Identifying and Accounting for Environmental Costs

Abstract

Protection of the environment has been and will continue to be a major issue facing the pipeline business around the world. Many of the decisions companies make relating to future investments and ongoing operations have environmental implications. These decisions can have significant cost implications that impact the bottom line of oil and gas transportation companies. Most companies do not track their environmental costs rigorously and thus, do not have a good understanding of the magnitude of these costs. Recently, we have undertaken studies to define and identify the major environmental cost drivers in the industry. As part of these studies, we identified some potential measures of environmental performance and actually measured certain aspects of environmental performance in pipeline companies. This paper will provide insights into the major environmental cost drivers in the industry and will define these cost drivers. It will provide some ideas on “what to measure” relating to environmental costs. Implementing an environmental cost management system is not a trivial task. It is difficult to assess how much of the cost associated with a certain investment is related to the environment. This can only be determined on a project by project basis and will also be unique from company to company. Although there is no “cookbook” approach to implementing this system, this paper will provide some guidance for implementing such a system.