Incorporating Environmental Costs in Decision Making

Gordon Sparks – U of S / VEMAX

Nicole Allen – M.Sc. Candidate / VEMAX

September 29, 2010Saskatchewan Ministry of Highways andInfrastructure

Acknowledgements

•SMHI▫Ron Gerbrandt▫Dave Stearns▫Tom Davies

•HJR Asphalt Ltd.•Battle River Asphalts•VEMAX

▫Paul Christenson▫Darian Brown

The Overall Objective

•Develop a framework to incorporate full costs (economic and environmental) into Saskatchewan Ministry of Highways and Infrastructure (SMHI) decision making

The Specific Project Objective

•As part of the innovation agenda SMHI tendered a hot-in-place recycling contract▫Explore if HIR technology could offer

reduced life cycle costs and reduced environmental impact Reduction of input materials (eg. aggregate)

Why is this important for SMHI?

•Saskatchewan Ministry of Environment GHG Bill 126

&

•SMHI Innovation Framework

What is GHG Bill 126 ?

• An Act respecting the Management and Reduction of Greenhouse Gases and Adaptation to Climate Change, including:

▫(i) measurement of GHG output

▫(ii) 20% reduction in GHG thresholds by 2020

▫(iii) carbon compliance payments

▫(iv) carbon offset credits

▫(v) a technology fund to subsidize investments in low carbon technologies

What is the Innovation Framework ?•SMHI is in the process of developing and

implementing an “Innovation Framework” - the objective of which is to accelerate the integration of innovative ideas into standard practices for the Ministry

•Implementing new solutions and ideas that will lower economic and environmental costs

This Current Project -

•Addresses objectives for both Bill 126 & the Innovation Framework -

The Problem -

•Putting an economic value to environmental issues is a complex problem and includes high levels of inherent uncertainty

•When used in the context of decision making, trade-offs need to be made when comparing the economic and environmental costs

Part of the Solution – Decision Analysis

•Decision Analysis - process developed for problems that are:▫Important▫Complex▫Have inherent uncertainty

•Decision Analysis provides a way to “explicitly” deal with complexity and incorporate and quantify the inherent uncertainty

Decision Analysis Basics

•Decision analysis is an in-depth subject, however, some key concepts and principles are provided below -

Decision Analysis - modelInfluence Model

Requisite Model

A model, agreed upon by all participants, representing all variables and influences for a

problem

Decision Analysis - excelExcel Spreadsheet Model & Data

Decision Analysis – LCC profile

$

tt0 t2 t3 t4 tn

……..

t1

….

Initial costs

Annual O&M costs

Periodic repair costs

Decommission costs

i = 5% c.a.

Life cycle cost profile and discounted cash flow calculations

Decision Analysis – LCC uncertainty

$

tt0 t2 t3 t4 tn

……..

t1

….

i = 5% c.a.

Role of uncertainty and sensitivity analysis

Decision Analysis – tornado plot

Present Worth of Life Cycle Costs (PWLCC) in $’s

Nominal value

Initial costs

Periodic repair costs (t2, t4)

Low value High value

Annual O&M costs

Periodic repair costs (t3)

Periodic repair cycle (t3)

Periodic repair cycle (t2, t4)

Decommission costs

Decommission timing (tn)

üüüüü

A Tornado plot and selection of variables

Decision Analysis - probabilities

$

tt0 t2 t3 t4 tn

……..

t1

….

i = 5% c.a.

Role of probability and simulation

Decision Analysis – risk profile

Present Worth of Life Cycle Costs (PWLCC) in $’s

Cu

mu

lati

ve P

rob

abili

ty

100%

0%

50%

75%

25%

Comparing risk profiles and expected values

Expectedvalue

95% ConfidenceInterval

Role of Decision Analysis

•Applying the full environmental costs to decision making is an important, complex problem with a high level of uncertainty▫Additionally this analysis needs to be done

in a way that is systematic, rational and transparent

the type of problem thatdecision analysis can help to solve

Saskatchewan ExperienceHot-in-place Recycling

HIR Background

•The first technology that this framework was applied to was HIR

•As part of the innovation agenda SMHI tendered a hot-in-place recycling contract

•Contracted with Battle River Asphalt Equipment Ltd. and HJR Asphalt Ltd. to complete a pilot segment of 70 lane km

Battle River Asphalt NXG 9000 – Recycle Train

•Derivative of 20 years of HIR experience

•4 stage system - material is heated and removed in lifts of less than 15mm▫Greater productivity▫Less damage to materials

less oxidization and damage to aggregate as material is soft at milling

▫More consistent temperatures in mix▫Ability to meet specification in difficult

conditions

HIR Equipment

ProduceHMAC(Plant)

Produce Bitumen

(Refinery)

Dilute Crude Oil(Facility)

ProduceHeavy Crude Oil

(Oil Well)

Transport Bitumen(Truck)

Transport Blended Crude

(Pipeline)

Transport Crude Oil

(Truck)

Bitumen

ProduceOil

(Refinery)

Produce Crude Oil(Oil Well)

Transport Crude Oil(Pipeline)

Transport Burner Oil

(Truck)Burner Oil

Produce Diesel

(Refinery)

ProduceLight Crude Oil

(Oil Well)

Transport Light Crude(Pipeline)

Transport Diesel(Truck)

Diesel

ExtractLimestone(Quarry)

ProduceHydrated Lime

(Plant)

Transport Limestone

(Truck)

Transport Hydrated Lime

(Truck)

ProduceAggregate(Crushing)

Transport Aggregate

(Truck)

Lime

Aggregate

Produce Pavemen

t(Paving)

Transport HMAC(Truck)

HMAC

Mobilization

Transport Equipment

(Truck)

Produce Reclaim

(Mill)

Transport Reclaim(Truck)

Reclaim

Reclaim Stock Pile

Processing

Transport

Upstream Processing

Upstream Transport

Process Boundary

Conventional HMAC

ProduceHMAC(HIR)

Transport Rejuvenator

(Rail)

Transport Crude Oil(Pipeline)

Transport Rejuvenato

r(Truck)

Produce Rejuvenator

(Refinery)

Produce Crude Oil(Oil Well)

Rejuvenator

Produce Propane

(Refinery)

Produce Natural Gas(Gas Well)

Transport Natural Gas

(Pipeline)

Transport Propane(Truck)

Propane

Produce Diesel

(Refinery)

ProduceLight Crude Oil

(Oil Well)

Transport Light Crude(Pipeline)

Transport Diesel(Truck)

Diesel

Produce Corrective HMAC

(Asphalt Plant)

Transport Corrective HMAC

(Truck)

Corrective HMAC

Produce Pavemen

t(Paving)

HMAC

Mobilization

Transport Equipment

(Truck)

Processing

Transport

Upstream Processing

Upstream Transport

Process Boundary

HIR HMAC

Comparison of Various Pavement Design Alternatives

•Initially looked at a project with three types of HMAC▫Conventional HMAC▫HMAC with reclaim material▫Rubberized HMAC

•HIR HMAC Project– Data Collection in progress

Illustrative Project Results

Requisite model-Full Initial Cost of HMAC ($/t)

Project Spreadsheet

Risk Profiles

Cum

ula

tive

Pro

babi

lity

Alternative 1

Alternative 2

Alternative 3

Total Initial Cost – Including Cost of Carbon ($/tonne HMAC)

Alternative 4

Overall Objective of this Project

•The development and application of an analysis framework which is:▫Rational,▫Systematic, and ▫Transparent

•That is capable of quantifying economic and environmental costs, including expected values and uncertainty, associated with alternative pavement rehabilitation methods