Evaluate environmental impact requirements before investing in projects.
By Russell Ellis
Russell Ellis is the regional environmental manager for Hanson Building Products America and a member of NPCA’s Safety, Health & Environmental Committee.
Operations that are to remain competitive and successful require smart capital investment. Financial calculations such as Internal Rate of Return (IRR), Net Present Value (NPV) and Payback Period are commonly used by managers and investors to determine if a potential project meets targeted rates of return based on a series of expected cash flows from new or planned investments.
Modern managers, more than ever, are mandated to comply with all local, state and federal regulations. Thus, decision-makers must not only use financial tools to evaluate and plan their capital investment strategies, but they must also consider the environmental impacts of a project. Environmental impacts and requirements can affect the cost, timing and ultimately the cash flows associated with potentially viable projects. Environmental safety, quality, resource, engineering and other key requirements that affect investment decisions must be evaluated very early in the capital planning and approval process.
Environmental considerations, probably more than in any other functional area, must be evaluated early on because of the length of time required to evaluate, process and receive proper construction and operating permits. The expected time or cost of complying with new environmental requirements of a potential project might alter or even “kill” an otherwise viable project. It is important to know this before significant or wasted spending and time occurs. No surprises are welcome in this area of planning.
Potentially costly environmental situations to avoid
Imagine the scenario of ordering all your equipment and negotiating with all your installation contractors only to learn that you cannot legally start construction for another six months because the proper permits were not applied for and received. Another scenario could be that just before or after construction starts, it is determined that an endangered species that is highly sensitive to noise and fugitive dust rests on that wonderful new land that was purchased. Or better yet, two-thirds of that wonderful property is later classified as a wetland that is under the jurisdiction of the U.S. Army Corp of Engineers. Getting through these sticky situations after significant capital has been tied up might seriously hurt cash flow, cause the financial models to be altered, and ultimately lead to project delays and a financial return that is less than originally wanted.
Key environmental requirements
By taking a look at key environmental requirements, one can begin to understand how these requirements are often evaluated and complied with during the process of capital planning and deployment. Realizing that air and water permits commonly take three, six or even 12 months to receive from governmental agencies, and knowing that these same permits often serve as the authorization to construct and operate, it becomes apparent that managers simply cannot wait, at least legally, to evaluate or obtain proper environmental permits at the end of the capital deployment process. What this means is that before capital requests are submitted for approval, the costs and time requirements associated with permitting, control devices, treatment systems and any other environmental requirements must be factored into the financial model.
Seek professional help
The proper solution for environmental budget planning is to seek local professional environmental help to identify both time and money requirements for receipt of environmental permits, control devices or treatment systems necessary to begin construction and to comply with all regulations once the operational changes are made. Timely utilization of internal or external environmental resources is the primary weapon of choice to avoid most scenarios. However, environmental professionals must have a detailed work plan that is clear in scope in order to limit the amount of environmental anomalies that can be missed in such reviews.
Plant modifications and potential impacts
Capital investments often target plant expansions, modifications, replacements, additions, and/or new land ( Greenfield) replacements and additions. These types of investments have several things in common: They all may have the ability to impact equipment, process flow, site grading, air, stormwater, wastewater generation, waste streams, neighbors, wildlife and more. Early due diligence and permitting, done properly, will address these environmental factors through a legal channel that will give your project the greatest chance of meeting short-term goals and maintaining long-term success. The following tables illustrate two different categories of projects: improvements to existing plant or facility and new ( Greenfield) expansion or replacement. They are meant to serve as a guideline of things to consider when planning and determining the economic viability for such capital spending.
The tables shown are not designed to be all-inclusive for environmental review considerations; they are meant to illustrate the many types of potential environmental hurdles that can be encountered before, during or after capital projects. Each of these independently can slow your progress down. Planning for these items will increase the chance of success of your project.