possible events.
The ultimate cost to the company is the
probability of each event times the
magnitude of its respective cost, summed
over all events.
COST CONSIDERATIONS
Contingent Costs per Transformer Incident
Spill Fire
Clean-Up
$339
$140
Litigation
$ 3,213
Lost Production $ 1,560
$10
Total Costs $5,112
$218
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
The probabilities of each event - a transformer spill and a transformer fire - were estimated
using historical databases of actual transformer incidents gathered from publicly-available
sources. The costs of clean-ups and litigation similarly were determined by research that
provided data on transformer events. Litigation costs were those that would result from
personal injury lawsuits relating to chemical exposure and industrial accidents. The analysis
considered but finally excluded insurance cost increases because the firm self-insures to cover
liability. The final element in the analysis was the consideration of the production effects of
an acute event. Because of the high volume and vertically-integrated nature of the firm's
operations, cascading effects of a shutdown could be significant. This part of the analysis
considered production level, inventory, output value, and the functional relationship between
facilities.
Not provided.
The annual total contingent costs per PCB-containing transformer were estimated to be $218
for a transformer fire and $5,112 for a transformer spill (using this expected-value, risk-based
methodology). Using these costs, just 200 transformers would represent over one million
dollars of contingent cost to the company. This is the business-as-usual cost associated with
continued use of the PCB-containing transformers.
The values for the annual costs were determined as the aggregate of the various cost
components and their associated probabilities. The contingent cost of a spill - itself a 0.0034
probability - was estimated as $339 for clean-up, $3,213 for third-party litigation, and $1,560
for a production stoppage. For a fire - a 0.000018 probability - the costs were $140, $68, and
$10 respectively. For the hundreds of PCB-containing transformers managed by this
company, these costs quickly escalate into millions of dollars in annual contingent costs.
CONTACT Allen White, Tellus Institute (617) 266-5400
SOURCE White, A.L., D.E. Savage, and A. Dierks, "Environmental Accounting: Principles for the
Sustainable Enterprise". Originally presented at the 1995 TAPPI International Environmental
Conference, Atlanta Georgia, May 7-10 1995.
87
-------
CELANISE ENGINEERING RESINS, INC.
5, WC.
COMPANY PROFILE
Location: Bishop, TX
Size: 1,100 employees
Annual Revenues: Hoechst Celanese
as whole has $6.9 billion in US sales
Business: Manufacturer of bulk
organic chemicals, engineering
plastics, and bulk pharmaceuticals
BUSINESS STRATEGIC PLANNING
DECISION study of potential environmental projects for
meeting the facility's release reduction goals,
BUSINESS The selection methodology used resulted in
BENEFITS revealing the group of waste minimization
projects that would meet corporate goals at the
lowest cost.
WHY WAS Celanese Engineering Resins is a wholly-owned
PROJECT subsidiary of Hoechst Celanese Corporation, part
PERFORMED? Of Hoechst AG, the German-based diversified company. -In 1991, Hoechst Celanese
committed to an ambitious corporate-wide program to reduce overall chemical releases at its
21 U.S. facilities by 80 percent before 1998. In addition, the company made a further
commitment to a 70 percent reduction in releases of chemicals listed on the EPA's Toxics
Release Inventory (TRI).
A key strategy for this effort is to use a hierarchy of waste management options that
emphasizes reuse or elimination of waste at the source over treatment or release of wastes.
The hierarchy used is: 1) sale of material as product; 2) source reduction; 3) recycle or reuse;
4) fuel value recovery; and, 5) treatment.
The Bishop facility wished to develop a methodology to identify and prioritize projects to
meet the reduction goal specified for the facility under mis program in the most effective
manner.
PROJECT The Bishop facility is a decentralized multi-production unit plant, with knowledge of waste
DESCRIPTION streams and waste reduction technology residing in various groups. The facility used a team
approach to bring the diverse sources of waste minimization information together to develop
a comprehensive list of projects for the whole facility. Once potential projects were
identified, engineering cost estimates were developed, as were release reduction estimates.
Following initial project identification, it became clear that most projects reduced liquid
effluent. In an effort to assure that all such projects were identified, the facility compiled an
overall plant liquid effluent balance. This allowed effluent streams to be compared with
header measurements and total feed to the waste water treatment facility to verify that all
significant effluent streams had been identified. Area representatives were asked to reassess
waste minimization opportunities for the top five effluent streams in each area to insure that
all options for key streams were considered.
Once the universe of waste minimization opportunities was identified and specified, the task
of ranking them began. The first step is to calculate a waste minimization cost factor for each
individual project. This factor compares the cost of reducing the waste through the project
with the cost of treating the waste in the wastewater treatment facility. The factor is modified
by the probability of success for the waste minimization project. A project with a factor
88
-------
CELANESE ENGINEERING RESINS, INC.
greater than 1.0 was economically superior to the water treatment plant. This provided an
initial cut at identifying the most effective projects.
As the evaluation of waste minimization projects progressed, a more rigorous prioritization
method was used to compare release reduction projects for all Hoechst Celanese facilities.
The net present value of each project, including capital, operating costs, and economic
benefits related to each project, such as raw material recovery or incremental product sales.
The ratio of net present value to tons of release reduction (i.e., $/ton) is used to compare
projects selected at the facility level.
ANALYSIS Using the rigorous comparison methodology discussed above, Hoechst Celanese identified
the 150 projects at all U.S. facilities that would allow the corporation to meet its release
reduction goal at the lowest cost.
A comparison of these projects provides several insights:
fewer than 20 percent of the projects have a positive cost impact, although
another 20 percent have net costs very near zero;
projects to reduce SARA wastes are generally more costly than those that
reduce non-SARA wastes;
projects that recover product for sales and some recycling projects produce
a net benefit, while source reduction and treatment projects generally do
not;
in several instances, voluntary release reduction projects were significantly
less expensive than projects mandated by regulation.
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
Not provided.
Fewer than 20 percent of the projects have a positive cost impact. The other 80 percent add to
production costs, but have long-term payout in that they may be cheaper than waiting for
more stringent regulations and reacting with less-than-optimum solutions. Most projects that
recover product for sales and some recycling projects had positive short-term economics. No
source reduction or treatment projects did.
CONTACT Not provided.
SOURCE Kirk, Jeffrey, "A Methodology for Waste Minimization Project Selection as a Hoechst
Celanese Manufacturing Facility". Pollution Prevention Review. Spring 1994.
89
-------
E.I. DUPONT DE NEMOURS
BUSINESS
DECISION
BUSINESS
BENEFITS
STRATEGIC PLANNING
Can improved costing of environmental
operations inform management decision making?
This DuPont facility identified a preferred
method of waste treatment with variable costs
more than 50% lower than the existing method.
WHY WAS
PROJECT
PERFORMED?
COMPANY PROFILE
Location: LaPorte, TX
Size: >100,OQO employees
Annual Revenues: $40 billion
Business: Producer of agricultural
pesticides
As the largest chemical company in the US,
DuPont has found itself subject to intense scrutiny and criticism with regard to its
environmental performance. Its longtime use of deep well injection (DWI) of wastewater
placed the company at the top of the nation's Toxics Release Inventory. In light of this
unfavorable attention, the company made a public commitment to positive action to improve
its environmental performance.
With its large expenditures on environmental management ($500 million in 1993 for
environmental capital projects and roughly $1 billion in environmental expenses), DuPont
had much to gain fay thoroughly understanding and actively managing its environmental
affairs. To that end, DuPont developed and implemented a Corporate Environmental Plan
(CEP)» part of which focused on assigning priorities to environmental initiatives. The CEP
embodies DuPont's environmental commitment by establishing a framework for collecting
information, ensuring compliance, and meeting internally-established and externally-
publicized goals. One of these goals is the elimination of land disposal, including DWI, of
hazardous wastes by the end of the decade.
PROJECT The CEP integrates environmental issues into business planning by providing guidelines for
DESCRIPTION developing environmental projects and identifying the regulations, technologies, and required
resources relevant to each project. The cost per pound of waste eliminated provides a
comparative metric to prioritize these environmental initiatives, subject to additional
consideration of timing and potential synergy with other projects. The development of a cost
metric requires a means for identifying and tracking all relevant costs. At the time of this
study, the LaPorte facility was establishing an environmental accounting system to enable
development of these measurements.
The agricultural pesticide manufactured at LaPorte generates liquid and solid wastes and air
emissions. Some of the wastewater from the process is managed with DWI, and some is sent
to an on-site biological treatment facility. Other waste streams from the process are
incinerated. To achieve corporate environmental objectives, the LaPorte facility seeks to
discontinue the use of DWI to dispose of its wastewater. To do so, the facility would have to
rely on on-site treatment to process all of the facility's wastewater.
ANALYSIS To analyze the financial aspects of the elimination of DWI for the process wastewater,
DuPont executed a multi-step costing process to determine the environmental costs of the
product, one of which was the cost of wastewater disposal by DWI. First, the various
environmental costs of two types are identified: (1) Those already specified as environmental
90
-------
E.I. DUPONT DE NEMOURS
COST CONSIDERATIONS
Estimated Site Environmental
Taxes, Fees, Legal, etc.
Depreciation
Operations
Waste Disposal
Utilities
Salaries
Maintenance
Engineering Services
Total
Costs
21.0%
16.8%
13.9%
12.4%
11.9%
9.6%
8.5%
6.0%
100%
- such as waste management and regulatory
compliance - and (2) environmental costs
hidden within other costs - such as
management time spent on environmental
activities. The plant estimates that 90% of the
environmental costs are captured in these two
cost elements. Environmental costs are
disaggregated and categorized as fixed or
variable, and then further categorized as
controllable or non-controllable.
To evaluate the cost of wastewater treatment,
the company allocated the full costs of the various treatment options to units of production
based on estimated wastewater output. Shortcomings of this method include the inaccuracy
of using output volume estimates and the assignment of fixed costs of waste treatment - costs
which were incurred in the past and are now "sunk" - to products. To address the former, the
facility has installed meters so that actual output data can be used. The allocation method was
improved by ignoring the fixed costs and assigning only the variable costs to production
units.
FINANCIAL Not provided.
PARAMETERS
FINANCIAL Varying allocation methods for waste treatment had a significant effect on waste management
RESULTS costs. DWI had been costed at 9$ per pound of effluent treated, of which 70 was variable
cost. Bio-treatment appeared as a more expensive option at 110 per pound, but only 30 of
that was variable cost. Whereas managers previously had incentive to use DWI to incur less
cost through the accounting system, the improved allocation demonstrated that bio-treatment
was actually more cost effective by 40 per pound.
The amount of savings this improved accounting method will yield depends on both the
production volume and the actual volume of wastewater generated, as well as the extent to
which the cost assignments remain stable. Nevertheless, the improved environmental
accounting practices will enable DuPont to realize a substantial cost savings by eliminating
disposal via DWI. At the same time, it will provide managers with better information with
which to make future waste management decisions.
CONTACT Miriam Heller, University of Houston (713) 743-4193
Daryl Ditz, World Resources Institute (202) 662-3498
SOURCE Ditz, Daryl, Janet Ranganathan, and R. Darryl Banks, Green Ledgers: Case Studies in
Corporate Environmental Accounting. World Resources Institute, May 1995.
91
-------
WITCO CORPORATION
BUSINESS
DECISION
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
COMPANY PROFILE
Location', Newark, NJ
Size: 60 employees (at this site)
Annual Revenues'. $2 billion (total)
Business: Producer of fatty acids, glycerin,
and esters used for the manufacture of
plastics, rubber, and personal care and
pharmaceutical products
STRATEGIC PLANNING
Can materials and cost accounting
enhance the firm's ability to identify and
prioritize environmental projects?
Witeo's analysis of its material flows and
associated costs facilitated a plan that
included a $30,000 cost savings
opportunity.
The New Jersey Pollution Prevention Act
was developed to help businesses
overcome the barriers that typically inhibit pollution prevention (P2), The Act mandated a
planning process to encourage companies to Identify opportunities for environmental
improvement. To further an assessment of the success of the Act, the state Department of
Environmental Protection commissioned case studies of five Firms to evaluate their
experiences with the planning process.
Witco was among the first firms in the state to fulfill the Act's planning requirements, was
willing to share its experiences, and was identified as having prepared a successful plan. The
study sought to assess how the facility implemented the planning process, what lessons it
learned, and what implications could be drawn for the state's planing process.
PROJECT One of the elements of the planning process is the development of facility and process
DESCRIPTION materials inventories. The Act requires facilities to quantify their use and generation of
hazardous wastes and to estimate the associated costs. The process of measuring these costs
is intended to establish a framework within which the facility can fully understand and
benchmark its processes to inform P2 management decisions.
Witco first had to define its discrete manufacturing processes and identify the locations where
wastes exit each process. The facility men had to collect both facility-wide and process-level
material throughput data. The final step of this element of the planning process was the
assessment of costs associated with hazardous materials.
ANALYSIS The collection of materials-throughput data required an augmentation of practices already in
place to calculate facility-wide totals for Toxics Release Inventory reporting. The significant
change was shifting the unit of analysis from the facility to the individual processes. The
facility gathered the process-level data by performing materials balances for each process. To
do so> it compiled accounting information from numerous departments to estimate the
quantity of chemicals stored in inventory, processed, brought on site, recycled, wasted, and
embodied in products. To verify the accuracy of the information, the facility took selected
measurements of one chemical in order to compare the estimate to the actual use. The
planning process also required the facility to normalize the data so that it can be evaluated
independent of production volume. Finally, the facility allocated costs - both input
(purchase) costs and output (waste disposal) costs - to the specific processes.
92
-------
WITCO CORPORATION
Once the first level of analysis was complete, the ultimate value-added component of the
planning process could be implemented: identification and analysis of P2 opportunities.
Since the audit had identified the various sources and costs of waste generated at different
stages of the individual processes, the facility had the information it needed to make
improvements. As a result of the planning process, capital investment ideas were developed
at the facility as opposed to at the corporate level, and the focus of these investments shifted
upstream in the process. From the information collected, the benefits of proposed
investments could be more readily evaluated.
Not provided.
Throughout the planning process, the facility expected to reach its goal of reducing the use of
methanol by 28,000 pounds annually. This reduction will create a savings to the firm of
$30,000 in material and effluent costs. The quantitative nature of the planning process
facilitated setting reduction goals and the evaluation of proposed projects to achieve those
goals. For example, when the sewerage charges stemming from methanol use were allocated
to the processes generating methanol and its use was normalized for production level, the
inefficient use of methanol and the high associated cost became evident. Management could
then adequately assess the direct economic benefits of improving process efficiency and
reducing the use and generation of a costly input material.
CONTACT Allen White, Tellus Institute (617) 266-5400
SOURCE Dierks, Angela, Allen White, and Karen Shapiro, New Jersey's Planning Process: Shaping A
New Vision of Pollution Prevention. June 1996.
FINANCIAL
PARAMETERS
FINANCIAL
RESULTS
93
-------
THE ROBBINS COMPANY
BUSINESS STRATEGIC PLANNING
DECISION Study of a newly-installed closed-loop system to
filter and purify wastewater, recover metals, and
eliminate discharge.
COMPANY PROFILE
=$ Location: Attleboro, MA
=> Size: 330 employees
=> Annual Revenues: $30 million
=> Business: Metal finisher and plater.
Specializes in small, customized jobs.
BUSINESS For an investment of $220,000, the Robbins
BENEFITS Company reaped $117,000 in annual savings
over original system. In addition, there were
savings due to considerable fines and penalties
the company would have accrued. Many of these benefits were not anticipated.
WHY WAS The Robbins Company is a privately held company with sales of approximately $30 million.
PROJECT The firm's primary business is the custom designing and manufacturing of jewelry, awards,
PERFORMED? ^^ promotional items, Most of the company's products require electroplating with valuable
metals, such as gold or silver. The electroplating process requires large amounts of water and
chemicals, and leaves behind a host of toxic residuals in the wastewater.
Robbins managed this wastewater through an antiquated, inefficient system of settlement
tanks, dating back to the era prior to serious pollution regulation. The system failed to
remove a quarter of the water's waste, and as a result, the company would routinely violate it
discharge permit and emit many times the allowed amount of waste into the brook. The fines
resulted in such a large financial toll that the company's chief financial officer took over
responsibility of the company's environmental management. In 1986, the company hired its
first environmental manager, and gave him the resources and authority to bring Robbins into
compliance.
In 1987, Massachusetts regulators announced a plan to dramatically reduce discharges from
all sources into the river into which Robbins discharges. To meet the more stringent
standards would require Robbins to construct a large, very expensive wastewater treatment
facility. The environmental manager began to investigate the concept of developing a zero-
discharge system.
The environmental manager estimated that the closed-loop system required an initial
investment of $250,000 to $300,000. Although this comprises more than half of the
company's annual capital expenditure budget, it was less than half the cost of installing a new
wastewater treatment system. However, the closed-loop system came with many
uncertaintiesforemost among them uncertainty as to whether the system would even work.
Initial contacts with Massachusetts technical assistance personnel indicated that such a system
was feasible, although none was actually in operation in a similar facility. Nonetheless, the
company president was supportive, as a zero-discharge system would remove the company
from its debilitating struggle with regulations.
PROJECT The design of the zero discharge system evolved through the combined efforts of the Robbins
DESCRIPTION Company, the Massachusetts technical assistance program, and the engineering firm hired by
the company. The final design was composed of two subsystems: one for wastewater
94
-------
THE ROBBINS COMPANY
purification and one for metal recovery. The
water produced by the wastewater purification
subsystem was forty times cleaner than city
water, and contributed to greater plating
quality. The subsystem is designed with
parallel filters and resins, allowing continued
manufacturing during scheduled maintenance.
The metal recovery subsystem uses electrolytic
recovery to plate out metals captured in the
water purification subsystem. Only two pounds
recovery subsystem. Because this sludge is
valuable to a refiner than precipitated sludge.
COST CONSIDERATIONS
Annual Savings
Over Old Svstem
Water Usage
$22,000
Chemical Use
$13,000
Sludge Disposal
$28,000
Recovered Metal Sales
$14,000
Laboratory Analysis
$40,000
Total Annual Savings
$117,000
of sludge are produced annually in the metals
composed of almost pure metal, it is more
The closed-loop system requires close coordination among all facility operations,, as it is an
integrated part of the manufacturing process, rather than an add-on, end of pipe solution. This
means that, for example, the environmental manager must approve the introduction of any
new plating chemistry into the system. With clear authority from top management, the
environmental manager worked with floor managers and machinery operators to get buy-in
on the new operations. This buy-in was eased, in part, because it was clear to all that the
survival of the company itself was at stake.
ANALYSIS Upon completion of the system, the company realized it had not just been successful in
achieving complete regulatory compliance, but that the new system was a major financial,
risk reduction, and public image success. The investment of $220,000 led to substantial
savings. The new system uses 500 gallons of water per week (to replace evaporative loss),
compared to 500,000 per week in the old system. This results in an annual savings of
$22,000. The new system reduces chemical usage ($13,000/year) and produces less toxic
sludge ($28,000 in annual hazardous waste disposal and $40,000 in reduced laboratory
analysis). In addition, the company receives $14,000 in annual revenue from sale of metals
recovered from sludge. In total, the annual operating costs savings of $117,000 mean the
system will pay for itself in about two years, even when the annual operating costs of $30,000
are taken into account.
Furthermore, the company benefited in additional ways, not all of them directly financial.
Product quality has improved due to the purer water from the closed system. Sales have
increased, due in part, at least, to publicity surrounding Robbins' pollution prevention
program. An impending lawsuit was dropped, saving Robbins costly litigation. Robbins was
protected from an interruption of water supply, which caused other businesses several days of
lost production. Finally, Robbins was protected from any future tightening of regulations.
Not provided.
FINANCIAL
PARAMETERS
FINANCIAL Robbins accrues $117,000 in annual savings over the original system for a $220,000 capital
RESULTS investment. This savings does not include those due to considerable fines and penalties the
95
-------
THE ROBBINS COMPANY
company would have accrued in the near future had they continued to operate outside of
compliance,
CONTACT Not provided.
SOURCE Berube, Michael, et al., "From Pollution Control to Zero Discharge: How the Robbins
Company Overcame the Obstacles". Pollution Prevention Review. Spring 1992.
96
-------
SANDOZ PHARMACEUTICALS
BUSINESS
DECISION
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
PROJECT
DESCRIPTION
COMPANY PROFILE
=> Location: East Hanover, NJ (U.S.
Corporate HQ and R&D operation)
=> Size: 1,600 employees on site
=> Annual Revenues: U.S. sales of
$1.4 billion
=> Business: Pharmaceutical
manufacturing
STRATEGIC PLANNING
Study of impact of comprehensive pollution
prevention planning in a major pharmaceutical
manufacturer.
Sandoz was pleased to find that many
opportunities for pollution prevention (P2) were
cost effective. On average, P2 projects provided
a 16.3% return on investment.
Sandoz Pharmaceuticals is an affiliate of the
Swiss-based Sandoz Corporation, which employees 36,000 worldwide. The East Hanover,
NJ facility if one of three U.S.-based Sandoz operation. The facility houses the U.S.
corporate headquarters and the Sandoz Research Institute, and R&D operation. The facility
manufactures 26 products using 25 different batch processes.
The pharmaceutical industry presents a singular challenge to the P2 due to a convergence of
factors: 1) much of the cost of a product is in its development rather than its manufacture;
2) one a drug is patented, the clock on its patent begins to tick, encouraging the fastest
possible path to the market; 3) U.S. Food and Drug Administration (FDA) approval is
required for any changes in the manufacturing process. Together, these factors lead to very
limited P2 opportunities once manufacturing has started.
The New Jersey Pollution Prevention Act requires facilities to carry out a specified planning
process, entailing the collection of a range of throughput data for each process and for the
facility as a whole. Total costs of using or generating hazardous substances must also be
calculated for each process.
The case study on which this snapshot is based was undertaken by the State of New Jersey to
learn the effectiveness of the P2 planning process for a pharmaceutical manufacturer.
Prior to the New Jersey planning process, Sandoz had a proactive policy of pollution
prevention as part of its corporate environmental policy. As part of these efforts, Sandoz
carried out a number of P2 initiatives, including: computerizing chemical inventory (18%
reduction in chemical use); eliminating use of chlorinated solvents; reducing use of virgin
feedstocks; reducing flow of nitrogen blankets (needed to protect reactions from oxygen),
thereby reducing associated solvent vapors; purchasing solvents in larger quantities to reduce
packaging waste.
In Sandoz's operations, waste data are equivalent to throughput data, as chemicals (solvents)
are neither embodied in products nor consumed in processes. Prior to the P2 planning
process, Sandoz was keeping track of the amount of solvent required per pound of product in
the form of a waste index. This information had been gathered to track hazardous material
flows. The P2 planning process made use of this and other information to expand evaluation
of P2 opportunities to include consideration of opportunities within processes. Prior to the P2
97
-------
SANDOZ PHARMACEUTICALS
planning process, these processes were considered "sacred cows" owing to the requirement of
FDA approval for process changes. The planning process resulted in the company
overcoming this unwillingness and uncovering several opportunities to improve processes.
ANALYSIS Due to corporate commitment to improving environmental quality, Sandoz decided to
implement any P2 project that resulted hi at least a ten percent reduction in releases,
regardless of cost. To its surprise, the facility found that many of these opportunities were
cost-effective. One example of a process improvement that resulted from the planning
process involves a change in a solvent that requires FDA approval. The change resulted in a
95% decrease hi solvent use, reduces production time by 80%, and decreases energy
requirements by 60%. None of these benefits would have come about without the P2
planning process.
Sandoz projects a 53% reduction in multi-media releases from the P2 opportunities it
implemented based on the planning process. In addition, Sandoz anticipates the planning
process will help it get off the "treadmill" of increasingly stringent regulatory requirements,
FINANCIAL Not provided,
PARAMETERS
FINANCIAL Sandoz decided to implement any P2 project leading to at least a 10% reduction in releases.
RESULTS Sandoz projects a average 16,3% return on investment in P2 activities. Although this is
below the typical Sandoz hurdle rate of 40%, it was judged by Sandoz to be "respectable".
CONTACT Karen Shapiro, Tellus Institute (617)266-5400,
SOURCE Dierks, Angela, Allen White, and Karen Shapiro, New Jersey's Planning Process: Shaping A
Ne\v Vision of Pollution Prevention. June 1996.
98
-------
UNIFOIL CORPORATION
BUSINESS
DECISION
BUSINESS
BENEFITS
WHY WAS
PROJECT
PERFORMED?
PROJECT
DESCRIPTION
TOIF'OIL .
STRATEGIC PLANNING
Study of the impact of comprehensive pollution
prevention (P2) planning in a small coatings
firm.
Prior to undertaking the P2 planning process,
Unifoil had bundled all environmental costs into
overhead accounts. Allocation of these costs to
specific processes results in a much better
understanding of costs associated with using solvents.
expected annual savings of $393,000.
COMPANY PROFILE
Location: Passaic, NJ
Size: 90 employees
Annual Revenues: $40 million
Business: Coating of papers with
metal and metallized plastics
Eliminating solvents will result in
Unifoil Corporation has a single facility in Passaic, New Jersey. The facility's 90 employees
manufacture paper and other substrates coated and laminated with metal foils and metallized
polyester. The company's customers manufacture products such as packaging and lottery
tickets from the materials they purchase from Unifoil.
The facility applies coatings to substrates using either water-based or solvent-based adhesives
containing volatile organic compounds (VOCs). Because VOC emissions are tightly
regulated, Unifoil vents such emissions via an oxidizer operating at 800° F, providing 99%
VOC destruction.
The New Jersey Pollution Prevention Act requires facilities to carry out a specified planning
process, entailing the collection of a range of throughput data for each process and for the
facility as a whole. Total costs of using or generating hazardous substances must also be
calculated for each process. UnifoiPs experience with the mandated P2 planning process was
examined as part of a series of case studies carried out for the New Jersey Department of
Environmental Protection. The purpose of the case study is to help the state better understand
motivations for P2 activities and changes in company. As such, the study does not contain
detailed analysis of particular P2 activities.
Prior to the P2 planning process, the company was slowly reducing solvent use by moving to
water-based alternatives. Although it had not fully identified the internal benefits of doing so,
tight VOC regulation encouraged this move. However, due to incompatibility with
conventional inks used by most customers, there was significant resistance, particularly from
U.S. customers (resistance from overseas customers was much lower).
The P2 planning process requires allocation of emissions and related costs to specific
processes. Prior to the P2 planning process, the company allocated such costs to overhead
accounts. Once the allocation exercise was completed, management was surprised by the
magnitude of the costs. This motivated the company to accelerate its consideration of P2
alternatives.
Working closely with a wide range of employees, including production workers, Unifoil
identified a large number of P2 opportunities, including many of which management was
99
-------
UNIFOIL CORPORATION
previously unaware. None of the identified options required significant capital expenditures.
Generally speaking, the direct operating costs of using water-based coatings and solvent-
based coatings are similar.
ANALYSIS Any reduction in solvent use, and therefore VOC generation and treatment, substantially
reduces UmfbiFs operating costs. Total elimination of solvent use would help Unifoil avoid
regulatory requirements, bringing additional savings through avoided permitting and
reporting costs. However, Unifoil cannot fully switch to a water-based formulation without
the agreement of its customers due to the issue of ink compatibility. Unifoil is working with
its customers to persuade them to shift their printing processes to be compatible with the
water-based process, however, they must ultimately meet the needs of their customers,
The P2 planning process has resulted in a number of strategic benefits for Unifoil. The
process revealed the "true" cost of using solvents, and enabled the company to see the long-
term benefits of eliminating solvents to the maximum extent feasible. The second, somewhat
unanticipated, major benefit was the forging of communications between production workers
and management This has, in effect, moved the facility in the direction of Total Quality
Management, and has permanently integrated P2 into Unifoil's organizational framework.
FINANCIAL Not provided,
PARAMETERS
FINANCIAL Through the P2 planning process Unifoil discovered the true costs of using solvents that had
RESULTS previously been hidden in overhead accounts. The direct operating costs of water-based
coatings are similar, but no treatment of VOC emissions is required. The company expects
annual savings of $393,000 by eliminating solvents,
CONTACT Karen Shapiro, Tellus Institute (617)266-5400.
SOURCE Dierfcs, Angela, Allen White, and Karen Shapiro, New Jersey's Planning Process: Shaping A
New Vision of Pollution Prevention. June 1996,
100
-------
Appendix A - Glossary of Terms
Appendix A - Glossary of Terms
Environmental
accounting
national income
accounting
Environmental
accounting
financial
accounting
Environmental
accounting
management
accounting
Environmental
cost accounting
Environmental
costs
Activity-Based
Costing
Back-end costs
Capital
budgeting
Contingent
environmental
costs
Conventional
costs
incorporation of environmental costs into information used in
national income accounts; may include data about a nation's or
region's consumption, extent, quality, and value of natural
resources, both renewable and non-renewable; sometimes referred
to as Natural Resource Accounting
incorporation of environmental costs into information used in
financial reports, especially of publicly-traded companies
incorporation of environmental costs into information collected
and used in making internal business decisions (e.g., capital
investment decisions, costing determinations, process/product
design decisions, performance evaluations, and a host of other
forward-looking business decisions)
inclusion of environmental cost information in existing cost
accounting practices; tracking environmental costs in existing
accounts and allocating them to appropriate products or processes
impacts incurred by society, an organization, or an individual
resulting from activities that affect environmental quality; these
impacts can be expressed in monetary or non-monetary terms
allocating costs to processes, products, or other cost centers based
on the operational activities that drive them
costs that arise following the useful life of current products,
processes, systems, and facilities and will occur at reasonably
well-defined points in the future (e.g., sealing a landfill,
decommissioning an old facility, replacing a storage tank)
evaluating long-term investment decisions that require capital
outlays
environmental costs that may occur in the future and depend on
uncertain future events
costs typically recognized in capital budgeting exercises such as
raw materials, supplies, and equipment
A-l
-------
Appendix A Glossary of Terms
Cost allocation
Discount rate
Discounted
payback period
Environmental
liabilities
External costs
Hidden costs
Internal costs
Internal rate of
return (ERR)
Less tangible
costs
the procedures and systems for identifying, measuring, and
assigning costs to processes, products, or other cost centers for
internal management purposes
the percentage return that represents a firm's opportunity cost of
capital, the highest return that the firm could earn with another
investment; a means of adjusting future cash flows for time and
risk so that they are comparable to current cash flows
the amount of time required for an investment to generate
sufficient cash flow, on a discounted basis, to cover its initial
capital outlay; the time at which the net present value (NPV) of an
investment equals zero
a legal obligation for a future expenditure due to the past or
ongoing manufacture, use, release, or threatened release of a
particular substance, or other activities that adversely affect the
environment13
costs that result from the effects of production and consumption
activities not directly reflected in the market14 or not borne by the
responsible party; a synonym for societal costs (also termed
externalities)
environmental costs mat are not apparent to managers (e.g.,
regulatory compliance, waste management, or remediation costs)
because they are recorded in overhead accounts, or are not
accounted for because they will or may occur in the future
costs that are priced by the market or some other pricing
mechanism that accrue directly to a specific entity; e.g., a business
or individual; (also termed private costs)
the discount rate at which the net present value (NPV) of a stream
of cash flows is equal to zero; IRR is typically compared to a
company's desired rate of return on an investment
costs that are difficult to predict or quantify, such as the costs of
lost business resulting from tarnished corporate image, diminished
employee moral, or unrealized "green market" share (also termed
"image costs")
n Taken fiom US EPA's Valuing Potential Environmental Liabilities for Managerial Decision-Making: A Review of Available Techniques
(EPA 742-R-96-003J, 1996.
" Taken from Pindyek, Robert S. & Daniel L. Rublnfeld, Microeconomics, Second Edition, New York: Macmillan Publishing Company,
1992,
A-2
-------
Appendix A - Glossary of Terms
Life-cycle
assessment
Materials
accounting
Net present value
(NPV)
Operating costs
Overhead
Payback period
Environmental
regulatory costs
Total Cost
Assessment
Up-front costs
a holistic approach to identifying the environmental consequences
of a product, process, or activity through its entire life-cycle; i.e.,
from raw material acquisition through ultimate disposal
an accounting system for the flow, generation, consumption, and
accumulation of materials (collectively, the throughput) in a
facility or process in order to identify and characterize materials
use and waste
the present value (i.e. the value in current period dollars) of a
stream of cash flows; a stream of cash flows is profitable if its
NPV is greater than zero
costs incurred during the operating lives of processes, products,
systems, and facilities, as opposed to one-time up-front costs (e.g.,
investment costs) and back-end costs (e.g., shutdown and
remediation costs)
a set of costs aggregated into a central account but not directly
assigned to a process, product, facility, or other cost center;
overhead costs later may be assigned to cost centers using some
allocation basis such as labor hours, production volume, materials
use, etc.
the amount of time required for an investment to generate
sufficient cash flow to cover its initial capital outlay; payback is
calculated as the investment amount divided by the annual cash
flow
costs incurred to comply with federal, state, or local environmental
laws (also termed compliance costs)
the process of integrating all relevant and significant internal costs,
including less tangible costs, into the financial evaluation of
environmental projects and programs; the process includes
appropriate cost allocation, project time horizons, and profitability
indicators
one-time costs incurred prior to the operation of a process, system,
or facility (e.g., siting, supplier qualification, evaluation of P2
options)
Note: This Glossary was adapted from the US EPA's An Introduction to Environmental
Accounting as a Business Management Tool: Key Concepts and Terms.
A-3
-------
Appendix A - Glossary of Terms
A-4
-------
Appendix B - Feedback and Information Form
Appendix B - FEEDBACK AND INFORMATION FORM
Did You Find this Document Useful?
Why or Why Not?
Let Us Know!
Name:
Position & Firm:
Address:
Telephone:
Fax:
Email:
How did you hear about this document?
Did you have any knowledge of/ experience with EA before you read the document? If yes,
please elaborate.
Did the document help you understand EA concepts?
Do you think you might try to use EA in your business (if you haven't already)?
If so, do you feel you still need more guidance? (please be specific)
What aspects of the document did you find particularly valuable?
B-l
-------
Appendix B - Feedback and Information Form
What aspects would you improve and how?
Do you know of any other case studies or have any EA experiences that we could include in
our Internet database?
Business Decision:
Business Benefits;
Company Profile
Location:
Size:
Annual Revenues:
Business:
Why was Project Performed?:
Project Description:
Analysis Description:
Financial Parameters:
Financial Results:
Contact-
Decision and Institutional Changes Made:
Sourcefs):
B-2
-------
Appendix B Feedback and Information Form
Do you have any other comments or observations?
Please return this form or direct any questions to:
The Environmental Accounting Project
Pollution Prevention Division
Office of Pollution Prevention & Toxics
401 M Street SW, Washington DC 20460
Tel: (202) 260 4164
Fax: (202) 260 0178
B-3
-------
------- |