The Accounting of Project Cost with the Cost of Environmental Degradation

Liu Shi, Jie Ke*, Fuhao Li, Jianjian Wang

Department of Finance Anhui University of Finance and Economics Bengbu, 233030, China

Abstract: Economic activity and environment are interrelated, but traditional economic theory often ignores its influence on biosphere. This attitude is causing serious consequences for the environment. Measure the environmental degradation costs of each economic project and incorporate them into the economic costs. Then, re-analyzing their cost-effectiveness can promote the development of green economy. In this paper, we made a comprehensive analysis of the environmental degradation cost from the two aspects: stock and flow.

Firstly, according to the classification of the value of natural resources and ecological services, the environ-mental degradation costs are calculated one by one from the aspects of stock and flow, and include them into the economic cost of the project. Then, we used the net present value model to re-analyze the costs and benefits of projects. It is found that if the environmental degradation cost of the project is too high, the net present value of the project may be greatly reduced ｏｒ even negative.

Then, as time goes by, in order to avoid repeated accounting, the projects only need to pay for the flow value of natural resources and the cost of environmental governance after the completion of the project which established in the original ecological land and arable land, and do not need to calculate the natural resource stock value. Therefore, we improved the model and used the new model to calculate the cost of environmental degradation that is just enough to restore the environment after making up for the value of ecosystem services.

Finally, we gave the implications of our modeling to the project planners and managers. Project managers can promote green economy by levying environmental degradation fees and building special funds for environmental governance. Project planners should try to reduce the cost of environmental degradation by selecting urban lands ｏｒ lands where the environment has been damaged to carry out the project construction.

Keywords: The cost of environmental degradation; The stock value; The flow value; Net present value model