Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles The principle of pollution prevention does not only address the question of waste disposal but also examines where the waste comes from and how it can be prevented. Pollution prevention can be achieved by two factors, namely by changes in product design or production processes and by better housekeeping assisted by environmental management systems, with the two factors often being interlinked. Integrated environmental protection attempts to avoid waste and emissions altogether. Cleaner technologies avoid the need for hazardous operating materials which require costly disposal methods. In contrast to expensive end-of-pipe investments, pollution prevention often significantly reduces environmental costs. For internal company calculation of environmental costs, expenditure for environmental protection is only one side of the coin. The costs of waste and emissions include much more than the respective pollution prevention or treatment facilities. The concept of “waste” has a double meaning. Waste is a material which has been purchased and paid for but which has not been turned into a marketable product. Waste is therefore indicative of production inefficiency. Thus, the costs of wasted materials, capital and labour have to be added to arrive at total corporate environmental costs and a sound basis for further calculations and decisions. Waste in this context is used as a general term for solid waste, waste water and air emissions, and thus comprises all non-product output. Materials include water and energy. Environmental protection costs (Emission treatment and pollution prevention) + Cost of wasted material + Cost of wasted capital and labour = Total corporate environmental costs Figure 6. Total corporate environmental costs A survey of several company projects, mainly in Austria and Germany, performed by the IÖW, IMU and technical University Graz, has shown that the costs of waste disposal are typically 1 to 10 per cent of total environmental costs, while the purchase costs of the wasted materials represent 40 to 90 per cent of environmental costs depending on the business sector examined. Material flows are money flows and can therefore be partly traced by conventional accounting systems. Also, when calculating investments for environmental protection, increased material and production efficiency needs consideration. -12-
Environmental Management Accounting Procedures and Principles Material Water Energy Product Non product output Figure 7. Material flows are money flows The main problem associated with a systematic identification of the potential for material efficiency improvements lies in the traditional cost-accounting systems which are not able to provide the relevant information on the company’s physical structure, i.e., on the structure of its material flows. In particular the non-product output (waste, wastewater, etc.) is not being quantified and monetarized separately within accounting systems. Recently, some methods have been developed to overcome these shortcomings. No monetary evaluation Input / Output data No material flow relation Environmental Management Accounting (conventional) Input / Output balances (amounts and value) Process flow data System boundary: Corporation System boundary: Process + Products (internal) System boundary: Product life cycle Residual waste accounting Activity-based accounting material flow cost accounting Life-cycle costing (not adressed in this book) Figure 8. Categorization of environmental accounting by material flow orientation Source: Adapted from IMU Augsburg. Conventional environmental cost assessment did not consider material flows but mainly waste treatment and disposal costs as well as investments in end-of-pipe technologies. Later, corporate material flow balances were determined, but without systematically integrating the two information systems and without assessing the costs of material flows. -13-
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