Environmental Management Accounting Procedures and Principles

Environmental Management Accounting
Procedures and Principles
4.1.1. Depreciation for related equipment
The most obvious assets in this section are refuse compactors, collection containers and
vehicles, waste heat recovery systems, air pollution filters, noise abatement investments,
sewage treatment plants, etc. But also watch out for more hidden equipment. Depending on
the type of business and the state of environmental management, these plants may already be
assigned to separate cost centres. The land/soil category may also include such areas as
landscape protection, recultivation and repair of contaminated sites.
An asset (e.g., investment) is recognized in the balance sheet if future economic cost savings
are likely and the value can be measured reliably. Investments are capitalized and accounted
for by depreciation in the profit and loss account, if they bear a future benefit, otherwise they
are immediately expensed. As a rule, expenses which do not lead to future economic cost
savings should be expensed in the year in which they occur. End-of-pipe technologies qualify
as assets as they are required by regulatory authorities to continue with production. Their
value can easily be measured as they are typically stand-alone treatment facilities.
The FEE, the European accountancy body, recommends that costs incurred to prevent future
environmental impact should be capitalized whereas clean-up costs for past environmental
damage should be expensed as they bear no future benefit. Likewise, the treatment costs of
environmental contamination should generally be expensed. Capitalization of environmental
costs is only allowed if future economic cost savings, increased efficiency or improved safety
may be expected to result from present expenses.
In any type of activity and especially in investments which, in addition to their primary purpose
(usually an economic one), also have an environmental aspect (and vice versa), there are
substantial problems relating to the question of accrual and deferral, e.g., in connection with
measures to improve workplace safety, security or infrastructure.
A clear allocation is only possible for investments in end-of-pipe technologies which, however,
are unable to address an emission problem fully but usually only transpose it to another
environmental medium (e.g., from air to soil). Rationalization investments which are
implemented due to the advent of a new technology will, as a rule, lead to both a reduction of
costs and emissions.
The problem in evaluating an end-of-pipe investment from an environmental point of view is
due to the fact that there is no such thing as an environment protection investment proper as
such a measure does not contribute to a sustainable solution of an ecological problem but
merely helps to fight the symptoms. However, a separate assessment of an environment
protection investment, e.g., a filter technology in the category of fixed assets, is usually only
possible if it is an end-of-pipe investment.
Investments in environmental protection and pollution prevention measures are calculated in
terms of annual depreciation, based on an assessment of the share of the investment
attributable to environmental protection. Investment is 100 per cent environmental in the case
of end-of-pipe technologies. Investments which are incurred solely for the purpose of emission
treatment are typically end-of-pipe technologies, i.e., devices which are installed for cleaning
purposes after the production processes. Filters, waste collection equipment and wastewater
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