environment cost

ENVIRONMENT

COST ASTRID RUDYANTO (1306498235)

AULYA AGUSTIN DWI ANDHINI (1306498241)

HERMAWAN SOEROSO (1306420900)

CLASS : F13/2S

Business leaders have come to talk of the

desirability of sustainable development

Sustainable development = business activity that

produce goods and service needed in the present

without limiting the ability of future generations to

meet their needs

To meet sustainable development, Eco efficiency is

needed.

Eco efficiency = increasing production while at the

same time reducing negative environmental effect,

resource consumption and costs

ISSUES

Eco efficiency

Three important messages of Eco efficiency:

1. Improving ecological and economic

performance can and should be

complementary

2. Improving environmental performance should

no longer be viewed as a matter of charity and

goodwill but as a matter of competitiveness

3. Eco efficiency is complementary to and

supportive of sustainable development

Eco efficiency

Eco efficiency implies that increased efficiency comes

from improving environmental performance:

1. Customer wants cleaner products

2. Employees prefer to work for environmentally

responsible firms

3. External benefits, such as lower cost of capital

4. Social benefits

5. A need to innovate and search for new opportunities

6. Competitive advantage

Three pillars of sustainability:

1. People

2. Planet

3. Profits

TRIPLE BOTTOM LINE

Environment cost

Environmental cost = costs that are incurred

because poor environmental quality exists

or may exists

ENVIRONMENTAL SIRCUMTANCE

1. NATURAL ENVIRONMENT

2. ECONOMIC ENVIRONMENT

3. SOCIAL ENVIRONMENT

4. POLITICAL ENVIRONMENT

5. CULTURAL ENVIRONMENT

Categories of Environment Cost

1. Prevention cost = cost of activities to prevent the production of contaminants that could cause damage to environment

Ex: evaluating and selecting equipment to control pollution

2. Detection cost = cost of activities executed to determine if products, processes, and other activities within the firm are in compliance with appropriate environmental standards

Ex: auditing environmental activities, inspection

3. Internal failure cost = costs of activities

performed because contaminants and waste

have been produced but not discharged into

the environment

Goal: ensure these contaminants are not released

and reduce level of contaminants to

acceptance level

Ex: treat and dispose toxic materials, maintain

pollution equipment, recycle scrap


4. External failure cost = costs of activities performed

after discharging contaminants and waste into

environment

Consists of:

Realized external failure (private) = incurred and

paid by firm. Ex: clean up polluted lake

Unrealized external failure (social) = incurred by

firms, paid by public. Ex: losing a lake for

recreational use


Source: Hansen et al., 2009, Management accounting and control 6th

ed, USA: South-Western Cengage Learning

Environment Cost Classification

Private vs social environmental cost

Private = borne by company

Social = borne by public

Visible vs hidden environmental cost

Visible = known and clearly identified as tied

to environmental issues

Hidden = caused by environmental issues but

have not been so identified

Ronald Hilton


1. Conventional Cost

2. Hidden Cost

3. Contingent Cost

4. Image Cost

5. Social Cost

EPA


1. Internal Environmental Cost

2. External Environmental Cost

SCHALTEGGER


1. Direct Environmental Cost

2. Indirect Environmental Cost

ACCOUNTING

REPORTING

Internal: should be reported as a separate

classification so manager can assess their impact on firm profitability responsibility accounting

External: could be mandatory (regulation and

continuous improvement process based on

environmental management system)

Reporting of the environmental performance of

a company cannot be achieved with the level

of accuracy without implementing an

Environmental Management System

Source: http://www.airbus.com/company/environment/documentation/

?eID=dam_frontend_push&docID=4036

Environment Financial Statement

Environmental financial statement consists of environment benefit and environment cost.

Environment benefit:

1. Income = revenues that flow to organization due to environmental action, ex: recycling paper

2. Current saving = reduction in environmental cost achieved in current year

3. Cost avoidance = ongoing saving produced in prior years

Example: BAXTER 2012

Source: Hansen et al., 2009, Management accounting and control 6th ed, USA:

South-Western Cengage Learning

Example

Berikut ini adalah daftar biaya PT Save the Earth untuk tahun 2010 :

Costs Amount (USD)

Testing for contamination 1,600,000

Measuring contamination levels 1,100,000

Auditing environmental activities 2,000,000

Inefficient materials usage 1,800,000

Restoring land to to natural state 3,400,000

Losing sales due to poor environmental reputation 2,500,000

Medical care due to polluted air 800,000

Maintaining pollution equipment 2,700,000

Recycling scrap 750,000

Recycling products 800,000

Performing environmental studies 680,000

Training (enviromentally related) 970,000

Penjualan tahun 2010 adalah sebesar $ 250,000,000 dengan total biaya operasi sebesar 30% dari

penjualan.

Berdasarkan data diatas,

- Buatlah Environmental Cost Report PT Save the Earth untuk tahun 2010

- Hitung persentase masing-masing kategori environmental cost terhadap total biaya operasi

PT Save the Earth

Environmental Cost Report

For the Year Ended December 31, 2010

Environmental Costs

Percentage of

Operating Costs

Prevention Costs

Recycling products $ 800,000

Performing environmental studies 680,000

Training (enviromentally related) 970,000 $ 2,450,000 3.27%

Detection Costs

Testing for contamination $ 1,600,000

Measuring contamination levels 1,100,000

Auditing environmental activities 2,000,000 4,700,000 6.27%

Internal Failure Costs

Maintaining pollution equipment $ 2,700,000

Recycling scrap 750,000 3,450,000 4.60%

External Failure Costs

Inefficient materials usage $ 1,800,000

Restoring land to to natural state 3,400,000

Losing sales due to poor environmental reputation 2,500,000

Medical care due to polluted air 800,000 8,500,000 11.33%

TOTALS $ 19,100,000 25.47%

Assigning Environmental Costs

Products and processes are sources of

environmental cost

Environmental product costs = environmental cost

of processes that produce, market, and deliver

products and the environmental post purchase

costs caused by the use and disposal of products

Type of environmental product costs:

Full environment costing = private and social

Full private costing = private

Functional based environmental cost assignments

1. Separated into cost pool

2. Assign to individual product using unit-level

drivers

3. Activity based environmental cost assignments

Assigning Environmental Costs

Life-cycle Cost Assessment

As the firm gains experience with environmental

costing, it is advised to expand product cost

assignment and implement life cycle cost assessment

Life-cycle assessment identifies the environmental

consequences of a product through its entire life cycle

and then search for opportunities to obtain

environmental improvements

Life-cycle cost assessment assigns cost and benefits to

the environmental consequences and improvements

Stages of life cycle assessment:

1. Inventory analysis = type and quantity of materials

and other inputs needed and resulting environmental

released

2. Impact analysis = environment effect of competing

design and its ranking

3. Improvement analysis = reducing environmental

effects revealed by inventory and impact analysis

Life-cycle Cost Assessment

CASE

Pupuk Kaltim is the biggest Urea fertilizer

manufacturer in Indonesia, in addition to producing

ammonia and NPK fertilizer. Pupuk Kaltim provides

national need of fertilizer both for the subsidized or

non-subsidized sector. In its activities, Pupuk Kaltim

emphasizes the importance of running an eco-

friendly industry that would provide added values to

the surrounding communities. Pupuk Kaltim is a

subsidiary of PT. Pupuk Indonesia (Persero).

ENVIRONMENTAL PERFORMANCE

Pupuk Kaltim recognizes the importance of the National park to preserve the balance of the ecosystem and protect biodiversity

Environmental Responsibility

Pupuk Kaltim is fully aware that its business activities affect the surrounding environment.

The obvious impact of Pupuk Kaltims industrial activities is the emergence of effluents, solid wastes, gas emissions, and greenhouse gases.

Pupuk Kaltim also realizes that industrial activities require a large amount of energy and water. Therefore Pupuk Kaltim is trying to conserve its energy and water usage.

ENVIRONMENTAL PERFORMANCE

Environmental Responsibility

Pupuk Kaltim has applied and obtained the ISO

14001:2004 Environmental Management System

certification in order to minimize the negative

impacts of its production activities on the

environment, conserve natural resources utilized in

the production process, and protect the

biodiversity in the environment surrounding the

Company.

Environmental Management Program 1. Compiling Amdal or EIA (Environmental Impact

Assessment)

2. Implementing the Environmental Management Plan or RKL and Environmental Monitoring Plan or RPL, and reporting them on a quarterly basis to relevant institutions.

3. Performing software application study of gas emissions from ammonia and urea plants by independent external parties. The results of this study will be used as the basis for establishing a policy to reduce greenhouse gas emissions and other significant emissions.

4. Replacing all refrigerants that contain ozone-depleting substances with eco-friendly materials.

5. Replacing light bulbs used in the Companys premises with more energy-efficient bulbs.

6. Encouraging employees to reduce electricity and water usage.

7. Equipping new plants with energy-efficient technologies to replace the old plants.

Energy and Material Usage

The primary raw material is natural gas.

The average rate of natural gas consumption per ton of ammonia in 2012 was 37.55 mmbtu/ton, 1% lower compared to the average rate of natural gas consumption in 2011, which was 38.02 mmbtu/ton. Meanwhile, average rate of gas consumption per ton of urea in 2012 was 28.79 mmbtu/ton, 2% lower than the average rate of natural gas consumption in 2011, which was 29.3 mmbtu/ ton.

In its production processes, Pupuk Kaltim did not use indirect energy sources since the entire energy requirement is fully met by the power plants in Pupuk Kaltims premises

Conservation Programs

1. Replacement of refrigerants with more

environmentally-friendly and energy efficient ones.

2. Replacement of light bulbs with more energy

efficient ones in the Companys premises.

3. Installation of kWh meter for panel lighting in plants

and residential areas.

4. Installation and application of solar cells in the

employee residential areas for garden lighting and

traffic lights.

5. In 2012, Pupuk Kaltim produced approximately 3,125

liters of biofuel from used cooking oil, which was

subsequently used in fuel mixture/substitution

experiments involving diesel engine vehicles, at a

proportion of maximum 5%.

Waste Management

Pupuk Kaltim has obtained permission for

discharging effluents into the sea from the Ministry

of Environmental Affairs

The monitoring of effluent discharges throughout

2012 shows that Pupuk Kaltims effluents are all compliant with the quality standards set by the

Government

environment cost

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