The EPS Enviro-Accounting Method

Prepared by:

Bengt Steen -

Swedish Environmental Research Institute

Sven-Olof Ryding -

Swedish Federation of Industries

Prepared for:

Swedish Waste Research Council (AFR)

Application:

Financial analysis:	---
Environmental impact analysis:
Waste management/P2:	---
Environmental cost listing/database:	---
Cost estimation:	---
Alternative product/process comparison:

A method of valuing various types of environmental impacts from emissions and use of resources. This can be used to help determine less-tangible costs in projects and operations.

Publication/development date and updates:

December 15, 1992 (Version 2)

Public availability:

Report available

Purpose and current use:

The methodology was developed to provide industry with a tool to develop products in a sustainable manner by allowing them to calculate the ecological consequences of alternative products and processes. It can also be used by policy-makers to put costs on environmental impacts. Information on current use is not available.

Cost information:

Information not available

Contents and system requirements:

Not software-based

Summary of methodology

The approach used is to describe impacts on the environment in terms of one or several safeguard subjects and value changes in them according to the willingness to pay to restore them to their normal status. The five safeguard subjects are

• human health,
  
• biodiversity,
  
• production,
  
• resources, and
  
• aesthetic values.
  

Activities are then valued according to their estimated contribution to the changes in the five safeguard subjects. The EPS Enviro-Accounting method

• sets a value to a change in the environment, and
  
• estimates the contribution that resource depletion, emissions, or other activities will have on the environment.
  

Life-cycle stages covered

Raw material acquisition
Manufacturing stage
Use/reuse/maintenance
Recycle/waste management

Background information is derived from LCA-based inventories of the materials and processes under review. However, the methodology itself does not categorize impacts as they occur in various life-cycle stages of a process or product. Much of the EPS Enviro-Accounting method is applicable to life-cycle cost integration and to the development of the E-CYCLE.

Type of costs considered

Conventional	---
Potentially hidden	---
Contingent	---
External

The methodology can be used for valuing external intangible costs. Costs of environmental impacts on the five safeguard subjects listed previously are evaluated. The report includes estimated indices for a wide range of environmental impacts. The system is not meant to include internal company costs; it is designed to value external environmental impacts.

Method of cost estimation

WTP to avoid environmental effects is used to estimate costs. Impacts are valued on a relative scale using environmental load units (ELU) according to the WTP for avoiding negative effects on the safeguard subjects. Using life-cycle data, users can calculate environmental indices for the materials and processes being studied. Users can also include qualitative information for describing how the indices were estimated. The values are not absolute figures but rather points of reference for further analysis and refinement.

The output from the EPS system is a value, based on a common metric, for different environmental impacts. The value may be broken down into its individual components for further analysis and users can determine the level of detail desired. The authors address several criticisms of using monetary values to assess environmental impacts. These include the following:

• the large gap between rich and poor in terms of disposable resources for environmental care,
  
• needs of today often outweigh the needs for tomorrow,
  
• insufficient knowledge to value environmental impacts because the full consequences of impacts are not fully understood, and
  
• monetary valuation focuses on the needs of humans.
  

Environmental impact valuation is described as a subjective matter that can be given some degree of objectivity by studying decisions made in society or by surveying people's opinions. Contingent valuation is cited as a method for generating a relative rating of various environmental effects. Contingent valuation is used here to determine individuals' WTP to avoid certain environmental effects.

Generation of financial indicators

Net present value (NPV)	---
Payback period	---
Internal rate of return (IRR)	---
Benefits cost ratio	---
Other	---

Attributes

Some positive characteristics of the tool are as follows.

• The indices and databases can be easily supplemented and updated as knowledge of environmental issues increases and changes.
  
• Sensitivity and error analyses can be performed.
  
• The outcomes can be grouped in various levels of aggregation to facilitate comparisons, as per user requirements.
  

The EPS system goes a step beyond the complex flows in a life-cycle analysis to provide users with easy to understand and manageable information.

Limitations

The method itself does not evaluate various alternatives, rather it supports decision-making by providing users with information that they can further use in analysis or further refine to suit their requirements. It is aimed to be used to value current and foreseeable impacts within legal limits (not sudden spillsor accidents). The choice of unit effects also has certain limitations, such as the ability for the effects to be quantitatively valued. Additionally, the authors acknowledge the difficulty in assessing the actual value of an ecosystemin its entirety. The EPS method does not generate financial indicators such as NPVs, because it assesses environmental impacts alone-not costs and benefits.

Basis for evaluation:

"The EPS Enviro-Accounting Method. An application of environmental accounting principles for evaluation and valuation of environmental impact inproduct design." Bengt Steen, Sven-Olof Ryding. Swedish Environmental Research Institute (IVL).

Contact information:

AFR-REPORT nr 11. ISSN 1102-6944. ISRN AFR-R-11-SE

Swedish Environmental Research Institute (IVL)

P.O Box 47086

Gagjèmningsgaten 1

S-402 58, GÜteborg

Sweden

Bengt Steen

+46-031-46 00 80

+46-031-48 21 80 (FAX)

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