Investment Project Analysis Based On Internalizing Environment Costs

Environment issues have increasingly become severe and economy development vs. environment sustainability has attracted lots of attention worldwide. Implementing environment cost internalization to resolve the conflicts between economy development and environment protection is cognized and becomes prevalent. How can business organizations be effectively motivated to internalizing environment cost when they make their business investment is still an important issue to be concerned in both academic research and practice.The promotion of the internalization of environmental costs requires the joint efforts of government, business and the public. With the government’support, enterprises carry out the investment project based on internalization of environmental costs. As a result, encouraging enterprises to carry out environmental improvements to achieve cleaner production and producing green products, and ultimately achieve sustainable economic development. Therefore, the article assesses the investment project based on internalization of environmental costs, intended to illustrate that the investment project based on internalization of environmental costs is an effective way to achieve economic and environmental development.This paper focuses on analyzing economic performance of business investment project under environment cost internalization constraint in which environment protection costs are taken into account, and probes into the effect of internalizing environment cost on economic feasibility of the investment project from the views of business organization, government agency and customer.In a non-perfectly competitive market (excluding completely monopolize the market) environment, the article discusses the relationship among product prices, quality and sales, and with the consideration of investment project development features the project lifecycle consists of two phases including initial development and steady growth phases, and the two-time-periods net present value (NPV) model of investment project is structured. It consists of an initial development stage including market penetration with growth followed by gradually maturing to steady stage. During project’s initial development phase government incentive policy is taken into account to subsidy the investment costs on environment protection where cash flow analysis is made. The effects of environment cost internalization on business performance of investment project is analyzed with the consideration of government incentive policy, and a method of computing NPV breakeven level of investment project is developed based on environment cost internalization together with a numerical illustration presented.