*2.3. Environmental Degradation Costs*

Environmental degradation cost (*Ced*) indicates the economic value loss caused by the degradation of environmental functions. The environmental degradation cost is calculated by the pollution loss cost method. The pollution loss cost method requires a specific technical approach to conduct a special survey of pollution losses to determine the monetary value of the impact of pollution emissions on local environmental quality. After quantifying these influences, the environmental degradation costs caused by pollution can be determined.

The Chinese government published the Chinese Environmental and Economic Accounting Report 2004 [6]. As some local governments firmly opposed publishing the report, after 2008, there are no updated data that can be used to estimate environmental degradation costs.

In order to estimate the environmental degradation costs, a formula was established in the light of the ratio of environmental degradation costs to virtual abatement costs, shown as:

$$\mathbb{C}\_{\text{cd}} = \sum \mathbb{C}\_{\text{vai}} \times r\_i \tag{6}$$

where *Ced* is the total environmental degradation costs; *Cvai* is the virtual abatement costs of air pollution if *i* = 1, or water pollution if *i* = 2, or solid waste pollution if *i* = 3; *ri* is the average ratio of environmental degradation costs to virtual abatement costs, according to the Chinese Environmental and Economic Accounting Report 2004 (see Table 7), *r*<sup>1</sup> = 2.25, *r*<sup>2</sup> = 1.32, *r*<sup>3</sup> = 0.31.

Based the discussion above, the total life cycle environmental costs can be calculated as:

$$\mathbf{C}\_{\mathcal{E}} = \mathbf{C}\_{\mathcal{E}^\mathsf{f}} + \mathbf{C}\_{\mathsf{r}u} + \mathbf{C}\_{\mathsf{e}d} \tag{7}$$

where *Ce* is the total life cycle environmental costs; *Cgc* is the green construction measures costs; *Cva* is the virtual abatement costs; *Ced* is the environmental degradation costs.

Since the time value of money concerns the effect of time and interest rate on monetary amounts, this effect must be given primary consideration in environmental cost [33]. Present value, also known as present discounted value, is the value of an expected income stream determined at the valuation date. The present value is always less than or equal to the future value due to the potential of interest-earning, which referred to as the time value of money. The most commonly applied model of present valuation uses compound interest.

The present value of the total environmental costs of a building can be expressed as:

$$\mathcal{C}\_{\text{exp}} = \mathcal{C}\_{\text{exp}} + \frac{\mathcal{C}\_{\text{ec}}}{t\_1} \times \left( P|A, r, t\_1) + \mathcal{C}\_{\text{av}} \times \left( P|A, r, t\_2) \times \left( P|A, r, t\_1) + \frac{\mathcal{C}\_{\text{chcm}}}{(1 + r)^{(t\_1 + t\_2)}} \right) \right) \tag{8}$$

where *Cepv* is the present value of the total environmental costs; *Cep* is the environmental cost of the material production stage; *Cec* is the environmental cost of the construction stage; *Ceo* is the environmental cost of the operation stage; *Cedem* is the environmental cost of the demolition stage; *t*<sup>1</sup> is the number of annual interest periods during construction stage, assumed to be 2 years; *t*<sup>2</sup> is the number of annual interest periods during operation stage, assumed to be 50 years; *r* is the discount rate, assumed to be 7%; *A* is the equal annual payment; (*P*|*A*, *r*, *ti*) is the equal-payment-series present-worth factor at time *ti*, calculated as (*P*|*A*,*r*, *ti*) = *A*[(1 + *r*) *ti* <sup>−</sup> <sup>1</sup>)/*r*(<sup>1</sup> <sup>+</sup> *<sup>r</sup>*) *ti* ].


**Table 7.** The accounting result of environmental costs in China from 2004–2008.
