Invited Session: Climate Change
Accounting for Landfill Liabilities in the Context of Climate Change (0.5 CEU)
Wednesday, September 27, 2017
9:35 – 10:05
Moderator: Kim Braun, Resource Recovery & Recycling Manager, City of Santa Monica, California
Economic analysis of solid waste disposal facilities typically focuses on revenues (i.e., amount of waste, price per ton), capital expenditures during construction, operation and closure of the facility, and recurring operating expenditures. Less emphasis is generally placed on longer-term costs that are harder to quantify, such as very long term costs of post-closure care (PCC), which is presumed to be required for 30 years. PCC costs are hard to quantify primarily due to technical and environmental uncertainties and the widespread practice of discounting, which renders the present value of distant future expenses and liabilities virtually nil, particularly when high discount rates are used. Although a long-ignored issue, this practice is of growing concern as the first generation of modern solid waste facilities near the end of their presumptive 30-year PCC period. Increasingly, facility owners and regulators are realizing that ending PCC, which is linked to demonstrating no unacceptable threat in the absence of care, is not straightforward. However, simply extending PCC imposes an unsustainable financial burden on these non-revenue-generating facilities. To compound the issue, the long-term vulnerability of these facilities to climate change needs to be considered and sustainable measures adopted to improve their resilience.
This presentation discusses inherent issues with the current practice of valuing project opportunities and accounting for PCC liabilities using popular risk-adjusted discounting techniques based on net present value (NPV). Properly accounting for future routine and contingent liabilities starts with understanding the associated risks through the life of a facility, ensuring that sufficient funds are available to address these liabilities, and investing these funds appropriately. Decoupled net present value (DNPV) analysis, which separates risk from the time value of money and treats risks as a cost to the project, is presented as an alternative to current practices.