“Life-Cycle Sustainability Economics” Evaluation Questions
1. When comparing the cost of two alternative products, ideally which of the following should be taken
into account?
a.
b.
c.
d.
Up front purchase cost
Operations and maintenance costs
Disposal costs
All of the above
Correct response: d
2. Give an example of the “Tragedy of the Commons.” What would be a solution to your example?
Any example of too many people using a resource. Examples include but are not limited to:
 air pollution (too many people putting contaminants in the atmosphere)
 water pollution (too many people putting contaminants into a water body)
 deforestation (too many cutting trees)
 overfishing
 degradation of a national park due to too many visitors
Solutions:
Count any answer that makes sense. Typical answers would include limiting the number of users of
the resource (limit on the number of visitors to a park, for example), or limiting the amount that each
person can use the resource (limit on the mass of air pollutant discharge per unit time, for example).
Other options:
 Emission fees
 Manage population
 Use triple bottom line accounting
 Use emissions trading systems
 Include environmental benefits in cost-benefit analysis
 Conduct life cycle cost analysis
3. Give an example of pollution creating an externality. What would be a solution to your externality
example?
An externality is an environmental cost that is not taken into account in the consumer’s cost. For
example, air pollutants from gasoline may cause people to become sick with asthma. The cost of
these doctor or hospital visits are not included in the price of gasoline that the consumer pays. A
solution would be to raise the price of gasoline to cover health impact costs.
4. Describe how you would determine a value for the benefit of having River Legacy Park in Arlington.
Example response: survey citizens to see how much they would pay to use the park
Count as correct any reasonable response that would estimate in dollars the value of having the park
for recreation and ecosystem services.
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5. Compare advantages and disadvantages of traditional emission limits and emission trading systems.
For full credit, they should list two advantages, two disadvantages, or one of each. The advantages
and disadvantages can be associated with either system.
Traditional Emission Limits
Advantages
Everyone reduces by the same amount - fair
Disadvantages
“One size fits all” – each company must meet the
same limit, regardless of what it costs
No incentive to reduce below the limit
Easy to regulate
Emissions Trading Systems
Advantages
Economically efficient – those who reduce at
low cost do so
Incentive to reduce below the limit
Technologically efficient – Companies are free
to use any means to reduce emissions
(technology not mandated)
Disadvantages
Companies can “pay to pollute”
Count responses that I haven’t listed above if they seem reasonable.
6. A company is considering two roadway asphalt pavement alternatives. Although Alternative 2 has a
higher up-front cost, it is designed to be more sustainable:
 It can be more easily re-used to make asphalt shingles (and thus has a higher salvage
value).
 It is designed to have a longer lifetime, which reduces long-term the need for paving
materials.
 It requires less maintenance, which reduces energy and materials consumption, as well as
maintenance costs.
Make a list of factors you would consider in comparing costs of Alternative 1 and Alternative 2.






Capital cost
Maintenance costs
Operational costs
Replacement costs
Salvage costs
Disposal costs
Count other costs if they seem reasonable.
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7. A family is considering two homes for purchase. Although it has a higher up-front cost, Alternative 2 is
designed to be more energy efficient, via better insulation, double-paned windows, and a radiant
barrier under the roof. Alternative 2 also has low-flow toilets and faucets, to reduce water use, and a
tankless water heater, which will reduce natural gas usage.
Details regarding the 2 homes are shown below. Assuming a 40-year time span and i=5%, perform a
present worth cost comparison to determine whether the additional up-front cost for Home 2 is
justified over the long-term.
Initial cost
Salvage value
Electricity
Natural gas
Water
Home 1
$150,000
$150,000
$200/month
$40/month
$50/month
Home 2
$180,000
$180,000
$100/month
$25/month
$35/month
Home 1
Present value of the initial cost in Year 0
Pi0 = -$150,000
Present value of the salvage value in Year 40
Ps40 = $150,000 (P/F, 5, 40) = - $150,000 * (0.14205) = $21,308
Present value of annual electricity, natural gas, and water bills
PO&M = - ($200+$40+$50)*12 (P/A, 5, 40) = - $3480 * 17.159 = - $59,713
P1 = Pi0 + Ps40 + PO&M
= -$150,000 + $21,308 - $59,713
= - $188,406
Home 2
Present value of the initial cost in Year 0
Pi0 = -$180,000
Present value of the salvage value in Year 40
Ps40 = $180,000 (P/F, 5, 40) = - $180,000 * (0.14205) = $25,569
Present value of annual electricity, natural gas, and water bills
PO&M = - ($100+$25+$35)*12 (P/A, 5, 40) = - $1920 * 17.159 = - $32,945
P2 = Pi0 + Ps40 + PO&M
= -$180,000 + $25,569 - $32,945
= - $187,376
Home 2 is cheaper in terms of life-cycle costs. The up-front additional cost for Home 2 is justified over the longterm.
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