factors (Bennett and James, 1994). A change in approach is needed if companies are to move from "end-of-pipe" clean-up solutions to preventative design.

To provide a disciplined framework for evaluating all relevant costs, EPA has developed the total cost assessment (TCA) method, and experiments have been undertaken to investigate the effect on decision making about pollution-prevention projects in the pulp and paper industry (Tellus Institute, 1992). In the two projects studied, the new recognition that costs result from not adopting the prevention measures (in particular, future liability costs and foregone energy savings for freshwater and wastewater pumping and treatment and for freshwater heating) improved the financial acceptability of the prevention investments on all normal decision criteria (net present value, internal rate of return, and payback).4 TCA recognizes four tiers of costs: Tier O, direct costs only; Tier 1, Tier 0 plus indirect costs (overheads); Tier 2, Tiers 0 and 1 plus legal liability costs; and Tier 3, Tiers 0 through 2 plus intangible costs and benefits.

Conventional accounting systems and evaluation procedures measure the indirect costs at Tier 1 but suffer either from not tracing these costs to processes and products or from allocating them arbitrarily, distorting their relevance (Todd, 1994). Tiers 2 and 3 may not be recognized at all.

A paradox exists here. The whole thrust of the Tellus-EPA approach is that environmental activity such as pollution prevention is in companies' self-interest. Environmental costs are also companies' costs, but companies are failing to achieve what is in their best interests (and thereby environmentally beneficial) through the inadequacies of their cost-accounting systems. Companies are thereby needlessly causing environmental damage that is in both their own and society's interest to reduce. This leads to concern that market-based incentives (such as taxes and tradable pollution licenses) may not be effective if companies are unable to recognize the relevant costs and benefits.

The approach also raises the organizational issues of why current accounting systems are inadequate. Tellus Institute (1992) points to the additional complexities of the evaluation procedures it recommends and the additional time needed to undertake them. A cultural change is needed if managers are to give sufficient priority and attention to such evaluation schemes. Without a shift in thinking, approaches like TCA will not be able to compete with other potential investments and activities or be considered as viable options in the capital budgeting process. If managers do not get over that first hurdle, there will be no opportunity for the merits of the TCA analytic procedures to be demonstrated.

TCA methodology has controversial aspects. For example, the time horizons may need to be extended to capture the most significant costs and benefits (especially relating to future liability). There is also the broader issue of whether the discount rates normally used (reflecting capital market requirements) properly reflect "social time preference" as between current and future generations (Milne, 1994; Tellus Institute, 1992).

TCA itself has been criticized as incomplete: Its Tiers 0 and 1 cover the



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