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Assessing Costs For Environmental Decision Making: © 2004 Thomson Learning/South-Western

Identifying and Valuing Environmental Costs: Conceptual Issues Explicit Environmental Costs - administrative, monitoring, and enforcement expenses paid by the public sector plus compliance costs incurred by all sectors fixed costs - not controllable in short run and not dependent on production levels Variable costs - opposite characteristics to fixed costs Implicit costs - the value of any nonmonetary effects that negatively influence society's wellbeing Social costs - expenditures needed to compensate society for resources used so that its utility level is maintained.

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Arina Farihan Azhar
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73 views

Assessing Costs For Environmental Decision Making: © 2004 Thomson Learning/South-Western

Identifying and Valuing Environmental Costs: Conceptual Issues Explicit Environmental Costs - administrative, monitoring, and enforcement expenses paid by the public sector plus compliance costs incurred by all sectors fixed costs - not controllable in short run and not dependent on production levels Variable costs - opposite characteristics to fixed costs Implicit costs - the value of any nonmonetary effects that negatively influence society's wellbeing Social costs - expenditures needed to compensate society for resources used so that its utility level is maintained.

Uploaded by

Arina Farihan Azhar
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Chapter 8

Assessing Costs for Environmental Decision Making

2004 Thomson Learning/South-Western

Identifying and Valuing Environmental Costs: Conceptual Issues

Defining Incremental Costs

Incremental costs the change in costs arising from an environmental policy initiative.

Identifying and Valuing Environmental Costs: Conceptual Issues

Explicit Environmental Costs

Explicit costs administrative, monitoring, and enforcement expenses paid by the public sector plus compliance costs incurred by all sectors Fixed costs not controllable in short run and not dependent on production levels Variable costs opposite characteristics to fixed costs

Identifying and Valuing Environmental Costs: Conceptual Issues


Capital costs Fixed expenditures for plant, equipment, construction in progress, and production process changes associated with abatement Operating costs Variable expenditures incurred in the operation and maintenance of abatement processes

Identifying and Valuing Environmental Costs: Conceptual Issues

Implicit Environmental Costs

Implicit costs - the value of any nonmonetary effects that negatively influence societys wellbeing Social costs expenditures needed to compensate society for resources used so that its utility level is maintained

Conceptually Valuing Environmental Costs

Identifying and Valuing Environmental Costs: Conceptual Issues


Figure 8.1 Marginal Social Cost (MSC) and Total Social Costs
(TSC) of Air Quality (% SO2 Abatement)

Identifying and Valuing Environmental Costs: Conceptual Issues


Figure 8.2 Modeling Incremental Costs for Air Quality (% SO2
Abatement) Using the MSC Function

Identifying and Valuing Environmental Costs: Conceptual Issues


Figure 8.3 Modeling Incremental Costs for Air Quality (% SO2
Abatement) Using the TSC Function

Estimation Methods for Measuring Explicit Costs

Engineering Approach estimates abatement expenditures based on least-cost available technology

Difficult to implement for proposed environmental controls Assumes all firms are cost-effective or technically efficient

Estimation Methods for Measuring Explicit Costs


Survey

Approach polls a sample of firms and public facilities to obtain estimated abatement expenditures

Advantages More direct means to obtain abatement cost data Disadvantages Implicitly assumes polluting sources provide reasonable estimates, Inherent bias polluting sources have incentive to offer inflated values seeking regulation rejection
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Cost Classifications in Practice

Cost classifications by economic sector


Private business outlays Government Personal private sector

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Cost Classifications in Practice


Cost

Classifications by Environmental Media


Distribution of expenditures air, water, solid waste

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