Finding Cost-Effective Pollution Prevention Initiatives: Incorporating Environmental Costs into Business Decision Making

Finding Cost-Effective Pollution Prevention Initiatives: Incorporating Environmental Costs into Business Decision Making is intended to help the international business community find cost-effective pollution prevention initiatives by incorporating environmental costs into the business decision-making process. The resulting improved decision making reinforces the Total Quality Environmental Management (TQEM) principles advocated by GEMI. This is accomplished by improving a company’s decisions on sustainable pollution prevention initiatives and other investment options by appropriately including environmental costs and savings for each option. Many parties with environmental responsibilities are turning to so-called environmental cost accounting approaches to improve their decision making. In fact, the U.S. government’s National Performance Review has recommended that all government agencies performing a capital budgeting analysis of potential investments should include environmental cost information for each option.

In this primer, a process is described for evaluating sustainable pollution prevention initiatives and other investment options by appropriately including environmental costs and savings for each option. The primer is intended to help a broad audience of diverse professionals to improve their decision making using more comprehensive cost information.

The approach described in this primer can be applied to all investment alternatives to allow a true and fair economic comparison of potential projects. Historically, capital budgeting evaluations often did not include all environmental costs and savings. Consequently, capital budgeting decisions may have prematurely dismissed pollution prevention projects even though those projects contained considerable environmental cost savings that were frequently overlooked. The importance of considering environmental costs in evaluating all alternatives, not just pollution prevention projects, is an implicit assumption throughout this primer. The primer is meant to raise the economic valuation of pollution prevention projects to a level that is equal to, not greater than, other alternative investments. Evaluating pollution prevention projects on a basis equal to that of other investments allows pollution prevention projects to justly compete for investment dollars.

The specifics of this cost evaluation approach are explored in the balance of this primer:

• Chapter 2 provides a simple description of the process and the definitions of useful terms;
• Chapter 3 discusses an approach to identify environmental costs that a manager must quantify and allocate across appropriate business functions and/or activities;
• Chapter 4 describes an approach for evaluating projects by incorporating environmental costs in standard financial assessment tools; and
• Chapter 5 discusses key components needed to ensure use of this approach and how the approach can be institutionalized.