Green Engineering Principles and Applications in Chemical and Process Industries

CHAPTER 6. ENVIRONEMTA L AND TOTAL COST ANALYSIS

The economic evaluation of engineering projects typically involves estimation of equipment,

installation, raw material, energy and maintenance costs. Environmental costs (e.g. disposal and
pollution control costs) are often factored into these calculations in determining economic rates
of return, but other regulatory and social costs are not. In the green engineering project
evaluation, the hidden costs, future liability costs, less tangible costs, as well as external costs
associated with waste generation need to be considered in order to assess the potential economic
benefits of green engineering projects.

1. Environmental costs and total costs s

Direct costs of pollution abatement have been increasing steadily, accounting for about 2% of
total net sales. The total pollution control capital expenditure is up to 25% in the petroleum
refining industry and 14% in the chemical manufacturing industry. Therefore, minimizing costs
by preventing wastes and emissions is a strategic approach.
Differing from the conventional economic evaluation, which only considers the capital costs
for process equipment and operating costs including material costs and labor costs, a total cost
analysis evaluates both capital costs and operating costs, as well as environmental costs such as
hidden costs, liability costs and less tangible costs.

a. Hidden costs
Hidden costs are costs associated with monitoring, paperwork for reporting, and permit
requirements. They are generally charged to overhead accounts, and are thus regarded as
“hidden” costs.
When toxic waste is generated in a facility, waste taxes and fees, as well as costs of
monitoring and analysis of the waste, have to be considered in evaluating a pollution prevention
option, which can eliminate or reduce the waste stream.
The level of reporting required by government agencies depends on whether the facility is a
large- or small-quantity generator, whether the facility transports waste and whether the facility
is considered to be a treatment, storage, and disposal site. Costs associated with reporting might
include notification, reporting, recordkeeping, manifesting, labeling, monitoring/testing,
planning/studies/modeling, training, inspections, preparedness/protective equipment,
closure/post-closure assurance, and or insurance and special taxes. Tables 1 to 5 provide
estimates of costs associated with notification, reporting, recordkeeping, manifesting and
labeling for the US Resource Conservation and Recovery Act (RCRA). The actual costs depend
on the frequency of reporting, the number of waste streams to be reported, and the number of
government agencies requiring reporting.

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Table 1. Method for estimating RCRA notification costs

Table 2. Method for estimating RCRA reporting costs

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Table 3. Method for estimating RCRA recordkeeping costs

Table 4. Method for estimating RCRA manifesting costs

Table 5. Method for estimating RCRA labeling costs

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Example 1. A small company uses a hazardous solvent A for their cleaning operations, which
ends up as waste and has to be transported to a treatment, storage and disposal facility for proper
disposal on a biweekly basis. It is proposed to replace solvent A with a non-hazardous solvent
B. The cost for solvent B is estimated to be $1000 higher than solvent A annually. Estimate the
economical advantage of the proposed material substitution option.
The following assumptions are made:
 For a small quantity generator, the company decides to hire outside consultants to perform
reporting, recordkeeping and manifesting tasks, paying a consulting hourly rate of $100/hr.
 Employees, on the other hand, will do the job of labeling the compound, with an internal cost
of $30/hr.
 The recordkeeping will be bimonthly at 6 times per year, and the transport of compound A to
a treatment, storage and disposal facility takes place biweekly, so labeling and manifesting
expenses occur 26 times per year.
 Manifesting is routine and takes no more than 15 minutes for each occurrence.
Solution. Since solvent A is a hazardous material, proper reporting and disposal is required.
From Tables 1 to 5, following numbers are taken,
Task Hourly rate Frequency Non-labor cost Time Annual cost
Reporting $100/hr 0.5/year $5 8 hr $400
Recordkeeping $100/hr 6/year $1 0.25 hr $200
Manifesting $100/hr 26/year $0.5 0.25 hr $700
Labeling $30/hr 26/year $20 0.75 hr $1000
Annual reporting cost = 0.5*(5+8*100) = 400
Annual recordkeeping cost = 6*(1+0.25*100)=200
Annual manifesting cost = 26*(0.5+0.25*100)=700
Annual labeling cost = 26*(20+0.75*30)=1000
Total hidden cost for using compound A = 400+200+700+1000=$2300
Cost advantage for using solvent B = $2300-$1000 = $1300

Example 2. A chemical manufacturing facility buys raw material for $0.50 per pound and
produces 90 million pounds per year of product, which is sold for $0.75 per pound. The process
is typically run at 90% selectivity and the raw material that is not converted into product is
disposed of at a cost of $0.80 per pound (by incineration). A process improvement allows the
process to be run at 95% selectivity, allowing the facility to produce 95 million pounds per year
of product. What is the net revenue of the facility (product sales – raw material costs – waste
disposal costs) before and after the change? How much of the increased net revenue is due to
increased sales of the product and how much is due to decreased waste disposal costs?
Solution:
a. For existing operation at 90% selectivity: product = 90 million pounds, price = $0.75/Lb
wastes = 10 million pounds, cost = $0.80/Lb
raw material = 100 million pounds, cost = $0.50/Lb
Net revenue = (90*0.75 - 100*0.50 - 10*0.80)*1E6 = $9.5E6
b. For improved process at 95% selectivity: product = 95 million pounds, price = $0.75/Lb
wastes = 5 million pounds, cost = $0.80/Lb
raw material = 100 million pounds, cost = $0.50/Lb
Net revenue = (95*0.75 - 100*0.50 - 5*0.80)*1E6 = $17.25E6

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Increase in net revenue = 17.25E6-9.5E6 = $7.75E6

From the increased sales = (95-90)*0.75*1E6 = $3.75E6
From the decreased disposal cost = (10-5)*0.80*1E6 = $4.0E6

b. Future liabilities
Liability costs include penalties and fines due to regulatory noncompliance, and personal
injury and property damage settlements resulting from legislation (like the US Superfund:
Comprehensive Environmental Response, Compensation and Liability Act).
Liability costs can be staggering, but evaluating liability costs and incorporating them into
economic evaluations of projects can be very difficult. Some large corporations set aside
millions of dollars annually for such costs. It is impossible to predict at the time when a project
is evaluated whether and when the waste streams associated with it will generate a liability in the
future. Estimates can be based on experiences with previous exercises. As a result, future
liabilities are often evaluated qualitatively for the prioritization of pollution prevention projects.

Example 3. During 1979 and 1980 a company legally disposed of 104 drums of hazardous waste
in a landfill. The landfill subsequently leaked, and the landfill operator is now bankrupt. The
company now is liable for $100,000 in cleanup costs under the joint and severe liability
provisions of the Superfund legislation. When the wastes were generated, at the rate of one drum
per week in 1979 and 1980, disposal costs were $10 per drum. In 1978 the company evaluated a
process modification that would have eliminated this waste stream. Capital costs for the project
were estimated to be $2000. Operating costs were estimated to be $5 per drum of waste avoided.
What would the present value for the pollution prevention project have been at the start of the
project (October 1, 1978), assuming that the capital equipment was purchased on October 1,
1978 and that the unit began operation on January 1, 1979. The annual interest rate is assumed to
be 10% compounded weekly. The present value of operating costs can be determined using the
formula:
OC * [(1  i / P) n  1]
PV 
(i / P)(1  i / P) n
where PV is present value, i is the effective annual interest, p is the number of weeks per
year, n is the number of weeks, and OC represents the operating costs per week. The
following equation is used to convert a future worth to its present value:
FV
PV 
(1  i / P ) n
Solutions:
Oct.78 Jan. 79 Dec. 80 Oct. 90
…………………….

Disposal
104 drums, $10/drum
(one drum per week)
$2000 eq 104 drums, $5/drum avoided Annual interest 10%
(operating cost) compounded weekly.

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The present value of P2 option in 1978:

(1). Disposal option (existing operation)
a. Liability cost back to 1978
weeks
Oct. 78—Oct 1990. (12 years ×52 )=624 weeks
years
0.10 i
Weekly interest rate= = ( ) , p=52 weeks/year
52 p
i
PV (1  ) 624  $100,000
p
100,000
PV  624
 30,154
 0.1 
1  
 52 
b. Disposal cost
104 weeks from Jan. 79 to Dec. 80, $10 per week.
Net value at the end of 1980. OC: weekly operating cost
PN 1
 i
week1. OC 1  
 p
PN  2
 i
week2. OC 1  
 p
week PN OC

Net value at the end of 1980 (FV)

  i  i
PN 1

FV  OC 1  1        1   
  p  p 

 OC
1  i / p  1
PN
 OC
1  i / p) PN  1
1  i / p   1 i / p 
522
 0 .1 
1   1
FV  10  52 
 $1150 ( Dec. 1980)
0.1 / 52
The present value on Oct. 1978 (converted)
1150
PV  522 13
 $918
 0.1 
1  
 52 
Total cost equivalent to $ on Oct. 1978
=30154+918=31072

(2). P2 option to eliminate waste

a. Capital cost on Oct. 78 = $2000

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b. Operating cost= 918/2=$456

Total cost on Oct. 1978=$ 2456

Disposal P2 option
operation
Capital 0 2000
Operating 918 456
Liability 30154 0
Total 31072 2456
Present value at Oct.1978
Present value of P2=31072-2456=$28,616

 In 1978, if the company found that 10% of landfill operators it deals with created a liability,
and the liability occurred an average of 10 years after the company finished disposing its wastes.
Disposal P2
Capital 918 2456
+operating
Liability 3015 0
Total 3933 2456
present value=$1,477

 If 10 companies are equally responsible for the $100,000 liability

present value=$1,477

c. Less tangible costs

Less tangible costs are associated with consumer responses to improved product quality or
improved corporate image, employee responses to improved environmental stewardship, and
potential environments in worker health and safety due to pollution prevention.
Such factors are even more difficult to quantitatively evaluate than the liability costs.
Therefore, they are assessed qualitatively for the prioritization of pollution prevention projects.

To fully reveal the potential economic benefits of green engineering projects, a total cost
analysis has to be conducted to include the hidden costs, liability costs and less tangible costs, in
addition to the usual capital costs and operating costs. Hidden costs are relatively easy to be
quantified based on the requirements of reporting periods and reporting agencies. Liability and
less tangible costs are difficult to quantify and are often included in the economic evaluation in a
qualitative way.

2. External costs and cost-benefit analysis

External cost is referred to those costs, which are not paid by producers or manufacturers but
imposed on others. External cost is also known as an externality, arises when the social or
economic activities of one group of persons have an impact on another group and when that
impact is not fully accounted, or compensated for, by the first group. For example, a power
station that generates emissions of SO2 causes damage to building materials or human health in
the local community imposes an external cost. The impact on the owners of the buildings or on

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those who suffer damage to their health is not taken into account by the generator of the
electricity but by the building owners or the health care system. In this example, the
environmental costs are "external" because, although they are real costs to these members of
society, the owner of the power station is not taking them into account when making decisions.
Note that external costs are unintended and result from there being no property rights or markets
for these environmental effects.
External costs can be classified into several categories, such as the ecosystem damage
costs, health costs and social damage costs. As shown in Table 6, it is of great challenge to
assigning a external cost to each polluting compound because of its strong relationship to
population density and the background concentrations in the region the emission is released.

Table 6. Reported control and damage cost of NOx emission (Bi and Wang, 2006).

Table 7 shows the external costs for several key air pollutants used, which can be used to
estimate an external cost of industrial emission source.

Table 7. External costs of several key air pollutants (

Pollutants $ US/MT of pollutant
CO2 20
CH4 240
N2O 4500
CO 975
VOC 3580
NOx 6108
SOx 2193
PM 2988
Sources: Michael Golay (2005), “Sustainable Energy”. MIT OpenCourseWare with references
to New York Public Service Commission, Massachusetts Department of Public Utility,
California Public Utility and Nevada Public Service Commission.

External costs can be used in green accounting and cost-benefit analysis for technology
evaluation, in which the costs to establish measures to reduce a certain environmental burden are
compared with the benefits, i.e. the avoided damage due to this reduction. External costs are also

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used in the design of policy to correct for the present lack of such property rights and markets.
There are several ways of taking account of the cost to the environment and health. An
Eco-tax can be applied to those “dirty” fuels, products or technologies according to their external
costs caused. Table 8 shows the proposed environmental fees for major air pollutants emitted in
Metro Vancouver. For example, if the external cost of producing electricity from coal were to be
factored into electricity bills, between 2 and 7 cents per kWh would have to be added to the
current price of electricity. On the other hand, a credit or subsidy can be given to cleaner fuels,
products or technologies based on their avoided socio-environmental costs to encourage and
promote green products and technologies.

Table 8. Proposed emission fees for Metro Vancouver of British Columbia.

Cost-Benefit Analysis estimates and totals up the equivalent money value of the benefits
and costs to the project or product to establish whether it is worthwhile. The project may be a
power generation station, a highway, an Aircare program or a health care system. If the cost-to-
benefit ratio is less than 1, the project or product is considered to be economically feasible. Cost-
effectiveness analysis, on the other hand, is a form of economic analysis that compares the
relative expenditure (costs) and outcomes (effects) of two or more courses of action, which is
often used where a full cost-benefit analysis is inappropriate e.g. the problem is to determine
how best to reduce air pollution associated with transportation. Typically the cost-effective
analysis is expressed in terms of a cost/benefit ratio where the denominator is a gain from a
measure and the numerator is the cost of the gain.

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Problems

1. You have compiled the data below for two different project options – one that includes a
comprehensive pollution prevention program option, and one that does not. From an
economic point of view, which project should you select? The lifetime of the equipment is 10
years and the interest rate is 10%.
Cost Project with pollution Project without pollution
prevention prevention
Equipment cost $1,294,000 $1,081,000
Installation cost $786,000 $659,000
Operating labor $39,900/year $8,500/year
Maintenance $43,000/year $17,000/year
Utilities $958,000/year $821,000/year
Overhead $51,300/year $13,900/year
Taxes, insurance and $86,200/year 72,600/year
administration
Credits $380,000/year 0

2. For a crude oil cracking process to produce gasoline from crude oil, the SOx generated from
the catalytic cracking unit is conventionally removed by installing a SOx scrubber
downstream of the reactor. An alternative option is to install a hydrotreater to remove sulfur
from the crude oil, as shown in Figure 1, thus reducing the sulfur content in the crude oil sent
to the catalytic cracking unit. The feed hydrotreater, even though it requires a much larger
capital investment than a scrubber, can produce a superior return on investment for the
refiner due to revenues generated from improved yields and product quality from the
cracking unit, reduced crude cost and savings from residual upgrading.
The approximate costs and revenues for hydrotreaters and flue-gas scrubbers are given in
Table 1. Various cases are included to show the sensitivity of the results to the crude charge.
Case I is for installation of flue-gas scrubbing treatment, and cases II and III are for addition
of a hydrotreater for low- and high-nitrogent crude oil, respectively. Cases Iia and IIIa are
for low-sulfur, low-metals crude, and cases IIb and IIIb are for high-sulfur, high-metals
crude.
If the scrubber and all four hydrotreaters from Table 1 are assumed to have the same
expected lifetime, it is appropriate to calculate the net present worth of all the options for
economic comparison. The present worth of an option is the present worth of the revenue it
generates less its capital cost. Calculate the net present worth of all five options assuming
that the effective annual interest rate is 8% and the effective annual inflation rate is 3%.
Assume an equipment life of 30 years, the present worth (P) of a uniform annual amount (A)
is equal to

(1  i ) n  1
PA
i (1  i ) n
where n is the number of periods and i is the effective interest rate. The effective interest rate
can be corrected for inflation using the formula:

i’ = i + e + ie

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where e is the constant inflation rate and I’ is the effective interest corrected for inflation.

Recovered sulfur

Crude
Hydrotreater FCCU Scrubber
Flue-gases

Waste slurry
Products
Figure 1. Flow diagram of a fluid catalytic cracking unit (FCCU) with a hydrotreater or a
scrubber.

Table 1. Economics of adding a scrubber versus a hydrotreater to reduce SOx emissions for a
40,000 barrel/day refinery.
parameters I II III
SOx Low-Nitrogen crude High-Nitrogen crude
scrubber hydrotreater hydrotreater
Crude a Crude b Crude a Crude b
Capital, MM$* 20 100 125 200 225
Net annual revenue, MM$ -2 10 50 35 75
Note: MM$: million dollars; Crude a: low-sulfur and low-metals content; Crude b: high-sulfur
and high-metals content.

3. In the case study on vinyl chloride monomer production process,

a. When the HCl is reused in the acetylene hydrochlorination or the oxychlorination
reactors in the combined and the balanced processes, respectively, what category of
pollution prevention activities does this process modification belong to?
b. In the conventional oxychlorination process, air is fed to provide needed oxygen for the
reaction. The vent stream containing mainly nitrogen, CO, CO2, impurities and unreacted
raw materials is sent to an incinerator for the control of pollutants. It has been proposed
to use pure oxygen to substitute air in the feed with the installation of an air purification
unit. The main advantages of using pure oxygen are the reduction in flue gas flow rate,
which is much easier for management, and the corresponding reduction in the loss of
unreacted raw materials because a small vent stream can be recycled back to the
oxychlorination reactor. What category of pollution prevention activities does this
process modification belong to? Calculate the weight percentage reduction in flue gas
flow rate with the pure oxygen feed compared to the air operation using data in Table 2.
c. Compare the annualized economic advantages of the pure oxygen operation to the air
operation using data provided in Table 2.

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Table 2. Projected cost of the air and oxygen-based oxy-chlorination processes.

Air route Oxygen route
Capacity, tons/year 300,000 300,000
o
Reactor temperature, C 235 215
Flue gas flow rate, SCFM 14,000 700
Flue gas compositions:
Unreacted HCl concentration, ppmv 1,000 800
Unreacted Ethylene concentration, ppmv 3,000 4,000
COx concentration, ppmv 20,000 200,000
Impurities, ppmv 2,000 2,500
HCl price, $/ton 280 280
Ethylene price, $/ton 550 550
Oxygen supply cost, $/year 800,000 1,500,000
Annualized capital cost for the incinerator(a)
Investment for the incinerator, $ 1,500,000 150,000
Depreciation 10 years 10 years
Return 20% 20%
Operating cost for the incinerator
Maintenance $/year 120,000 11,200
Labor, $/year 20,000 20,000
(b)
Utilities , $/year 470,000 10,000

(a). Annualized capital cost can be calculated by:

i (1  i ) n
AC  CP
[(1  i ) n  1]
Where CP is the total investment cost, AC is the annualized capital cost, i is the interest
rate or return rate and n is the depreciation or return period.
(b). Includes: Power, Fuel, Water and caustic costs and steam credit.

4. A chemical plant proposed a process modification in order to eliminate the byproduct/waste

streams by the use of a newly developed catalyst. The net effect of the modification is that
the product yield increases and disposal costs for the byproduct are virtually eliminated.
Table 3 summarizes the estimates of the capital and incremental operating costs for the
modification.
The income generated from the process modification comes from two sources. First,
since the yield in the product is now higher, there is no longer a need to pay for the raw
materials that created the waste stream. This leads to annual raw material savings of
$15,000. In addition, there is no longer any need to pay for waste disposal costs, which
totaled $150,000/year.
a. Using the cost data in Table 3, calculate the capital cost and the incremental operating
cost or savings for each of the first five years. Note that implementation of the pollution
prevention modification results in a reduction of the use of raw materials and a reduction
in generation of waste, both are regarded as income.
b. For an annual interest rate of 10% compounded annually, calculate the net present value
for the modification using the data from the above question for the first 5 years.

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Table 3. Capital and operating cost for the new catalytic reactor system.
Capital costs, $ Incremental operating costs per year, $
Equipment/material 250,000 Catalyst (years 1 to 5) 10,000
Installation 50,000 Maintenance (years 3 to 5) 5,000
Engineering 40,000 Training (Year 1 only) 10,000
Permitting 20,000 Supervision (Year 1 only) 9,000
Start-up 10,000
Contingency 30,000

5. Waste inks are produced in the commercial printing industry, and can be recycled both on-
site and off-site. For off-site recycling, waste inks are sent to the manufacturer where they
are reformulated into black inks and then blend in some fresh black inks to obtain an
acceptable black color. Even if the plant has to pay top dollars for the reformulated black
ink, this option is still attractive since the cost of disposing waste inks will be eliminated.
Another option is on-site recycling of waste inks. The waste inks can be reformulated on-site
by purchasing a small ink recycler which can blend the waste inks with fresh inks.
Following table compiles the data for the on-site and off-site recycling options based on a
plant which generates 250 kg waste inks annually. Following assumptions are made:
a. The plant generates 250 kg of waste ink per year;
b. The capital cost of the ink recycler is $6,000, with 10% annual return.
c. Fresh ink requirement for on-site recycling is 200% of the waste ink amount;
d. Fresh ink requirement for off-site recycling is 100% of the waste ink amount;
e. The buy-back price of off-site reformulated ink is $6.00/kg
f. Cost of buying additional fresh black ink is $4.00/kg
Calculate the payback period for the on-site recycling option. The operating and
maintenance costs resulting from on-site ink recycling is assumed to be negligible.

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