Cost effectiveness methodology

and sustainability

ir. Gerard A.M. de Fraiture21 January 2009

Reference:http://www.infomil.nl/contents/pages/137973/nerechaperh4.132005.pdf

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SUMMARY

annual costsCost effectiveness = _____________________________

annual emission reduction

Useful for making a choice out of all kinds of measures, but not the only criterion

CE can give a contribution to the concept of ‘sustainable development’

Be aware of differences in applying CE in the international context

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Content presentation

1) Background source2) History CE-methodology3) CE-methodology4) CE applied in international context5) Sustainability concept6) Discussion CE / sustainability7) Relation with ‘payback time’

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Background ‘Infomil’as source of information

In 1995, The Ministry of Housing, Spatial Planning and the Environment (abbreviated to VROM in Dutch), in co-operation with the Association of Provincial Authorities (IPO), the Association of Netherlands Municipalities (VNG) and the Ministry of Economic Affairs, has set up InfoMil for catalyzing the implementation of environmental policy in the Netherlands

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History CE-methodology (1)

In case of prevention of emissions into the environment the general principle ‘BATNEEC’ is used:

Best Available TechniqueNot Entailing Excessive Cost

But how to determine ‘NEEC’ in a objective and comparable way?

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History CE-methodology (2)

The methodology was developed primarily to calculate the cost effectiveness of end-of-pipe measures to reduce VOC (Volatile Organic

Compounds), particulates, NOx and SO2 emissions into the atmosphere

But can be used for all purposes!

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History CE-methodology (2)

Companies use different values for

• Internal interest rate (fixed to 10%)(or return on interest)

• Depreciation method:straight-line or annuity

The annuity method has the advantagethat the annual charge is constant,making the methodology easier to use(fixed in the CE-methodology)

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History CE-methodology (3)

• Depreciation period(fixed in the CE-methodology)

→ 10 years for the electro-mechanical part of the environmental investment(all equipment with instrumentation and the like)

→ 25 years for the structural part of the (environmental) investment(halls, sheds, foundations, pipe bridges and the like)

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Annuity calculationThe annuity is a factor that expresses the annual costs of a

non-recurring investmentThe annuity is calculated from the interest rate plus

depreciation as follows:

i(1 + i)n

Annuity = __________(1 + i)n - 1

i = interest rate (dimensionless)n = depreciation period (in years)

With an interest rate of 10% (i = 0,1), the annuity is 0.163 at a depreciation period of ten years and 0.110 at a depreciation period of 25 years

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CE-methodology (1)

In essence, the cost effectiveness methodology standardizes the calculation of the cost and the effect of an (environmental) measure irrespective of the internal cost figures applied by the company itself

Its value lies in the ability to compare the calculated cost effectiveness with the indicative reference values and to evaluate the measures themselves

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a) Total net annual costs

• Cost price• Additional investments• Non-recurring investments• Extra depreciation of assets through disinvestment__________________________________________________________+Total investments annuity (= 0.163) = Capital costs

• Structural investments annuitystruct. (= 0.110) = Capital costs

• Maintenance• Service• Other fixed operating costs__________________________________________________________+Total fixed operating costs = Fixed operating costs

• Utilities (gas, electric power water, steam, etc.)• Residue processing/emission levies• Other variable operating costs__________________________________________________________+Total variable operating costs = Variable operating costs

______________________________+= Total gross annual costs

• Revenues and savings = Revenues and savings___________________________________-= Total net annual costs

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b)Environmental effects• Annual unabated emission = Annual unabated emission

• Annual remaining emission• Annual emission during malfunctions• Annual emission during maintenance___________________________________________ +Total annual remaining emission = Total annual remaining emission

______________________________________ –= Total annual emission reduction

c) Cost effectiveness (CE)

Total net annual costs • Cost effectiveness = ______________________________

Total annual emission reduction

Look at the Euros Dollars dimensions: ________ or _______

Tons NOx Amount of hindranced people

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CE applied in international context (1)

Final research projectTheresia C. Maturbongs (IBP/ET-student 07-/08)

‘Uptake of chromium from leather industry wastewater (in India) with algae technology’[G:/RobInternational/IBP/PST/Research Methodology/Excellent Example pdf]

Optic: compare the algae treatment in technical and economical aspects to existing ion exchange and activated carbon technologies

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CE applied in international context (2)

Criteria→Tech-nology ↓

CE[€/m3]

CE[€/

kg Cr]

Area[m2]

Treat-ment time

By-pro-duct(s)

% Cr removal

Ion ex-change

2 400 700 8 min. Chemical waste

98

Activated carbon

1 300 70 11 min. Chemical waste

94

Algae 2 480 2000 3 days BiofuelRecover-

ed Cr

77

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Sustainability concept

•People•Prosperity•Planet•(Pneuma)

→Criteria→Indicators

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Discussion CE/sustainability 1

CE does not deal or count with:• Costs of area are not comparable to costs

of an installation• Costs of chemical waste in developing

countries are not comparable with western countriesand so on: labor, space, fees, …..

• Use of raw materials and recovering heavy metals are not calculating social and environmental costs or benefits

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Discussion CE/sustainability 2

Not involved sustainability criteria:• Discrimination between chemical

based or clean technology• Simple technology that make use of

local labor and materials• Prevention against ‘end of pipe’• ……………..

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Discussion CE/sustainability 3

More overall:• Realize yourself that CE is a

compound criterion: it belongs (partly) to ‘prosperity’ and to ‘planet’ and/or ‘people’ depending on the compared measures

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Discussion CE/sustainability 4

And realize yourself that you can apply this methodology –maybe modified- to compare all possible measures

Of course if it are possible solutions for the same problem!

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Relation with ‘payback time’

This is another parameter that uses the same information as CE, but limited to ‘costs’ and with the ‘benefit’ the time is to calculate:

Total costs in € ───────────────── = year

Total benefit in €/year

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Closing

Thanks for your attention for my last prepared

presentation before my retirement!

Questions?