Chapter 5: Environmental cost and total cost analysis

Question 1

What are the three categories of environmental costs?

Answer 1

– Hidden cost
– Future liability cost
– Less tangible cost

Question 2

What are the categories of external costs?

Answer 2

– Environmental damage cost

– Health cost

Question 3

What are hidden costs?

Answer 3

-Costs associated with monitoring,
paperwork for reporting, permit requirement,
environmental taxes and fees.

-They are generally charged to overhead accounts

Question 4

What are costs associated with reporting

Answer 4

-Notification
-Reporting
-Recordkeeping
-Manifesting & labeling
-Monitoring/testing
-Planning/studies/modeling
-Training
-Inspections
-Preparedness/protective equipment
-Closure/post closure assurance
-Insurance
-Special taxes

Question 5

What is the time value of money?

Answer 5

The change in the amount of money over a given time
period due to interest charges

Question 6

What does the time value of money allow us to do?

Answer 6

Combine the one-time capital cost with
the continuous operating costs, rather than making simple
comparisons among cash flows that occur at different
times.

Question 7

What does the compound amount factor do?

Answer 7

Gives the equivalent future value of a given present value?

Question 8

What are compoud interest factors?

Answer 8

Formulae that define mathematical equivalence for specific common cash flow patterns.

Question 9

What is the present worth factor?

Answer 9

Gives the equivalent present value of a given future value

Question 10

What is the capital recovery factor?

Answer 10

Gives the equivalent value of an annunity (uniform series of end-of-period payments) to a given present value.

Question 11

What is the series present worth factor (cumulative present value factor) ?

Answer 11

Gives the equivalent present value to a given uniform series of end of period payments.

Question 12

What is the effective annual interest rate?

Answer 12

The actual rate of interest paid/earned after
adjusting the nominal rate,
i, for factors such
as the number of compounding periods per
year,
m.

Question 13

What economic methods do not consider the time value of money and should not be used for final project evaluation?

Answer 13

Payback Period and Return on Investment

Question 14

What are non-discounted cash flow techiques?

Question 15

What do liability costs include?

Answer 15

-Penalties and fines due to regulatory noncompliance

– Personal injury and property damage settlements
resulting from legislation

Question 16

What are less tangible costs associated with?

Answer 16

Consumer responses
to improved product quality or improved corporate image,
employee responses to improved environmental
stewardship, and potential environments in worker health
and safety due to pollution prevention.

Question 17

Are less tangible costs or liability costs more difficult to quantitatively evaluate?

Answer 17

Less tangible costs

Question 18

Are less tangible costs assess quantitatively or qualitatively and why?

Answer 18

Qualitatively for the prioritization of pollution prevention
projects. They are also more difficult to quantitatively
evaluate than the liability costs.

Question 19

What are external costs?

Answer 19

• The cost not paid by producer but imposed on others

Question 20

What is externality?

Answer 20

It arises when the social or economic
activities of one group of persons have an impact on another
group and when that impact is not fully accounted, or
compensated for, by the first group.

Question 21

What does external cost analysis involve?

Answer 21

External costs should be included in the design of policy to correct
for the present lack of such property rights and markets.

Question 22

What are ways to account of the cost to the environment and health for external cost analysis?

Answer 22

-Eco-taxes (i.e. by taxing damaging fuels and technologies according to
the external costs caused).

-To encourage or subsidize cleaner technologies thus avoiding socio‐
environmental costs.

Question 23

What analyses are external costs used in?

Answer 23

• Used in green accounting and life‐cycle analysis
  and technology comparison.
• Used in cost‐benefit analysis, in which the costs
  to establish measures to reduce a certain
  environmental burden are compared with the
  benefits, i.e. the avoided damage due to this
  reduction.

Question 24

What is cost-benefit analysis?

Answer 24

Cost‐Benefit Analysis (CBA) estimates and totals up
the equivalent money value of the benefits and costs
to the project or product to establish whether it is
worthwhile.

• The project may be a power generation station, a
  highway, an aircare program or a health care system.

Question 25

What is cost-effectiveness analysis (CEA)?

Answer 25

Cost‐effectiveness analysis (CEA) is a form of economic
analysis that compares the relative expenditure (costs) and
outcomes (effects) of two or more courses of action.

Question 26

When is cost-effectiveness analysis used?

Answer 26

Cost‐effectiveness analysis is often used where a full cost‐
benefit analysis is inappropriate.

Question 27

How is cost-effectiveness analysis typically expressed?

Answer 27

In terms of a
cost/benefit ratio where the denominator is a gain from a
measure and the numerator is the cost of the gain.