Environmental full-cost accounting

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Environmental full-cost accounting (EFCA) is a method of

costs and benefits or advantages – in short, about the "triple bottom line" – for each proposed alternative. It is one aspect of true cost accounting (TCA), along with Human capital and Social capital. As definitions for "true" and "full" are inherently subjective, experts consider both terms problematic.[n 1]

Since costs and advantages are usually considered in terms of

eco-labels, and the International Council for Local Environmental Initiatives' approach to triple bottom line using the ecoBudget metric. The International Organization for Standardization (ISO) has several accredited standards useful in FCA or TCA including for greenhouse gases, the ISO 26000 series for corporate social responsibility coming in 2010, and the ISO 19011 standard for audits
including all these.

Because of this evolution of terminology in the

GAAP
to deal with waste output or resource input.

These have the advantage of avoiding the more contentious questions of social cost.

Concepts

Full-cost accounting embodies several key concepts that distinguish it from standard accounting techniques. The following list highlights the basic tenets of FCA.

Accounting for:

  1. Costs rather than outlays (see explanation below);
  2. Hidden costs and externalities;
  3. Overhead and indirect costs;
  4. Past and future outlays;
  5. Costs according to lifecycle of the product.

Costs rather than outlays

Expenditure of cash to acquire or use a resource. A cost is the cash value of the resource as it is used. For example, an outlay is made when a vehicle is purchased, but the cost of the vehicle is incurred over its active life (e.g., ten years). The cost of the vehicle must be allocated over a period of time because every year of its use contributes to the depreciation of the vehicle's value.

Hidden costs

The value of goods and services is reflected as a cost even if no cash outlay is involved. One community might receive a grant from a state, for example, to purchase equipment. This equipment has value, even though the community did not pay for it in cash. The equipment, therefore, should be valued in an FCA analysis.

Government subsidies in the

mechanized agriculture
.

Overhead and indirect costs

FCA accounts for all overhead and indirect costs, including those that are shared with other public agencies. Overhead and indirect costs might include

Life cycle assessment), some of which even do not show up in the firm's bottom line. [2]
It also contains fixed overhead, fixed administration expense etc.

Past and future outlays

Past and future cash outlays often do not appear on annual budgets under cash accounting systems. Past (or upfront) costs are initial investments necessary to implement services such as the acquisition of vehicles, equipment, or facilities. Future (or back-end) outlays are costs incurred to complete operations such as facility closure and postclosure care, equipment retirement, and post-employment health and retirement benefits.

Examples

Car life cycle

Waste management

The State of Florida uses the term full-cost accounting for its solid waste management. In this instance, FCA is a systematic approach for identifying, summing, and reporting the actual costs of

solid waste management. It takes into account past and future outlays, overhead (oversight and support services) costs, and operating costs.[3][4]

Integrated solid waste management systems consist of a variety of

composting, waste-to-energy, and landfill
disposal. The cost of some activities is shared between paths. Understanding the costs of MSW activities is often necessary for compiling the costs of the entire solid waste system, and helps municipalities evaluate whether to provide a service itself or contract out for it. However, in considering changes that affect how much MSW ends up being recycled, composted, converted to energy, or landfilled, the analyst should focus the costs of the different paths. Understanding the full costs of each MSW path is an essential first step in discussing whether to shift the flows of MSW one way another.

Benefits

Identify the costs of MSW management
When municipalities handle MSW services through general tax funds, the costs of MSW management can get lost among other expenditures. With FCA, managers can have more control over MSW costs because they know what the costs are.
See through the peaks and valleys in MSW cash expenditures
Using techniques such as depreciation and amortization, FCA produces a more accurate picture of the costs of MSW programs, without the distortions that can result from focusing solely on a given year's cash expenditures.
Explain MSW costs to citizens more clearly
FCA helps you collect and compile the information needed to explain to citizens what solid waste management actually costs. Although some people might think that solid waste management is free (because they are not billed specifically for MSW services), others might overestimate its cost. FCA can result in "bottom line" numbers that speak directly to residents. In addition, public officials can use FCA results to respond to specific public concerns.
Adopt a business-like approach to MSW management
By focusing attention on costs, FCA fosters a more businesslike approach to MSW management. Consumers of goods and services increasingly expect value, which means an appropriate balance between quality and cost of service. FCA can help identify opportunities for streamlining services, eliminating inefficiencies, and facilitating
cost-saving
efforts through informed planning and decision-making.
Develop a stronger position in negotiating with vendors
When considering privatization of MSW services, solid waste managers can use FCA to learn what it costs (or would cost) to do the work. As a result, FCA better positions public agencies for negotiations and decision-making. FCA also can help communities with publicly run operations determine whether their costs are competitive with the private sector.
Evaluate the appropriate mix of MSW services
FCA gives managers the ability to evaluate the cost of each element of their solid waste system, such as recycling, composting, waste-to-energy, and landfilling. FCA can help managers avoid common mistakes in thinking about solid waste management, notably the error of treating avoided costs as revenues.
Fine-tune MSW programs
As more communities use FCA and report the results, managers might be able to "benchmark" their operations to similar communities or norms. This comparison can suggest options for "re-engineering" current operations. Furthermore, when cities, counties, and towns know what it costs to manage MSW independently, they can better identify any savings that might come from working together.

Food and Agriculture

Over the last ten years there has been considerable attention for Full Cost Accounting (FCA) or True Cost Accounting (TCA) in the field of food and agriculture. In 2013 and 2016, the Sustainable Food Trust organised two conferences on True Cost Accounting in food and farming, in the UK and the USA respectively.

FAO published two studies in 2014 and 2015 with a TCA-analysis of the impact of food wastage ("Food wastage footprint: full cost accounting" [6]) and another TCA-analysis of the total impact of world food production on Natural Capital ("Natural Capital Impacts in Agriculture" [7]
). In the first report, the FAO comes to the conclusion that the yearly hidden impact of food wastage on Natural Capital amounts to USD 700 billion while the hidden impact on social capital amounts to USD 900 billion dollars. In the second report, the FAO estimates the environmental damage of the world food production at USD 2330 billion per year.

Motives for adoption

Various motives for adoption of FCA/TCA have been identified. The most significant of which tend to involve anticipating market or regulatory problems associated with ignoring the

GDP. The public sector
has tended to move more towards longer term measures to avoid accusations of political favoritism towards specific solutions that seem to make financial or economic sense in the short term, but not longer term.

Corporate decision makers sometimes call on FCA/TCA measures to decide whether to initiate

Ecological Footprint
and focus the company more clearly on a sustainable marketing strategy.

The urban ecology and industrial ecology approaches inherently advocate FCA — treating the built environment as a sort of ecosystem to minimize its own wastes.

See also

Notes

  1. Green economics
    .

References

  1. ^ Schaltegger, S. & Burritt, R. (2000), Contemporary Environmental Accounting: Issues, Concepts and Practice, Sheffield: Greenleaf Publishing, p. 111.
  2. ^ Schaltegger, S. & Burritt, R. (2000): Contemporary Environmental Accounting. Issues, Concepts and Practice. Sheffield: Greenleaf Publ., p.112
  3. ^ Solid Waste Full Cost Accounting, www.dep.state.fl.us, Department of Environmental Protection, Florida, Accessed 24.11.06
  4. ^ Full Cost Accounting on Municipal Solid Waste Management at US-EPA, www.epa.gov, US Environmental Protection Agency, Accessed 24.11.06
  5. ^ True Cost Accounting, sustainablefoodtrust.org, Sustainable Food Trust, Accessed 20.06.20.
  6. ^ Food wastage footprint, www.fao.org, FAO, Accessed 12.06.20.
  7. ^ Natural Capital Impacts in Agriculture, www.fao.org, FAO, Accessed 20.06.20.
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