Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles Figure 33. Twofold allocation of environment related costs Source: Schaltegger, Müller, 1997. improving the environmental record at the same time! For instance, in the example in figure 32, 200 kg of the 1,000 kg of inputs were purchased only to be emitted without creating any value. Thus, the related waste has caused a 20 per cent higher purchasing cost, higher costs of depreciation and administration, etc. Therefore, a third allocation step is necessary. As shown in figure 33, this third allocation step can motivate management to realize huge efficiency gains by The choice of an accurate allocation key is crucial for obtaining correct information for cost accounting. It is important that the chosen allocation key is closely linked with actual, environment-related costs. In practice, the following four allocation keys are considered for environmental issues: • Volume of emissions or waste treated; -76-
Environmental Management Accounting Procedures and Principles • Toxicity of emissions or waste treated; • Environmental impact added (volume is different to impact per unit of volume) of the emissions; • Relative costs of treating different kinds of waste or emissions. One possibility is to allocate the environment-driven costs based on the volume of waste caused by each cost driver (e.g., volume treated by hour, waste/kg of output, and emissions/working hour of equipment). This is a rather arbitrary key in cases where the capital costs (interest and depreciation of construction costs [capital assets]) as well as the variable costs are not related to the total volume treated. Due to higher safety and technological requirements, the construction costs and the variable costs often increase substantially with a higher degree of toxicity of the waste treated. In many cases, these additional costs are due only to a small percentage of the waste. Thus, the costs of a treatment or prevention facility are often not clearly related to the overall volume treated, but rather to the relative cleaning performance required. Another possibility is to allocate costs according to the potential environmental impact added of the treated emissions. The environmental impact is calculated by multiplying the volume of waste by the toxicity of the emissions. However, this allocation key, too, is often inappropriate, as the costs of treatment do not always relate to the environmental impact added. Thus the choice of allocation key must be adapted to the specific situation, and the costs caused by the different kinds of waste and emissions treated should be assessed directly. Sometimes a volume-related allocation key best reflects the costs caused, while in other cases a key based on environmental impact is appropriate. The appropriate allocation key depends on the variety and the kind of waste treated or emissions prevented. Also the time of occurrence may be relevant (past, current or future costs). -77-
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Environmental Management Accounting Procedures and Principles

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