讲解 UPPP 146, F24 Problem Set 3, Business Case Analysis using $ and emissions 调试SPSS

UPPP 146, F24

Problem Set 3, Business Case Analysis using $ and emissions

Cost-benefit analysis (CBA) is a key part of business and government project management. It can be used to assess the potential for an investment or choosing among various alternatives by both firms and governments. A “value” is calculated in monetary terms. The goal is to determine the cost effectiveness and economic feasibility of a given decision. Firms look at the cost and benefits that impact them, while governments may consider the pros and cons for many people and firms. CBA focuses on money in and money out – environmental effects are secondary. However, current thought-leaders believe this is short sighted given externality impacts of most every process. Taking this further, materials and processes do not magically appear for the firm’s use but have been acquired and transformed from natural resources; each step in the supply chain produces externalities. Supply chains today are complex networks with numerous suppliers/service organizations who have touched and transported each element and component.

To study all aspects of a product or service’s “life,” researchers and practitioners are using Life cycle analysis (LCA) to focus on inputs and outputs (including waste and toxins). A high-level diagram of the life cycle for any commodity is shown in figure 1.

Figure 1. From https://www.greenelement.co.uk/blog/a-short-guide-to-product-life-cycle-analyses/cradle-to-grave/

This problem set will introduce you to elements of a CBA, life cycle analysis, and emission accounting using environmental input-output (EIO) tables, a method based on economic input-output analysis, a macroeconomic tool. Input-output models demonstrate how a commodity or industry are dependent. It is a supply-side tool (not demand). For an example of how input-output models work, see Appendix 1.

The benefits portion of the case will not be covered. However, you will be asked to consider what benefits should be included. An Excel file has been created with much of the data pre-populated for you. You will need to fill in the remaining pieces on the summary spreadsheet and make a recommendation on the best alternative. Other questions to answer are highlighted in yellow below (to make sure you do not miss them).   

To complete this exercise, I recommend following this process:

A. Read the case study below thoroughly.

a. Costs are explicitly listed below and populated in the Excel spreadsheet “summary.” Make sure you understand how the 3 alternatives have been structured in Excel. I recommended tracing each element in the project description to the summary sheet columns B-G, including formulas if not a direct transfer. For example, Alternative 1 says the 550,000 gallons of diesel fuel is expected to use in this scenario per year. Note (1) has the wholesale price of fuel (in 2021). Cell D5 = 1.288083*550000/1000000*30 which calculates the cost of diesel fuel over 30 years in millions of dollars.

b. Add data for alternative 3 in column D.

i. D19 & D20: Diesel fuel cost is $1.288083/gallon and gasoline is $1.305/gallon (wholesale)

c. Column F and G are tailpipe emissions over 30 years. (The box second from right in Figure 1). The other phases (cradle-to-gate and end-of-life) are missing from the case study. Cradle-to-gate emissions will be calculated in step C. (End-of-life is not part of this case, but in practice it should be.)

B. Read about EIO-LCA.

a. Read the article “Life Cycle Assessment (LCA) – Everything you need to know – Ecochain”

b. “The input-output model is a quantitative economic technique that represents the flow of goods and services within an economy, illustrating how industries interact through their inputs and outputs. It captures the relationships between different sectors, helping to analyze how changes in one industry can affect others, making it essential for understanding economic interdependencies and optimizing resource allocation.” (https://library.fiveable.me/key-terms/introduction-to-mathematical-economics/input-output-model) What this means is that there are many more interactions than we normally associate with the supply chain network for a specific product or service. Input-output analysis attempts to identify these relationships.

c. Read the pdf “EIO-LCA Overview” by Carnegie Mellon.

i. Note that the approach/tool discussed covers only cradle-to-gate.

d. Answer these questions:

i. Why is LCA an important economic tool to address climate change?

ii. How can you see this method being used to improve products and processes?

C. Calculate the metric tons of CO2 equivalent units and particular matter (PM) using EIO-LCA tables.

a. On the summary table, most of the data has been pre-populated for you except concrete (in orange).   

b. Analyze the Excel spreadsheet called “eiolca concrete output.” This is a data download from eiolca.net from Carnegie Mellon for $100M of concrete.

i. It includes the industry sectors that are involved with making and delivering concrete. It is sorted by total economic value. Notice the ordering of the sectors.

1. What makes up the top 10 industry sectors for CO2 (CO2e)? List with the amount of CO2e in metric tons.

2. What makes up the top 10 industry sectors for PM10? List with the amount of PM10 in metric tons.

3. Do these categories surprise you? Why or why not?

c. On the summary page, use the data from the eiolca output concrete sheet (line 3) to populate cells H14, I14, H23, and I23. Hint: The data on the eiolca sheet is for $100M of concrete.

D. Complete the emissions section of the summary table.

a. Column J: calculate the total CO2e from tailpipe + cradle-to-gate emissions (in MT).

b. Column L: calculate the total PM from tailpipe + cradle-to-gate emissions (in MT). Although not technically correct, you can add both PM2.5 and PM10 together. (PM2.5 is part of PM10, but not the other way around)

c. (Columns K & M will automatically populate based on formulas in those cells. Likewise the totals will also be shown.)

E. Calculate health costs for each alternative.

a. Use the data in column F on sheet “health costs.”  The health costs of one metric ton of emissions are in $(000)/yr. Reference the information provided in the notes section of this table (column H) to insure you are using the correct $. (A copy of the PM data output data from https://cobra.epa.gov/ is shown in Appendix 2.)

b. CO2e costs have been prepopulated for you. Data on source is included in the sheet for your information.

c. What are the top 3 health cost categories shown on Cobra?

F. Analyze the results and prepare a brief recommendation addressing the following:

a. Where are the major impacts?

b. What are the initial indications for a preferable alternative? 

c. What are the limitations or assumptions to your analysis, and what further research may be required to guide this decision? 

d. What additional information would improve your analysis?

e. What benefits would you propose including?

Rubric – points possible 50

Case study:

CalTrans and the Metropolitan Transportation Authority (MTA) are seeking advice on a possible major construction project for the 710 Freeway designed to speed the flow of freight and minimize traffic tie-ups. They are proposing three alternatives:

1. Maintain the status quo for shared lanes for cars and trucks.

2. A 15-mile overhead for truck only lanes using standard concrete.

3. A 15-mile overhead for truck only lanes using a long-lasting concrete.

Use the hypothetical data points provided below (as produced by consultants preparing environmental documents for the three alternatives) as an input for your analysis. Using the Excel file included, determine the total cost, carbon footprint and changes in respiratory in-organics for the three alternatives over an initial 30-year period.

Alternative 1: Maintain the status quo for shared lanes for cars and trucks

· Rotating highway repair every 5 years to cover all 15 miles of shared lanes (3 miles per year) with a first-year budget of 25 million dollars for 3 miles of road repair

· Estimate of 550,000 gallons of diesel fuel consumption per year (trucks)

· Estimate of 750,000 gallons of gasoline consumption per year (cars)

· Estimated truck and auto tailpipe emissions of CO2-eq are 210,000 metric tons and 249 PM2.5-eq metric tons of respiratory inorganics over 30 years

Alternative 2: 15-mile overhead for truck only lanes using standard concrete

· Estimated design cost is 250 million dollars

· Estimated construction cost is 500 million dollars (inclusive of all material and labor except concrete)

· Concrete cost is 100 million dollars

· Rotating highway repair for vehicle-only lanes is 30 years to cover all 15 miles (0.5 miles per year) with a first-year budget of 5 million dollars for 0.5 miles of road repair

· Rotating highway repair of truck-only lanes is 5 years to cover all 15 miles of truck lanes (3 miles per year), with a first-year budget of 25 million dollars for 3 miles of road repair

· Estimate of 238,956 gallons of diesel fuel consumption per year (trucks)

· Estimate of 525,000 gallons of gasoline consumption per year (cars)

· Estimated truck and auto tailpipe emissions of CO2-eq are 149,000 metric tons and 119 PM2.5-eq metric tons of respiratory inorganics over 30 years.

Alternative 3: 15-mile truck only overhead lanes with long-lasting concrete

· Estimated design cost is 250 million dollars

· Estimated construction cost is 500 million dollars (inclusive of all material and labor except concrete)

· Concrete cost is 400 million dollars

· Rotating highway repair for vehicle-only lanes is 30 years to cover all 15 miles (0.5 miles per year) with a first-year budget of 5 million dollars for 0.5 miles of road repair

· Rotating highway repair of truck only lanes is 20 years to cover all 15 miles of truck lanes (0.75 miles per year), with a first-year budget of 5 million dollars for 0.75 miles of road repair

· Estimate of 238,956 gallons of diesel fuel consumption per year (trucks)

· Estimate of 525,000 gallons of gasoline consumption per year (cars)

· Estimated truck and auto tailpipe emissions of CO2-eq are 149,000 metric tons and 119 PM2.5-eq metric tons of respiratory inorganics over 30 years

Appendix 1. Economic input-output analysis example

From https://www.wallstreetmojo.com/input-output-analysis/ dated 8/21/24 by Kosha Mehta

“Suppose a local government wants to construct a new bridge and must justify the investment cost. It recruited Sam, an economist, to carry out an input-output analysis. The economist interacted with construction firms and engineers to predict the cost of the bridge, the total number of workers required, and the supplies necessary. Sam converted the details into dollars and ran numbers via an input-output model, producing three impact levels.

The direct effect is the original numbers put into that model, for instance, the raw inputs’ value. The direct impact refers to the jobs that supply companies (cement and steel organizations) generate. Such organizations must hire a workforce to complete the entire project. They may already have the required funds. Alternatively, they may borrow the money. This has another impact on the banks.

The induced impact refers to the money new workers spend on services and products for their families and themselves. This covers the basics, for example, clothing and food. However, since they now possess more disposable income, this is also associated with the products and services utilized for enjoyment.  

The impact-output model observes the ripple effects on the economy’s multiple sectors due to the local government building a new bridge. The government may need to bear specific costs for the bridge and utilize taxes. That said, the analysis will help understand the benefits generated by the project by recruiting companies that hire a workforce that spends in the economy, thus helping it expand.”

Appendix 2. Cradle-to-gate diesel & gas health cost for 1 ton (not metric ton) of PM. From https://cobra.epa.gov/