how to perform an environmental management cost assessment in one day

Journal of Cleaner Production 14 (2006) 1194e1213www.elsevier.com/locate/jclepro

How to perform an environmental managementcost assessment in one day

Christine Jasch*

Institut fur okologische Wirtschaftsforschung, Rechte Wienzeile 19/5, 1040 Wien, Austria

Received 11 September 2004; accepted 24 August 2005

Available online 12 October 2005

Abstract

The article provides definitions for environmental accounting and environmental management accounting based on the approach developedfor the United Nations Division of Sustainable Development UN DSD/DESA. It presents the basic framework for assessing corporate environ-mental costs as well as materials flows (including energy and water) and their costs. The paper is based on experiences from applying the UNDSD EMA framework in company workshops and case studies mainly in Austria. It especially describes how to check for data consistencywithin different information systems, like the list of accounts, stock management, production planning and process engineering. Common hur-dles for obtaining data from different information systems are described and solutions for improved consistency of data in an organization arepresented. It provides a detailed example of an assessment in a brewery in the excel tool developed to assist in the application of the UN DSDEMA approach.� 2005 Elsevier Ltd. All rights reserved.

Keywords: Environmental accounting; Environmental costs; Environmental management accounting; Material flow cost accounting

1. What is environmental management accounting?

Simply defined, environmental management accounting(EMA) is management accounting (MA) with a focus onphysical information on the flow of energy, water, productsand materials as well as monetary information on environ-mental costs and revenues and projects related to environ-mental protection. It is not a different method, but simplydoing better MA. EMA is closely related to process costingor activity based costing as well as to environmental perfor-mance and management systems. Well-designed and imple-mented EMAs help to ensure better internal managementand decision-making e.g. for investment appraisal, cleanerproduction, improving eco-efficiency and calculating savings

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doi:10.1016/j.jclepro.2005.08.005

within organizations and also serve as a basis for externalaccounting and reporting [1].

On the internal management side, EMA helps the organiza-tion to more effectively track and manage its physical andassociated monetary resources, and to identify opportunitiesfor cost savings. The benefits of doing EMA include efficiencyimprovements, better decision-making based on consistentinformation systems or strategic advantages (e.g. by betterassessing the consequences of new regulations such as emis-sion trading) [2,3]. Accountants who work within organiza-tions can play a critical role by providing necessary data andby working with non-accounting colleagues to ensure thatthe organization’s information systems and reports are de-signed with these goals in mind [4].

On the external reporting side, EMA, in some frameworks[5] also called Environmental Financial Accounting (EFA),provides information to external stakeholders such as sharehold-ers, rating agencies, environmental regulatory agencies andstatistical agencies on organizational performance and risks eboth environmental and financial. The reporting ranges from

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1195C. Jasch / Journal of Cleaner Production 14 (2006) 1194e1213

integrating these issues into standard financial reports to provid-ing information for separate environmental or sustainability re-ports [6]. Accountants within organizations play a key role inproviding the information needed, and external auditors playa key role in verifying the accuracy of the information reported,as well as verifying the information systems and practices fromwhich the information is derived [4].

The fact that corporate environmental costs are not clearlydefined and fully and systematically recorded often leads todistorted calculations for improvement options [7,8]. Environ-mental protection projects, aiming to prevent or reduce emis-sions and wastes at the source (avoidance option) by betterutilizing raw and auxiliary materials and requiring less (harm-ful) operating materials are not recognized and implemented;consequently, the economic and ecological advantages to bederived from such measures are not used. The people in chargeare often not aware that producing wastes and emissions ismore expensive than disposing of them [9]. By preventingthe production of wastes and emissions by better process opti-mization the wastes of raw materials, energy and operationtime can be reduced and in some cases totally eliminated,therefore, the issue of disposing or treating wastes and emis-sions can be eliminated or drastically reduced at their sources.

The two broad categories of accounting that are typicallyperformed within an organization are Management Account-ing (MA) and Financial Accounting (FA).

In general, FA tends to refer to accounting reportswhich are directed to creditors, investors, shareholders andthe financial authorities as well as the accounting informationsystem (e.g. bookkeeping). Based on much of the same infor-mation, but making use of additional information (systems),like the production planning system and time record sheets,MA generates reports for managers for internal decision-making [5].

There is a growing trend to include not only financial infor-mation in the Financial Statements but also some informationon environmental performance and social responsibility. In theEU Modernization Directive [11] to the 4th accounting direc-tive, which must be implemented by January 1, 2005, it is statedthat:

‘‘To the extent necessary for an understanding of the compa-ny’s development, performance or position, the analysis shallinclude both financial and, where appropriate, non-financialkey performance indicators relevant to the particular business,including information relating to environmental and employeematters’’.

There are, of course, typically many links between an or-ganization’s FA and MA Systems. Companies use data fromthe MA System to help determine the amount and value offinished goods that must be reported in the FA Balance Sheet.On the other hand, most companies base MA decisions onFA data. In fact, many companies, particularly small andmedium-sized companies, really do not have an independentMA System e they simply use their data from bookkeepingfor internal decision-making as well as for external reporting,perhaps with a few minor adjustments.

MA within an organization also includes Development ofIndicators and Statistics regarding past organizational perfor-mance, Calculating Savings as well as more future-orientedactivities such as Budgeting and Investment Appraisal. All ofthese activities make use of the data collected in the organiza-tion information systems like bookkeeping, production plan-ning, etc. but different methods are used to determine theplanned costs, earnings, savings, and liquidity needs for futuretime periods.

However, experience shows that these information systemsare frequently not checked for consistency and thus, severalbusiness decisions are calculated on the basis of incorrect orincomplete estimates [9]. This is often fatal as well from aneconomic as from an environmental point of view.

The remainder of this paper focuses primarily on EMA andespecially on its two fundamental information systems, Mate-rial Flow Accounting and Environmental Cost Accounting.These two are the basic tools of EMA and provide the datafor other EMA tools like Investment Appraisal, Budgeting,Life Cycle Assessments and calculating Savings or Costing.

The definition of EMA adopted by the United NationsExpert Working Group on EMA distinctively highlights thephysical and monetary side of EMA [12]. This definitionwas developed by international consensus of the group mem-bers, representing 30C nations. According to the UN group:

EMA is broadly defined to be the identification, collection,analysis, and use of two types of information for internaldecision-making:

(1) Physical information on the use, flows, and fates of energy,water, and materials (including wastes) and

(2) Monetary information on environmentally-related costs,earnings, and savings.

Adding the purchase value of non-product output (materialflow costs) to the corporate environmental costs increasesthe share of environmental costs in relation to other costs.However, it is not the goal to show that environmental protec-tion is expensive, but rather to highlight the scope for savingspotentials. It is also not the most important task to spend a lotof time defining exactly which costs are environmental or not,or what percentage of something is environmental or not.Environmental protection projects not only have effects onnature, but also on neighbors (noise, odors, pollution) and?A3B2 tlsb=-0.01w?>employees (health and safety), if relatedto material and energy flows. In addition, they result in a reduc-tion of risks for employees, nature and neighbors in case ofaccidents and other abnormal production events.

It is often difficult to determine the environmental portionof these costs. As with integrated clean technologies that areoften more cost and material efficient, the environmental por-tion of health and safety or risk prevention activities usuallycannot be determined precisely. In general, it may be statedthat assets that are allotted 100% to the environment are badfor the environment as they are often End-of-Pipe technologiesthat do not solve the problem at the source, but rather shift it

1196 C. Jasch / Journal of Cleaner Production 14 (2006) 1194e1213

from one environmental medium to another (e.g. from the airto the soil and then into the water). These approaches are ex-pensive and inefficient.

The most important task is to make sure that all relevantand significant costs are considered when making business de-cisions. In other words, corporate environmental costs are justa subset of the bigger cost universe that is necessary for gooddecision-making. Environmental costs are part of an integratedsystem of materials, energy and money flows through a corpo-ration, and not a separate type of cost. Doing EMA is simplydoing better, more comprehensive MA, while wearing an envi-ronmental hat that opens the eyes for hidden costs. Therefore,the focus of material flow accounting is no longer assessingthe total environmental costs, but on a revised calculation ofproduction costs on the basis of material flows (including en-ergy and water).

2. What are environmental costs and what isenvironmental accounting?

The term environmental accounting (EA) is used in the con-text of:

1. Financial accounting and management accounting, whichis done by companies and accountants and only dealswith the company’s internal costs and earnings, and

2. National accounting for external effects, which is done byeconomists.

These externalities are estimated by e.g. the costs caused to so-ciety for clean-up and treatment, the lost income to other groups,e.g. from fisheries and farming, the health costs due to contam-ination, the loss value of property, etc. In several publications,this is the core meaning of EA (in distinction to EMA).

Thirdly, it is possible to assess the value of land related toforestry and other natural resources or related to potential con-tamination. These assessments are usually done in connectionwith purchase transactions and use different methods that aremore related to investment appraisal. Also, environmental im-pact assessments in connection with obtaining permits forlarge investment projects could be listed here.

Financial accounting aims to assess the basis for benefits toshareholders and taxes and therefore, has to follow strict rules,one of them being that profit may only be accounted for after itis realized [1]. This is a completely different target to assess-ing ‘‘value to society’’ which accounting for externalities aimsto address [13].

EMA does not typically calculate ‘‘external’’ costs to indi-viduals, business partners, society, or the environment forwhich the organization is not legally held responsible. An or-ganization can choose to include these external costs in itsmanagement decision-making, but it normally does not at-tempt to calculate them [1,14,15].

There are several reasons why organizations typically donot calculate external costs [14]:

(1) By definition, external costs do not enter the organiza-tions’ accounting systems;

(2) Organizations typically do not have access to reasonableestimates for these costs, which can be very challengingto quantify, even for environmental experts and

(3) Organizations are seldom the sole cause of a specific ex-ternal effect, e.g. it is nearly impossible to estimate theshare of an organization to the effects on climate changeor loss in biodiversity, for example.

The UN DSD EMA methodology only deals with corporateenvironmental costs. External costs which result from corpo-rate activities but are not internalized via regulations andprices are not calculated. Fig. 1 shows the corporate environ-mental cost categories developed for UN DSD/DESA [1] andapplied in pilot projects worldwide, e.g. [16,17].

In financial accounting, the term expenditure is used. Costaccounting addresses costs, which have slightly different val-ues. Which values are used depends on the organization ofthe accounting in the company. All expenditures have to befrom the same business year and must be derived mainlyfrom the profit and loss accounts. In the EMA pilot projects,firstly, total annual environmental costs were assessed, whichmay include depreciation and interest taken from cost account-ing. The first assessment is not for calculating investment al-ternatives, project costs, or potential savings. These can becalculated separately once the annual costs have beenassessed.

Environmental protection costs include costs for prevention,disposal, planning, control, shifting actions and damage repairthat can occur at companies, governments or people [18].

Corporate environmental protection expenditures includeall expenditures for measures for environmental protectionof a company or on its behalf to prevent, reduce, control anddocument environmental aspects, impacts and hazards, aswell as disposal, treatment, sanitation and clean-up expendi-ture. The amount of corporate environmental protection ex-penditure is not directly related to the environmentalperformance of a company [18]. Within the European Union,

Environmental protection expenditures (emissions treatment and waste prevention)

+ Material flow costs (Costs of unproductively utilized materials, energy, capital, andpersonnel.)

= Total corporate environmental costs

Fig. 1. Total corporate environmental costs.


national statistics require reporting of corporate environmentalprotection expenditure [19e22].

The National Bureaus of Statistics usually require that en-vironmental costs be divided into environmental media (e.g.air emissions and climate, waste, water, noise). In case a cate-gory is not relevant, that column can be omitted, as well asothers added if they are necessary or dealt with by the samedepartments (e.g. for health and safety and risk management).The assignment of environmental costs to the environmentalmedia in the brewery example in Figs. 2e7 follows the Systemof Integrated Environmental and Economic Accounting(SEEA) of the United Nations [23,24] but hides the columnsfor ‘‘soil and groundwater protection’’, ‘‘radiation’’ and ‘‘bio-diversity’’ as not costs occurred in these media.

The UN DSD EMA approach [1] as well as the IFAC Guid-ance Document [14,15] based upon it, separate environmentalprotection expenditures into ‘‘Treatment’’ and ‘‘Prevention’’ ascosts in the category of ‘‘Prevention’’ can help to reduce costsin the category of ‘‘Treatment’’ as well as reduce the ‘‘Mate-rial’s flow costs’’. The application shown in Figs. 2e7 is basedon the excel tool developed for the cost assessment and that isavailable for download at http://www.ioew.at. The example istaken from a ‘fictitious, composite brewery’, based on assess-ments in three breweries in Austria. Since the research projectsare always run under secrecy, only the percentage distribution,but not the total environmental costs are disclosed. The exam-ple of the brewery in Figs. 2e7 shows, in-depth, the costs thatwere documented and how they were processed with the aid ofthe excel tool. This program automatically aggregates the costsand shows the percentage distribution of those costs. It is im-portant to always record the method of calculating data as wellas their sources so they are traceable to their sources. For sub-sequent year’s assessment, this information makes work sim-pler and consistent. Experience shows that it is possible tothe total costs assessment in a one-day workshop with the in-volved departments. (The brewery example contains an illus-trative, filled-in assessment form.)

The first category [1] addresses conventional waste disposaland emission treatment costs including environmentally rele-vant equipment depreciation, related labor and maintenancematerials. Insurance and provisions for environmental liabili-ties also reflect the spirit of treatment instead of prevention.The first category corresponds to the conventional definitionof environmental costs that includes all treatment, disposaland clean-up costs of existing wastes and emissions.

The second category [1] is termed prevention and environ-mental management and adds the labor costs and externalservices for good housekeeping as well as the ‘‘environmen-tal’’ share of cleaner technologies and green purchases, if sig-nificant. Prevention activities are actually inherent toenvironmental management. Research and development forenvironmental projects is also part of pollution prevention.The main focus of the second category is on annual costsfor prevention of wastes and emissions, but without calculatedcost savings. Calculating savings is an easy task once the costsof a defined system have been correctly assessed, but first thetotal annual costs must be assessed correctly. Calculating

savings is also very subjective, as the system boundaries andhow many years back need to be defined, while annual costsare much more objective from an accounting perspective.

For company’s internal calculations of environmental costs,expenditure for environmental protection is only one part ofthe coin. The costs of waste and emissions include muchmore than the respective treatment facilities and disposalfees. Conventionally, business administration distinguishesthree production factors: materials, capital (investments,related annual depreciation and financing costs) and labor.The next two categories consider the costs of wasted materials,capital and labor due to inefficient production, generatingwastes and emissions. Materials comprise also energy andwater.

In the third category [1], the wasted material purchase valueis added. All non-product outputs are assessed by a materialflow balance. Wasted materials are evaluated based upon theirmaterial purchase value or materials consumed value in caseof stock management. Technical process flow balances andmaterial flow costing help to assess non-product output moreprecisely and allow distributing the related costs back to theresponsible polluting cost centers or cost carriers (products).

Lastly, the production costs of non-product output are cal-culated with the respective production cost pro rata charges,which include labor hours, depreciation of machinery and op-erating materials and financing costs [1].

Environmental revenues derived from sales of waste orgrants of subsidies are accounted for in a separate category.

The total annual environmental costs, including non-productoutput, are automatically aggregated into an overview thatshows the distribution to the environmental media, but moreimportantly, the distribution by cost categories. It is clearlyvisible that prevention activities are a lot less costly than the in-efficient expenditure for treatment activities and the cost fornon-product outputs. At the same time, prevention activitieshelp to reduce the costs in those other cost categories as well.

3. How to do an EMA in a day

A question that is frequently asked is, ‘‘Should we ap-proach EMA, top-down or bottom-up?’’ All companies havea profit and loss accountant, so the total annual costs of wasteproduction of last year are a good baseline for deeper investi-gation and improvements. It can be done in a one-day work-shop with the involved departments following the proceduredescribed and working directly into the excel tool. For specificcleaner production projects, an analysis can be made for pro-cesses or products only.

The reasons for doing EMAs are twofold:

1. In companies with a multi-year tradition of environmentalmanagement systems (EMS) and cleaner production (CP)projects, EMA can be used to improve the consistency ofinformation systems and for internal budgeting, cost calcu-lation and investment appraisal.

http://www.ioew.at


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1. Waste and EmissionTreatment 1.1. Depreciation for relatedequipmentPremisesWaste Water Treatment Plant 22.000 depreciation according to

cost center 500depreciation according to

cost center 500

22.000

Separating waste watersystem

50.000 50.000

Beerhouse:Dust filter 4.300 estimated depreciation 4.300Vapor compaction and controlsystem

7.000 depreciation according tocost center 367

7.000

Hot water recovery,condiment cooling


1.000

Fermentation- & storing cellar:Chemical store 1.030 newly renovated,

depreciation estimated onthe basis of renovation

costs

1.030

Yeast disposal equipment,also used for recovery ofresidual beer

30.000 depreciation estimated

depreciation estimated

30.000

Pendular gas pipelineCarbonic acid systemCO2 recovery and alertsystem

4.800 4.800


1.240

Subtotal 121.370 17.100 72.000 30.000 1.030 1.2401.2. Maintainance, OperatingMaterials and services

54.300 cost center 191 account4501

54.300

Isolation Steam- & Water 6.300 4500 6.300PipesMaintenance waste watertreatment plant

13.700 account 4500, cost center191

13.700

Maintenance CO2 plant 38.500 4500 38.500Bicycle stand 1.000 4500 1.000Subtotal 113.800 45.800 68.000 0

0

0 01.3. Related PersonnelPersonnel for waste watertreatment plant

27.300 cost center 191 account91 27.300

Personnel for wastemanagement

20.000 4500 20.000

Travel costs: training of wastewater plant manager

1.400 6571 1.400

Subtotal 48.700 28.700 20.000 0 01.4. Fees, Taxes, Charges Disposal fees 44.000 4603 44.000License Fee for PackagingMaterials

17.400 4604 17.400

Energy charges natural gas 1.000 6010 1.000Energy charges electricity 22.000 6010 22.000Usage fee: waste water duct 100.000 6030 100.000Subtotal 184.400 23.000 100.000 61.400 0 0Total Category 1 468.270 85.900 268.700 111.400 1.030 1.240

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Maintenance and operatingmaterials for Waste waterdisposal, 100

Fig. 2. Example: Environmental Cost Category 1 e waste and emission treatment at the fictitious, composite Austrian Brewery.


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2. Prevention and EnvironmentalManagement 2.1. External Services forEnvironmental ManagementCertification of EnvironmentalManagement System

5.000 6410 5.000

Consulting for the implementation of theEnvironmental Management System

7.700 6410 7.700

Certification Ecolabel 3.000 6410 3.000Software for environmental laws,maintenance contract

1.500 6410 1.500

Water analyses 10.200 6410 10.200Training of internal auditors 1.000 5972 1.000Advertising agency: environmentalreport

10.000 6410 10.000

Printing costs: environmental report 15.000 6410 15.000Subtotal 53.400 0 10.200 0 0 43.2002.2. Personnel for generalenvironmental protection activities

20.000 20.000

Training of personal regarding the newEnvironmental Management System,100 h

2.500

estimate

estimate 2.500

Travel Costs: Travel to obtain theenvironmental national award

2.600 6571 2.600

Subtotal 25.100 0 0 0 0 25.1002.3. Research and DevelopmentPilot Project Biodiesel 5.000 6500 5.000Subtotal 5.000 0 0 0 0 5.0002.4. Extra expenditure for integratedprevention technologies

36.800 process specification

36.800

Subtotal 36.800 36.800 0 0 0 02.5. Other environmentalmanagement costsDonation for Environmental protectionto NGO

2.000 7500 2.000

Subtotal 2.000 0 0 0 0 2.000Total Category 2 122.300 36.800 10.200 0 0 75.300

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Environmental Team: 10 employees à 5 of 40.000

Electricity production (block heat withown organic material and power plant),33 loss of 110.400,-

Fig. 3. Example: Environmental Cost Category 2 e prevention and environmental management at the fictitious, composite Austrian Brewery.

2. For newcomers to EMS, CP and environmental perfor-mance evaluation, EMA can be used as a screening toolon: how much money they lose by not doing EM and CP?

This article provides instructions for the first assessment oftotal annual corporate environmental costs of the previousbusiness year in a 1e2-day workshop. Subsequently, improve-ment measures for the information system as well as for envi-ronmental and technical performance and more detailedsurveys can be planned, as well as potential savings and in-vestment projects can be calculated. The baseline therefore,is always the previous year’s costs. The approach is based

on experience and tools developed for the Austrian pilot proj-ects on EMA [9] and that have been used in case studies inCosta Rica [16] and the Basque [17] country working withthe UN DSD EMA manual [1].

Fig. 8 shows the extreme and average values of the individ-ual cost categories of the Austrian pilot projects. The figure isnot designed to provide statistical evidence, but it does high-light the general cost distribution typically found in productioncompanies. It is quite clear that prevention in comparison totreatment and lost materials value is efficient and effective.Many cost categories cannot be found in all companies, butthey can be very significant, like e.g. clean-up costs. Also,


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3. Material purchase value of nonproduct output3.1. Raw Materials

200.000 200.00020.000 10.000 10.000

Subtotal 220.000 0 10.000 210.000 0 03.2. Packaging MaterialsBottle caps lemonades 100 , 5 loss 8.000 4460 8.000Bottle caps beer 100 , 5 loss 4.000 4480 4.000Labels Beer 7 7.000 4490 7.000Beer cases 100 of new purchase tothe closed loop system

27.000 630 27.000

Label glue 7 150 4495 1506 bottle-trays 95 loss of 160.000,- 152.000 6619 152.000Beer bottles 100 of new purchase tothe closed loop system

43.400 620 43.400

Pallets 2 loss of 14.200,- 284 610 284Subtotal 195.834 0 0 195.834 0 03.3. Auxiliary MaterialsAuxiliary materials beer 2 loss of 12.150,-

243 4200 243

Filtering agent 100 14.000 4300 14.000CO2 Purchase 100 100.000 4230 100.000Subtotal 100.000 100.000 0 0 0 03.4. Operating MaterialsCleaning material 100 190.000 4320 190.000Neutralization agent 100 35.000 4350, cost

center 19135.000

Laboratory material 100 20.000 4380 2.000 18.000Lubricants 100 11.000 4430 11.000Subtotal 11.000 0 0 11.000 0 03.5. EnergyElectricity 100 275.000 6000 275.000Heating oil 100 200.000 4330 200.000Natural gas electricity production, 33loss of energy efficiency of 21.300,-

7.100 4340 7.100

Diesel vehicle fleet 100 200.000 4400 200.000Subtotal 682.100 682.100 0 0 0 03.6. WaterWater from own well (only depreciationand operating materials, no purchase)

0 0

Percolating water 100 20.000 4030 20.000Subtotal 20.000 0 20.000 0 0 0Total Category 3 1.228.934 782.100 30.000 416.834 0 0

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Hop, 20 loss of 120.000,-Malt, 20 loss of 1.000.000,-

Fig. 4. Example: Environmental Cost Category 3 e material purchase value of non-product output at the fictitious, composite Austrian Brewery.

the processing costs of NPO cannot be calculated in several or-ganizations due to the inadequate cost accounting systems. Butagain, if they can be calculated, they amount to significantvalues.

For the assessment, it has been found to be practical to splitthe involved people into two or three groups after the generalmethod is fully understood by the team. The involved peopleare: production manager, environmental manager, material’smanagement or storehouse department manager, controller,and at least one member of the financial accounting and cost

accounting department. In small organizations, these functionsand the related information may be available from fewer peo-ple. If this is the case, then the three groups refer to the timelysequence of the assessment to be done as follows:

Group 1 compiles information on the environmentally rele-vant business equipment;

Group 2 develops a rough material’s flow balance sheet;Group 3 collects all other remaining costs from bookkeeping

data and other records.


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4. Processing Costs of non productoutput6 loss of beer production 50.000 financial

statistics andcalculation

sheet forproduction

costs

25.000 25.000

Subtotal 50.000 0 25.000 25.000 0 0Total Category 4 50.000 0 25.000 25.000 0 0

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Fig. 5. Example: Environmental Cost Category 4 e processing costs of non-product output at the fictitious, composite Austrian Brewery.

All three groups will have open questions that must bejointly addressed after collecting the data. The goal of theworkshop is to:

� To be able to present the entire picture of the environmen-tal costs of the previous year to top management at the endof the workshop, and� To be able to discuss options to improve the information

systems and the technical processes.

The cost assessments reveal improvement options in twoareas:

1. Options and measures necessary to improve the qualityand consistency of data and information flows in the

organization. This is the starting point of most projectsand the focus of most follow-up projects.

2. In companies that have not done environmental manage-ment projects for several years, technical improvement op-tions may become obvious. What always is made visible,mostly for the first time in an organization, are the costsrelated to inefficient production, wasting materials and en-ergy. So even if the technical solutions might not beknown at the end of the first assessment, the priority areasfor deeper investigations will have been identified.

4. Environmentally relevant business equipment

The first step in the assessment is to identify the existingenvironmentally relevant equipment with its annual

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5. Environmental earnings5.1. Subsidies, AwardsSubsidy for research project on draff -25.000 8140 -25.000National environmental award -2.000 8150 -2.000Subtotal -2.000 -2.000 0 0 0 05.2. Other earningsMalt dust -500 8230 -500Yeast sludge -3.000 8240 -3.000Sale of draff -35.000 8220 -35.000Subtotal -35.000 0 0 -35.000

-35.0000 0

Total Environmental Earnings -37.000 -2.000 0 0 0

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Fig. 6. Example: Environmental Earnings at the fictitious, composite Austrian Brewery.


Environmental Costs 2004in EURO

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environmental cost categories

1. Waste and Emission Treatment

1.1. Depreciation for related equipment 17.100 72.000 30.000 1.030 1.240 121.370

1.2. Maintainance, Operating Materials and services 45.800 68.000 0 0 0 113.800

1.3. Related Personnel 0 28.700 20.000 0 0 48.700

1.4. Fees, Taxes, Charges 23.000 100.000 61.400 0 0 184.400

2. Prevention and Environmental Management

2.1. External Services for Environmental Management 0 10.200 0 0 43.200 53.400

2.2. Personnel for general environmental protection activities 0 0 0 0 25.100 25.100

2.3. Research and Development 0 0 0 0 5.000 5.000

2.4. Extra expenditure for integrated prevention technologies 36.800 0 0 0 0 36.800

2.5. Other environmental management costs 0 0 0 0 2.000 2.000

3. Material purchase value of non product output

3.1. Raw Materials 0 10.000 210.000 0 0 220.000

3.2. Packaging Materials 0 0 195.834 0 0 195.834

3.3. Auxiliary Materials 100.000 0 0 0 0 100.000

3.4. Operating Materials 0 0 11.000 0 0 11.000

3.5. Energy 682.100 0 0 0 0 682.100

3.6. Water 0 20.000 0 0 0 20.000

4. Processing Costs of non product output 0 25.000 25.000 0 0 50.000

Total Environmental Costs 904.800 333.900 553.234 1.030 76.540 1.869.504

5. Environmental earnings

5.1. Subsidies, Awards -2.000 0 0 0 0 -2.000

5.2. Other earnings 0 0 -35.000 0 0 -35.000

Total Environmental Earnings -2.000 0 -35.000 0 0 -37.000

Total Costs / Earnings 902.800 333.900 518.234 1.030 76.540 1.832.504

Fig. 7. Example: Environmental Costs e summary in euros at the fictitious, composite Austrian Brewery.

depreciation, personnel and operating costs. If the actual de-preciation cannot be singled out from the list of assets, esti-mates based on investment volume and average years of usecan be used instead. The term ‘‘equipment’’ may comprisea single machine or an entire production hall. Informationon environmentally relevant processes and related equipmentcan sometimes be found in environmental reports or in thewaste prevention plan.

There are three categories of environmentally relevantequipment [9]:

1. ‘‘End-of-Pipe’’ (EOP) equipment: EOP equipment includ-ing machines, constructions, etc. that exist solely for envi-ronmental protection or clean-up, and are not necessaryfor production (e.g. wastewater treatment, dust removal,waste compressor, etc.)

2. ‘‘Cleaner Production’’ (CP): CP equipment including ma-chines, constructions, etc. that may have been slightlymore expensive as they produce less waste or emissionsin production (enameling line with after-burning, boilerplant with flue gas cleaning, bottle washing line with


Min Average Max

1.1. Depreciation for related equipment 21.2. Maintenance and operating materials and services 151.3. Related personnel 1 201.4. Taxes, Fees, Charges 141.5. Fines and Penalties1.6. Insurance for environmental liabilities1.7. Clean up costs, remediation, etc. 64

2.1. External services for environmental management2.2. Personnel for general environmental management 102.3. Research and development2.4. Extra expenditure for integrated prevention equipment2.5. Other environmental management costs 0,1 0,2 25

3.1. Raw materials 543.2. Packaging 123.3. Auxiliary materials 7 313.4. Operating materials 373.5. Energy 16 24 313.6. Water4. Processing costs of the NPO

1. Waste and emission treatment

2. Prevention and environmental management

3. Material purchase value of the NPO

5. Environmental revenues 17-9

4

44

4

0 0 000

000

000

000

000

0

3

-3

3

3

1

1

11

1 1

9

9

9

5

5

5

21

25

Fig. 8. Percentage cost distribution in Austrian case studies.

separate discharge of glass, paper, and metal, all equip-ment insulated to reduce noise, etc.)

3. ‘‘High loss equipment’’: proportion of equipment that doesnot confirm to the best available technology and producesavoidable emissions and waste (e.g. old boilers, enamelinglines that paint products that have to be painted again,steam supply with heat losses, etc.)

Type (1) EOP e Equipment: Equipment, machines, con-struction, etc. that exist solely for emission treatment orclean-up, and are not necessary for production.

Traditionally, businesses have purchased EOP equipment toreduce environmental impact and to fulfill legal environmentalrequirements. This equipment has no effect on production.Typical examples are wastewater treatment plants (chemical,biological, or physical) dust removal equipment, flue gasscrubbers, waste separation areas, or sound insulation walls.

This equipment is 100% environmentally relevant. They re-quire investment, causes operating costs (personnel and operatingmaterials), and needs to be maintained. This equipment is oftenmonitored in separate cost centers, from which one can see thepersonnel and operating costs. If these cost centers include coststhat should be assigned to another category, e.g. the disposal costs,then the cost center report has to be divided accordingly.

Type (2) CP e Cleaner Production Equipment: proportion-ate share of equipment, machines, construction, etc. that pro-duce less waste or emissions in production.

In many cases it is possible to minimize wastes and emis-sions by using equipment with integrated pollution preventionand control. Sometimes this equipment is more expensive, butoften it is more economical. The proportion of environmentallyrelevant investment depends on the increase in the investmentcosts in comparison to the state of the art technology.

Operating costs for this equipment can increase or de-crease. An example of such equipment would be an (expen-sive) enameling line that sprays more efficiently, whichmeans higher depreciation costs, but also lower materialsuse and waste due to increased efficiency. It may also reduceworker health and safety costs as well as reduce exposure ofthe people in the neighborhood of the plant to the enamelmaterials.

If the additional costs were significant, their magnitudeand/or the percentage of the investment costs should be esti-mated. However, practical experience shows that most of thetime the equipment is not more expensive and the environmen-tal share cannot reasonably be estimated, so it is not necessaryto include this equipment under ‘‘environmental costs’’. Theoperating costs are developed using the material balance sheetunder category 3, material purchase value.

Type (3) ‘‘High loss’’ Equipment: proportion of equipmentthat does not conform to the best available technology and pro-duces avoidable emissions and wastes.

Since producing emissions and wastes are environmentallyrelevant, so is equipment, which produces them. This equipmentcould be old boiler plants and non-insulated pipes that causeavoidable energy losses requiring higher energy inputs. Otherexamples are equipment that produce excessive wastes, requireexcessive cleaning or a fleet of cars that uses too much fuel.

The environmentally relevant portion of the equipment iscalculated by the portion of avoidable scrap, waste or emissions(avoidable loss of heat, too high water use in cleaning, etc.).

If the portion is significant, the portion of depreciationshould be recorded in category 1 as well as within the relatedpersonnel costs. The collected values are also important for in-vestment appraisal. The losses of material from the materialsbalance sheet are recorded in cost category 3. Sometimes it


is also possible to trace the operating materials from the costcenter reports of the Non-BAT equipment.

5. Accounting for materials flows

The core part of environmental information systems arebased upon material flows in physical units within a definedsystem boundary [25,26]. This can be on the corporate level,but can also be assessed to cost centers and production pro-cesses or even down to machines and products [27]. Then, itbecomes the task of process technicians and not so much ac-countants to trace, quantify and report the necessary data.

The basis of environmental performance improvements isthe recording of materials flows (including energy and water)by an inputeoutput analysis (Material flow balance). The sys-tem boundaries can be on the corporate level, or further dividedaccording to sites, cost centers, processes and product levels[27,28].

Corporate materials flows are also money flows and cantherefore be partly traced by conventional accounting systems.Also, when calculating investments for environmental protec-tion, increased material and production efficiency must be ad-dressed [29e31]. But, the main problem when trying tosystematically identify the potential for material efficiency im-provements is that the traditional cost accounting systems arenot designed to provide the relevant information on the com-pany’s physical structure, i.e. on the structure of its materialflows [32]. In particular, the non-product output (waste, waste-water, emissions, etc.) are not quantified and monetized sepa-rately within the accounting systems [33].

The material flow balance is an equation based on ‘‘whatcomes in must go out e or be stored’’. In a material flow bal-ance, information on both the materials used and the resultingamounts of products, wastes and emissions are included. Allitems (materials always comprise materials, water and energyinput) are measured in physical units in terms of mass (kg, t),liters or energy (MJ, kWh). The purchased inputs are cross-checked with the amounts produced and sold as well as the re-sulting wastes and emissions. The goal is to improve efficiencyof material management both economically and environmen-tally [27,29].

A material flow balance can be made for a few selected ma-terials or processes, or for all materials and wastes of an orga-nization. The aim of process balances is to track materials ontheir way through the company. The starting point is the cor-porate level, since much information is only available at thesystem boundary [28]. Also, this level is used for disclosurein environmental reports [25].

Ideally, the material flow balance can be summed up toshow how much of the purchased materials are actually pro-cessed into the sold products and how much is discharged aswastes, wastewater or gaseous emissions. It actually consistsof a material flow balance in kilograms in combination withan energy balance in kWh and water balance in cubic meters.A prerequisite for such a cross-check of total material inputsagainst product and non-product outputs is that all entriesare calculated in tons. But often, organizations collect

information in different classifications, like tons, pieces, vol-umes, square meters. Thus, it becomes impossible to evaluatethe inputeoutput equivalents.

During their first environmental review, companies mostlydraw up a screening material flow balance and do not gointo much detail [25]. On this basis, knowledge is gained onwhere to focus to achieve improvements in performance andinformation gathering. By improving the quality of the infor-mation available and the consistency of the information sys-tems, a regular monitoring system can be established. Thismonitoring system shows resource inputs and production andwaste outputs, on a monthly basis. As a next step, the materialsflows can be subdivided further according to processes andcost centers, and they can then also be subjected to monetaryevaluations [34e36].

Reclassifying accounting data after the initial entry is oftenimpossible and is always time consuming and costly. Hence,the secret of success in all areas of accounting, includingEMA, is to capture any information necessary for later analysisat the time when the data are entered. Modifying existing sys-tems can also be costly but, environmental considerations canoften be built in when the system is adjusted for other reasons.

Fig. 9 shows the generally applicable outline of the inputeoutput balance at the corporate level. Specific subcategorieswill be needed for different sectors. ISO 14031, the standardon environmental performance evaluation, is based on a similarapproach for the operational system [37] and several organiza-tions use this outline to publish their environmental perfor-mance in environmental reports.

The inputeoutput balance at the corporate level should beprepared on an annual or a monthly basis and should be linkedto the bookkeeping, cost accounting, storage and purchase sys-tem. As the first step in setting up the materials inputeoutputstatement at the corporate level, quantitative data are collectedfrom the accounting and stock-keeping systems. The account-ing system offers annual data on input into the company asa whole, as well as some of the output (if it is paid for). Theremainder of this section is based on the UN DSD EMA ap-proach [1] and the manual derived from the case studies [9].

6. Purchase value of materials purchased

Whatever has not left the company as a product is a sign ofinefficient production and must, by definition, be waste andemissions. Determining the material flows for, at least, rawand auxiliary materials are imperative for environmental costassessment. The material purchase costs of wasted materials isthe most important environmental cost category, accounting for40e70% of total environmental costs, depending on the valueof raw materials and the labor intensity of the sector [9,36]. Incompanies with stock management, not the value for materialspurchased, but the quantities consumed for production is used.

Cost savings are often feasible in the material costs category,but for this the materials flows have to be made transparent andtraceable. Saving costs by reducing employees can lead tonegative effects such as loss of know-how, inefficiency due totime pressure, loss of work morale.


INPUT in kg/kWh OUTPUT in kgRaw materials ProductAuxiliary materials Main Product

PackagingBy Products

Operating materials Waste

MerchandiseMunicipal waste

Energy Recycled wasteGas Hazardous wasteCoal Waste WaterFuel Oil AmountOther Fuels Heavy metals

District heat CODRenewables (Biomass, Wood) BODSolar, Wind, Water Air-EmissionsExternally produced electricity CO2Internally produced electricity COWater NOxMunicipal Water SO2Ground water DustSpring water FCKWs, NH4, VOCs

Rain/ Surface Water Ozone depleting substances

Fig. 9. General inputeoutput chart used for accounting purposes in EMA.

Before waste and emissions occur, the materials concernedhave been:

� Purchased (materials purchase value)� Transported, handled and stocked (costs for stock manage-

ment, handling and transport)� Processed in various production steps (equipment depreci-

ation, work time, auxiliary and operating materials, costsfor finance, etc.)� Collected as scrap, wastes, etc., sorted, transported, trea-

ted, transported, stocked, again transported and finally� Disposed of (disposal fees).

Corporations, therefore, pay three times for non-productoutput (NPO)

1. At the time of purchase of the materials;2. During production;3. During disposal.

The material balance sheet is based on the concept thatwhat goes into an organization must (at some point) comeout. The material balance sheet includes all the inputted mate-rials, as well as the resulting amounts of products and NPO.The purchased input is compared to the production volume,the sales statistics, as well as the records of waste andemissions. The goal is to improve the efficiency of materialuse, what leads to both economic and environmentalimprovements.

In the first step of developing the material flow balancesheet, only a rough overview analysis is performed, insteadof a detailed data collection. Fig. 9 shows the structure ofthe material balance sheet. First, the raw, auxiliary, and

operating materials are added in detail. Then the kg and Vof the previous year are added to the input side. Organizationswith already existing material balance sheets only require theyear’s purchase value, respectively, the material use of the in-put and the disposal costs. In cost category 3 of the UN DSDEMA approach in Fig. 4 for each material group the percent-age, which is not on the product, is estimated by the produc-tion and the environmental manager and cross-checked withdocumented scrap percentages. The non-product output per-centage is multiplied with the annual material input and showsthe purchase value of waste and emissions.

6.1. Raw materials

Non-product raw material output will mostly be disposed ofas solid waste. Only in those rare cases where the company’sproduct is gaseous (industrial gases, perfume), will it be foundin the air. More common is a liquid product (beer, milk) thatgoes down with wastewater.

For a first estimate, company internal calculation percen-tages for scrap can be used to estimate the non-product outputof raw materials. Eventually, with more detailed material flowbalances, scrap percentages may need adjustment. The reasonswhy raw materials do not become products are manifold andwell worth study. Within the environmental management sys-tem this information can be linked with goals, objectives, tar-gets, indicators, etc. to make real reductions in inefficiencies.EMA therefore provides the basic background data on an an-nual or monthly basis.

Product returns, obliteration, repackaging for other coun-tries or specified customer requests, quality control, produc-tion losses, spoilage, wastage, decay in storage, shrinkage,etc. are some of the causes of waste generation that call for


measures to increase production efficiency, which may beprofitable both from an economic and ecological point of view.

6.2. Auxiliary materials

These materials become part of the product, but are not itsmain components (e.g. glue in furniture or shoes. Often, theyare not monitored separately. Again, their non-product outputshould be estimated in a first assessment and may then bemonitored in more detailed cost accounting projects. The em-ployees at the related production lines often can provide verygood estimates, which are often not known to the environmen-tal and financial departments.

6.3. Packaging

Purchased packaging for products will mostly leave thecompany with the product, but again a certain percentage forinternal losses, e.g. due to repackaging for specific destina-tions, should be estimated.

6.4. Operating materials

Operating materials are by definition not contained in theproduct. Some materials are built into the office building,and stationery will have left the company via mail, but the ma-jor part of chemicals, solvents, detergents, paint, glue, etc.goes to non-product output. They can contain dangerous sub-stances that need to be managed separately. These materialsare usually not recorded in the warehouse management sys-tem, but are assigned to expenditure at the time of purchase.In most organizations, their consumption is not recorded incost centers so that is practically impossible to trace whohas used how much of them. In cost calculation, only esti-mates are used for the calculation of product prices, but hardlyever somebody checks if these estimates confirm to realconsumption.

Operating materials (including energy) for environmentallyrelevant equipment can sometimes be taken directly from indi-vidual cost center reports for this equipment (e.g. the waste-water treatment plant including all chemicals). Administrativeoperating materials are not regarded in the first assessment.All other operating materials (especially chemicals, mainte-nance materials, etc.) are assigned in NPO in the first estima-tion of the magnitude.

6.5. Merchandise

It is assumed that commodities do not undergo any moretechnical processes that might cause waste or emissions butare directly sold. They are, therefore, not regarded for the en-vironmental cost survey. For some organizations, whoever,their losses might need to be considered.

6.6. Water

Water consists of all the fresh water from public grids, wa-ter from private wells, and surface water. The purchase cost ofwater is attributed to this column. Ground, surface, and springwater are evaluated as costs of extraction.

For some sectors, especially in the food industry, somewater goes to the product, in which case only a percentageof water input should be quoted under purchase value ofnon-product output in Fig. 4, while the total amount of waterinput is quoted in the mass balance as in Fig. 9.

6.7. Energy

The environmentally relevant portion of equipment thatconverts energy (boiler plants, transformations, pressure re-duction plants for natural gas, air compressors, air condition-ing, etc.) depends on the portion of lost energy. Is energyinput ‘‘environmental’’ or ‘‘production cost’’? There is no sep-aration between production and environmental costs, but de-pending on the corporate decision, their information systemshould provide the essential data. This includes the total costsof materials purchased as well as the percentages of materialslost during production.

There are four approaches to evaluating the energy use [9]:

1. Evaluating energy as non-product output (NPO): Since en-ergy, in most cases, does not enter the product, but ratherescapes as heated water, air, and radiation, it is consideredto be 100% NPO. That way the value recorded relates tothe amount consumed in the inputeoutput balance of theenvironmental report, and the data collection can continuewithout technical estimation.

2. Evaluating energy losses: Since energy is required in mostprocesses of production, it may be reasonable to only re-gard the transformation and transportation losses (com-bustion losses, pipe losses, etc.). The efficiencies aresometimes known (e.g. with combustion) or have to be es-timated (e.g. propulsion, conduction, etc.). This approachis frequently taken by energy utilities which have gooddata on their energy conversion processes or by organiza-tions which have their own power stations. Evaluatingavoidable losses: Since energy losses are not completelyavoidable, the evaluation can regard the difference be-tween the current system and the state of the art systems.If there are systems that are newer and more efficient, thenthe difference is environmentally relevant. For example,one can compare the current fleet of cars to the mostfuel efficient vehicles available.

3. Evaluating the energy use of the environmentally relevantequipment: The energy use of environmentally relevantequipment (e.g. compressors, wastewater plants, afterburners, etc.) is, just as the other operating costs of suchequipment, 100% environmentally relevant.

Correspondingly, for simplification, most organizations evalu-ate energy use for the fleet of cars, heating, and lighting as


100% external procurement costs, while the production anduse of process energy was partly evaluated as with efficiencylosses, and partly in relation to the state of the art.

Production costs of non-product output: The above non-product output not only has material purchase value, but hasalso undergone processing in the company before leaving itagain. Thus, labor time lost due to inefficient production,and a share of depreciation for machinery as well as possibleother costs could be accounted for under this item. For wasteof raw materials and products in the various phases of produc-tion (usually solid or liquid) pro rata production costs are cal-culated as a percentage based premium on the materialpurchase value. Often, the value for returned materials ofpoor quality and the scrap costs are entered as appropriate es-timates, as more detailed data are not available.

7. Consistency check of information systems

In principle, EMA should be an integral part of MA and nota parallel system. When performing EMA it is not performinga separate environmental costing process but integrating andimproving existing cost accounting systems (especially withregard to material, energy, and flow cost accounting) and usingit for decision-making. In some pilot projects, emphasis hasbeen put on clearly defining internal procedures about whattype of information should be taken from which part of the ac-counting system and how it should be estimated or assessedand by whom. However, some EMA reports relate to specificapplications (e.g. investment appraisal) and thus cannot bedrawn automatically from the accounts. Also, the same datamay be considered relevant for environmental decisions aswell as for other applications (e.g. control of scrap figures).

So, in essence, the physical and monetary information sys-tem of an organization should be consistent and used for MAas well as for EMA. However, the data and reports taken fromthat system depend on the intended application.

The different materials listed in the annual inputeoutputbalance (Fig. 4) can be partially derived from the profit andloss accounts. This list is a complete record of all materialspurchased (in value terms). To the extent that a companyworks with material classification numbers, the amounts pur-chased can be derived relatively easily from the storage sys-tem. All material flows should be listed with their valuesand amounts per year. Already at the time of posting an in-voice to the accounts of the bookkeeping system not onlyshould the values be recorded, but also the amounts shouldbe recorded in kilograms or liters. There should also be a cleardefinition, which materials, posted on specific accounts, areregistered by material stock numbers and/or consumptionbased stock withdrawal according to cost centers.

Checking stock accounts and flow accounts for consistencyis crucial for the material balance. It should be possible at leastwith regard to raw and auxiliary materials and product packag-ing that in any given year the balance sheet can be derived invalue and weight/volume from the balance sheet of the previ-ous year plus the flow of accounts of that year.

Systems of increasing complexity can be used for storageadministration, depending on the size of the company andthe value of the product warehouse: examples ranked by com-plexity of the information system are [1]:

1. Material purchase value is recorded as expenditure directlyduring procurement; a further tracking of quantities used isnot possible. This system is common in small and medium-sized enterprises and with operating materials.

2. Material stock numbers are used to record material quan-tities as well, but this system does not record materials instock. The system enables determination of annual quanti-ties purchased, but not the place and time of consumptionin the company.

3. Materials are taken from the warehouse by means ofa stock issuing form. In this way product use can be deter-mined exactly by value and quantity.

4. The company uses internal order forms connected to theproduction planning system. Thereby, stock issuing canbe tracked by order.

5. Stock issuing is also assigned to cost centers.6. Waste and disposal costs and quantities are also recorded

through storage administration by way of internal records.7. Waste and disposal costs are additionally assigned to the

relevant costs centers.

The following output systems can be differentiated:

1. Only turnover is known, not actual production volume.2. Production statistics exist, maintained by means of the

outgoing stock.3. There is a production planning program that calculates es-

timated input and output based on the production planningsystem; it is checked against actual input and output byway of order forms.

4. Product and non-product output (scrap, losses, waste andemissions) can be tracked by cost centers.

Discrepancies between materials purchased and materialsconsumed (in the company) are important because, apartfrom the time lag, losses in interim storage can cause consider-able waste and costs that can be traced to a variety of causes.Losses are frequently caused by employees’ private use of ma-terials, in addition to material aging in the warehouse, becom-ing obsolete or unusable, or contaminated through carelesstreatment or otherwise destroyed.

In part, discrepancies between production output and saleshave similar causes. In addition, there are discrepancies due tousage within the company, returns, quality control, repackag-ing for different destinations or customer requirements, etc.

The discrepancy between materials consumed and produc-tion output reflect actual process-based waste and scrap. Thisreview is distorted if material purchase must be comparedagainst sales because of inadequate internal data systems. In-ventory losses should be addressed separately as each typeof loss requires different actions for improvement. The amountof sales (Turnover) needs to be considered only for the


calculation of its difference to production volume and for anassessment of the underlying causes.

Experience shows that many companies do not comparetheir data to actual consumption, but for years work with esti-mates of scarp and losses, that have little to do with reality.

Ideally, an inputeoutput comparison should comparematerials consumed in production against the actual produc-tion volume. Stock losses should be quoted separately. How-ever, this is only possible if a sophisticated productionplanning system is in place, in which auxiliary and operatingmaterials and waste as well as raw materials and packagingare considered.

It is essential that quantity units are defined or recalcu-lated into the mass unit (kg) in the material flow balance. Re-cording units of materials used (such as five boxes of paint)only makes sense if production planning has a computer pro-gram in place that correlates processed units to the resultingproducts. Actual monitoring and recalculation of estimatedconsumption ratios provides helpful saving potentials. Aweight balance in kilogram of materials consumed and pro-cessed and the resulting production output and non-productoutput including losses on stock is desired. It has provedhelpful to determine the relevant kilogram data at the sametime when a material stock number is assigned to a specificmaterial within the storage system. In this manner, all rele-vant data such as price, quantity, conversion factors and ma-terial numbers are recorded when the supplier invoice isrecorded.

The material flow balance can be checked for consistencyby comparing it, to the extent possible, to material supplyfrom stock-keeping, sales information and production lists.For auxiliary and raw materials, packaging materials and finalproducts, this can be done by adjusting the existent computersoftware; once this is accomplished, relatively little work isinvolved.

The procedure becomes more complicated, however, whenthe majority of operational materials affecting the environ-ment, like chemicals, paints and lacquers, cleaning materials,workshop needs, etc. that affect emissions and proper disposal,cannot be extracted through the material numbers. In thiscase, the amounts used cannot be documented unless a propertacking system is in operation within the company. In manyenterprises there are a large number of such materials withoutmaterial numbers that vanish in stock and in overhead andwhose values and volumes cannot be traced. Improvementsto the materials management and stock-keeping system aretypically the core outcome of an EMA assessment.

Distributing direct costs and general overhead: Manycompanies include only raw materials and some packagingmaterials in direct costs, but not auxiliary and operationalmaterials, other packaging materials and the cost of disposal.Therefore, checking for consistency provides significant po-tential for account arrangement and classification criteria opti-mization between material numbers and the classification ofaccounts and costs.

In the interest of efficient use of information (and to elim-inate the need to go back to original invoices for information,

as some companies have to do) the departments involvedshould agree on a record organization system. Purchasingand material management will thus, become more importantin developing an inventory system for materials used for pro-duction and corresponding record-keeping obligations.

Existing production planning systems can deal with thou-sands of materials. Amounts are recorded as soon as materialsare ordered or stored, and again when they are taken out ofstorage and moved into the production process.

The company’s production planning system should bechecked on a regular basis for consistency between actualdata on materials purchased and production output. A proce-dure used in one of the Austrian case studies is shown inFig. 10. It is often the case that scrap percentages, whichhave been rough estimates, need to be adjusted. Automatedcutting and dosage plants frequently have much better amorti-zation times than expected since material losses and existingoperating costs were often higher than estimated.

In the first year of material flow analysis, it is sufficient totrace and account for about 70% of all materials (mainly rawmaterials and packaging, and if possible auxiliary materialsalso) in the material flow balance. Likely immediate resultsare:

� Adjustment of the percentages used to calculate scrap re-sulting from raw materials and products;� Improved monitoring of materials and products in stock;� Installation of computer-aided design and cutting

machinery;� Automated dosage equipment for operating materials;� A marked improvement and consistency of the informa-

tion systems and of the records based on them.

All this should significantly increase profit. In the followingyears, consistency can be improved to include all materialsand other inputs as well as office material monitoring withinthe material storage system and internal ordering instructions.Caution needs to be taken as such changes interfere with indi-viduals’ spheres of influence. This may provoke resistance toa system that prohibits departments from placing external or-ders but directs all orders to the central corporate warehouse.The production planning system is sometimes used for stan-dard production units only, not for custom-designed products.Eventually, these should also be integrated into the materialmonitoring system. Sometimes waste is not monitored ona regular basis. Once company leaders realize the monetaryvalue of waste and the resulting saving potential, they will in-stall waste monitoring systems not only for the whole company,but at cost centers, so that amounts and costs of waste can beattributed to the polluting production lines and goals andtargets for reduction can be established, monitored andactualized.

There can be significant time lags between material pur-chasing, material use in production, the finished product beingput in stock and final delivery to and invoicing of the customer.As production patterns change, emissions may occur muchlater than materials inputs or product outputs. These time


INPUT OUTPUT

Fiscal Year

Material Input from StockInventory Product Sales Statistics

Materials Outside Stock Control(Unrecorded Material Positions)

Material Usage Input ListMaterial Usage SAP Positions

Conversion Factors

Material Input

Material Description(Recipe of Products)

Uncorrected Material Output

Correction

Products without MaterialDescription

Material Netto Output

Corrected Rejects Percentages

Changes in Stock Inventory

Material Gross Output

CauseAnalysis

Correction

OK

Time Lags

New Calculation of RejectPercentages

Detailed Measuring ofSpecific Items

Comparison,Consistency

Check

Fiscal Year

Fig. 10. Consistency check of material input and output.

distortions can be limited once the material flow balance re-lates material input to production (consumption and not pur-chase) to relating product output of production (and notproduct turnover).

Changes in stock as well as in material input and productoutput can be significant. There are major losses of materialsand products in stock, which should be accounted for by sep-arately adding them to the material flow balance. Companieswield a very powerful controlling tool by constantly refiningthe material flow balance at the corporate level, which shouldbe done on a monthly basis together with the financial ac-counting data.

8. Other environmental costs

After the environmentally relevant equipment including op-erating costs and the NPO of the material input are recorded, thefinal step is quickly concluded. The team checks if any of thefollowing cost categories has caused expenditures in the lastbusiness year [9]. The data can be found in the list of accounts.

8.1. Taxes, fees, charges

Disposal fees, wastewater fees, packaging-license charge,energy tax and other Eco-taxes are to be recorded and cross-checked with the records of the waste managementdepartment.

8.2. Fines and penalties

Existing fines for surpassing pollution restrictions are to berecorded.

8.3. Insurance for environmental liability,damage and risks

In certain cases, e.g. when transporting hazardousmaterials, the environmental portion can be estimated andrecorded.


8.4. Clean-up costs, remediation, etc.

In some sectors provisions for clean-up are required, espe-cially in the oil industry, for gas stations, power plants, etc.

8.5. External services for environmental management

Outside help is usually required for developing an environ-mental management system. These costs, plus costs for envi-ronmentally relevant inspections and audits, and the costsfor environmental reports and other dissemination materialsare to be recorded.

8.6. Internal personnel for general environmentalmanagement activities

The portion of labor hours for environmentally relevantequipment of Types (1) and (3) should be assigned to category1.3. In category 2.2 the additional time for the internal person-nel for general environmental management activities, not di-rectly related to emission treatment or the production ofnon-product output should be recorded. Work hours for train-ing programs including travel expenses, environmental man-agement activities and projects, audits, compliance andcommunication should be estimated and evaluated with the re-spective work hour costs including social security and taxes.

8.7. Research and development

Any environmentally relevant research projects should berecorded.

8.8. Other environmental management costs

In case the business is active in environmental sponsoring,this and any other non-assigned costs should be recorded. It isrecommended that the environmental team does some brain-storming on the activities of the previous year, and that allprojects of the environmental program are included.

Environmental revenues: Revenues from selling recyclingmaterials or excess capacity of the wastewater treatment plantand from subsidies and awards are recorded here.

9. Discussion and recommendations

Several pilot projects [9,16,17] have shown that the UNDSD method can feasibly be conducted in 1e2 days. The proj-ects result in suggestions for the improvement of the account-ing system, and for the reduction of the materials and energylosses. All organizations want to continue with the assessment,which is especially aided by the excel tool, where all the de-tails are maintained.

The pilot projects revealed that some aspects of the theoryof cost accounting and investment appraisal are not calculablein the enterprises, since the internal systems do not provide thenecessary degree of detail and complexity. There is evidencethat, in general, the cost accounting systems of companies are

very weak with regard to environmental or materials flow issues.A monetarily comprehensible investment appraisal was presentin only a tiny fraction of the participating firms. In that case, itdealt with large-scale projects such as power stations or paper-making machines, but was not installed on a regular basis. Alsothe professionalism of the cost accounting system rarely corre-sponded to the theoretically required profiles.

Another issue is awareness about the amount of the envi-ronmental costs. Apart from the distribution of the environ-mental costs their absolute amount is of great importance.This project showed that the environmentally relevant costsin most enterprises are underestimated multiple times [9].

At the beginning of the project, the participating companypersonnel only knew the costs of the waste disposal, the energyconsumption, the Austrian tax for packaging, and the totalamount of the cost center wastewater treatment (if on-sitewastewater treatment was required for that sector). Enterprisesthat control several locations could only indicate the costs ona corporate level. However, the costs of waste disposal werenot always consistently gathered and evaluated. Costs of thein-plant waste handling were seldom taken into account; thefact that waste also contained a material purchase value wastheoretically accepted, but had never been calculated. Energyconsumption was only recorded in the profit and loss accountand levied to the other cost centers not by actual consumption,but by outdated general estimates. Only equipment for energyproduction (if available) was recorded within a separate costcenter. Depending on the technology applied (End-of-Pipe orintegrated cleaner technology), the plants for wastewater puri-fication were singled out as separate cost centers or were in-cluded in the production cost centers. Repeatedly, it wasdifficult to impossible to estimate the environmental portionof integrated cleaner technologies, since they are mainly pur-chased for production purposes and conform to state of the arttechnological requirements. Environmental costs such aswaste handling, maintenance, energy, are sometimes summedup in the cost center ‘building’, and can only be separatedfrom the detailed cost center report by hand.

In practically all enterprises the environmental departmentsand the technical departments carry out additional recordingsbesides the financial accounting and cost calculation records,in order to record data on amounts as well as costs. The con-trollers, in particular if they have a technical background, fre-quently work with this information, instead of the accountingrecords, but the inconsistencies to the accounting figures werevery significant.

Only a few project participants could submit a comprehen-sive cost statement on request for the transmittal of the envi-ronmental costs of the previous year. They frequently simplysubmitted print outs of separate accounts or cost centerreports.

After the method used in the project in the first workshophad been presented, the participants were asked to estimatethe environmental costs that would show up at the end ofthe day of the workshop. Their responses revealed that the en-vironmental managers and technical managers had insufficientinformation about the orders of magnitude of the operational


costs. The accountants had a more accurate estimate, however,even their figures, on average, and were far from the actual re-sults that were documented by the end of the day. In summary,the environmental costs were found to be 7e40 times abovethe values ‘estimated’ by the company participants at the be-ginning of the project and 3e14 times over the values estimatedby the enterprises in the workshop.

Thus, it became obvious that increased awareness for themagnitude of the environmental costs and above all the materi-als purchase value contained in waste must be established andwith that awareness, specific measures for increase of materialsand energy efficiency must be made. It is important that environ-mental protection is not only regarded as a nuisance by enter-prises, but that the often significant savings potential, whichalso means an improvement of the environmental performanceis clarified and specific actions taken to reduce such wastesare planned, taken and the results monitored and documented.

The suggestions during the pilot projects raised the follow-ing general recommendations for improvement of the data col-lection of the environmental and materials flow costs:

� Develop a clear and written definition of corporate-wideand site specific environmental costs as well as their distri-bution to cost centers and accountants. Quantification oflosses and inefficiencies in materials and energy shouldbe attributed to the specific cost centers, so that waste reduc-tion plans can be developed with specific goals and targets,timetables, indicators and designations of people responsi-ble for planning, implementing and reporting done soaccountability is ensured. It is recommended that corpora-tions develop written procedures in which cost categoriesare distributed to site, subsidiary and corporation level. Itis also necessary to define up to which level an allocationof the costs is meaningful (subsidiary, business field, andsite). The costs of certifying the environmental manage-ment system and for environmental communication, aswell as the personnel expenses of the environmental teamare frequently not clearly and uniformly recorded.� Post-material purchase by material groups to separate fi-

nancial accounts and adjust them for differences comeacross during annual stock inventory. In many enterprisesthe entire material purchase is booked on one account onlyand it is only possible to evaluate by hand the extensivecost center accounts or stocktaking lists to expose the ac-tual material use into the material groups. As an aid, therecordings of the production manager were multiplied tothe assigned quantities with average prices, in order to atleast be able to indicate orders of magnitude. The factthat such a system cannot strengthen cost consciousnessin handling raw, auxiliary and operating materials isobvious.� For the first assessment use estimates of scarp percentages

for the different materials inputs, if not accurate data isavailable, but recalculation the material scrap percentageson an annual basis at least for the raw materials. The losspercentages for raw materials, packing material, auxiliarymaterials and the final product are often based on outdated

estimated values and only are recalculated for a few mate-rial groups. The employees on-site usually have more pre-cise estimated values than the accountants. A correctrecalculation mostly raises frightening results.� Secure the consistency of system boundaries for material

flow accounting in technical and accounting informationsystems and define which accounts, cost centers and costcategories must be consistent by amount and value. The in-puteoutput material balance disclosed in the environmentalstatement was seldom consistent with the system bound-aries of the accounts and cost center reports. As a conse-quence, the data cannot be audited for consistency. Forrecording of the costs and amounts of waste alone, threedifferent values and records were found on one site. (First,record of the environmental manager without the costs forweighting, transport and rent of disposal cans, second, thefinancial account with some wrong postings and third, theaccounts of the several suppliers containing additionalservices.)� Treat the losses revealed by stock inventory as important

information for materials flow management and postthem correctly to the different materials accounts. The los-ses revealed by stock taking can also be taken as estimatefor the processing costs of non-product output. However,the related material purchases have to be deducted forthe cost category ‘‘material inputs’’, because costs forraw and auxiliary materials and packaging are includedin the processing costs.� Include the projects listed in the environmental program,

the environmental statement and in public journals in thegeneral investment decision plan and secure traceable ac-count posting. Environmental projects could seldom betraced in the budget foresight and in the cost center re-ports, but disappear in the general overhead accounts. Atleast those projects, which result from the environmentalprogram and are disclosed in the environmental statementshould be marked and traceable in the cost center reportsand recorded as environmental costs.� Consider setting up a separate cost center or category for

‘‘environmental management’’, which conforms to the re-sponsibility of the environmental manager. In some organ-izations, the most consistent solution is to install a separatecost category or cost center for environmental manage-ment, with a clear definition, which costs are to be attrib-uted to this account. However, some companies try toreduce the number of cost centers. If the people involvedare spread over several other cost centers and only partof their time work for environmental issues, then this solu-tion is not adequate.� Estimate the depreciation of projects/investments before

the first year of annual cost assessment. During the firstcost assessment, the question is often posed how to dealwith missing values of the previous years. If these canbe estimated or assessed easily, it should be done. But,the main goal of the first assessment is to improve thedata basis for the next years and not detailed and cumber-some assessment of previous values.


� Define a practical distinction to health and safety and riskmanagement. Again, designing a system appropriate to thecompany involved is the most important target. Somecompanies have added a column for safety and risk pre-vention in the assessment scheme as outlined in Fig. 2and displayed in detail in the brewery example in the an-nex, as this duty is also part of the job description of theenvironmental manager. Health is mostly the duty of otherdepartments.� Consider an appropriate company internal definition for

this type of cost assessment. It should be noted, that allthese costs are not strictly ‘‘environmental’’, but closelyrelated to material flows within an organization, whichhave environmental impact as well as economic impact.In some cases, it is better to refer to costs for pollutiontreatment and prevention as well as material purchaseand production costs for waste and emissions (the valueof non-product output, which indicates the saving poten-tial). Also EMA is not a separate information system toMA, but simply doing better MA with a focus on materialflows and consistency of information systems.

More details on the method, case studies and the excel toolare available for download at http://www.ioew.at. Further in-formation on projects, initiatives and background papersworldwide can be found at http://www.emawebsite.org.

References

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how to perform an environmental management cost assessment in one day

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