Environmental Issues in Valuation
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ENVIRONMENTAL ISSUES IN VALUATION Author - Prof. K. N. Sheth B.E. (Civil), M.E. (Civil), MBA (Mkt.), MBA (IT), PGDPM, DAM, LLB (General), LLB (Special), LLM, Ph.D. (E.E.), Ph.D. (Law) Subject Editor - Mr. Jigesh Mehta B.E. (Civil), Master of Science in Civil Engg. (USA), MV (RE), MV (PM) Language Editor - Mr. Bhadrakkumar Majmudar B.Sc. ACKNOWLEDGEMENT Centre for Valuation Studies, Research & Training Association (CVSRTA) is thankful to the author of this subject Prof. K.N. Sheth for preparing the study material and also surrendering his right in favor of CVSRTA to get copyright in favor of CVSRTA. CVSRTA is also thankful to Mr. Jigesh Mehta for rendering the service as subject editor and Mr. Bhadrakkumar Majmudar as language editor. Kirit P. Budhbhatti Chairman, CVSRTA 1 INDEX Sr. No. Module Content Page No. No. 1 1 Environmental Issues and Pollution 3-16 2 2 Outline of Environmental Legislations 17-33 3 3 Valuation of Environmentally affected Property 34-40 4 4 General Effects of Contamination of Property 41-52 5 5 Environmental Valuation Techniques 53-76 2 MODULE-1 ENVIRONMENTAL ISSUES AND POLLUTION As stated in Professional Standards (PS2) of the Royal Institution of Chartered Surveyors’ (RICS) Valuation Global Standards 2017, if the valuer does not have the required level of expertise to deal with some aspect of the valuation assignment properly, then he/she should decide what assistance is needed. With the express agreement of the client where appropriate, the valuer should then commission, assemble and interpret relevant information from other professionals, such as specialist valuers, environmental surveyors, accountants and lawyers. However, para 10.7 of General Standards IVS 105 (Valuation Approaches and Methods) of International Valuation Standards 2017 stipulates that regardless of the source of the inputs and assumptions used in a valuation, a valuer must perform appropriate analysis to evaluate those inputs and assumptions and their appropriateness for the valuation purpose. Asset Standard IVS 300 – Plant and Equipment (under IVS 2017) illustrates environment-related factors that may need to be considered for valuation of plant and machinery. Asset Standard IVS 400 – Real Property Interests (under IVS 2017) requires that the responsibility for identification of actual or potential environmental risks should be stated in the Scope of Work (refer IVS 101) and Investigations and Compliance (refer IVS 102). Else if the client agrees, a typical special assumption that ‘the property is free from contamination or other environmental risks’ should be incorporated in the valuation report only for certain purposes. Valuation Practice Guidance Application VPGA 8 - Valuation of Real Property Interests of RICS (2017) discusses environmental matters in three parts : (a) Natural environmental constraints, (b) Non-natural constraints, and (c) Sustainability. As the valuers may not have specialised knowledge and experience required to comment on environmental factors, it may be appropriate to recommend that an advice of environmental expert be obtained when the potential presence of these factors can be established in the course of a valuation inspection through normal enquiries or by local knowledge. 3 Judicious juxtaposition of the above guidelines of the RICS and IVS 2017 implies that though valuers themselves need not be environmental experts, it is imperative for the valuers to have fundamental knowledge about environmental issues and to scrutinize the data provided by environmental experts prior to their application for valuation of such affected properties. 1.0 INTRODUCTION Environment means water, air and land and the interrelationship that exists as between and amongst these media (water, air and land) and human beings, other living beings including micro-organisms and property. Humans continuously interact with the environment and alter the environment by various activities like: . Rapid Industrialization; . Urbanization; . Population explosion; and . Modern life styles. But the interaction results into environmental pollution. Thus, environmental pollution means alteration of the composition of the environment which will have deleterious effect on human health or quality of life. Environmental pollution also means “the presence of any pollutant in the environment which imparts adverse effect on the marketability of an asset.” Environmental pollutant may be defined as “Any solid, liquid, gaseous or other substance present in such concentration which may be or tend to be injurious to the environment giving rise to adverse effect on the marketability of asset.” Whenever the quality of environment is deteriorated due to presence of any foreign matter, environmental pollution is said to have occurred. The ‘foreign matter’ is a “pollutant”. A pollutant can be a substance which when enters in the environment either purposefully or through some act of nature, it significantly changes the composition of the environment and shows adverse effect on human health. Contamination is defined as alteration of physical, chemical and/or biological characteristics of the environment which may not necessarily create deleterious effect due to lesser concentration but contaminant(s) in higher concentration become pollutants that may ultimately lead to degradation or deterioration of the value of assets. 4 Thus, there can be a contaminated environment without it being polluted but there cannot be a polluted environment without it being contaminated. Environmental quality standards have been established focusing on humans as opposed to the ecosystem at large. Such standards are extremely difficult to specify. 1.1. TYPES OF ENVIRONMENTAL POLLUTION Environmental pollution can be broadly classified based on any given compartment or region of the environment which they negatively impact, contributing to the multiple causes of pollution. The various components of environment are air, water, noise and land, and correspondingly the environmental pollution is classified as air pollution, water pollution, noise pollution and land (and soil) pollution. Some of the pollutants include gases, metals and their salts, agro-chemicals including pesticides, biomedical waste, heat, vibration and plastic. Every type of pollution (air, water, noise, land, industrial, soil, light, thermal, etc.) has its own distinguishing causes and environmental effects. Understanding pollution and its various causes can help address the various concerns linked to environmental degradation and destruction, and the dangers it brings to human health. Air Pollution Any deleterious change in the composition of the clean atmospheric air is known as air pollution. Air pollution means presence of one or more contaminants in the atmosphere such that the contaminant’s concentration, characteristics and exposure is injurious to public health or welfare. According to the definitions under Section 2(b) of the Air (Prevention and Control of Pollution) Act-1981, ‘air pollution’ means the presence in the atmosphere of any air pollutant. Under Section 2(a) of the Act, ‘air pollutant’ means any solid, liquid or gaseous substance (including noise) present in the atmosphere in such concentration as may be or tend to be injurious to human beings or other living creatures or plants or property or environment. 5 The sources of anthropogenic air pollution are (i) Stationary sources like mining and quarrying, refineries and chemical factories, power plants, industrial facilities, sewage and waste treatment, (ii) Community sources like heating of homes and buildings, laundry services, (iii) Mobile sources like diesel and gasoline-powered automobiles, trains, marine vehicles, aeroplanes, and (iv) Indoor sources like tobacco smoking, combustion emissions, asbestos and Volatile Organic Compounds (VOCs). Thus, air contaminants include suspended particulate matter (dusts, fumes, mists, and smokes), gaseous pollutants (gases and vapours), odours, radio-active materials, noxious chemicals or any other material in the outdoor atmosphere. Out of the various air contaminants, the Criteria Air Pollutants are the only air pollutants with national ambient air quality standards that define allowable concentrations of these substances in ambient air. The criteria air pollutants are six common air pollutants defined by the United States Environment Protection Agency (USEPA) and World Health Organization (W.H.O) as these pollutants are found causing harm to health, environment and damage to property thereby affecting adversely the property valuation. These criteria air pollutants also prescribed by the Central Pollution Control Board (CPCB) of India include Carbon Monoxide (CO), Nitrogen Dioxide (NO2), Sulphur Dioxide (SO2), Particulate Matter (PM10), Lead (Pb) and ground level Ozone (O3). The National Air Quality Standards are given in Table 1 below. 6 Table 1 : National Ambient Air Quality Standards for Criteria Air Pollutants Pollutant Time Concentration in Ambient Air Weighted Industrial, Ecologically Sensitive Average Residential, Rural and Area (notified by Central Other Areas Government) Sulphur Dioxide Annual* 50 20 (SO2), 24 80 80 µg/m3 hours** Nitrogen Dioxide Annual* 40 30 (NO2), 24 80 80 µg/m3 hours** Particulate Matter Annual* 60 60 (size less than 10 24 100 100 3 µm) or PM10, µg/m hours** 3 Ozone (O3), µg/m 8 hours* 100 100 1 hour** 180 180 Lead (Pb) , Annual* 0.50 0.50 µg/m3 24 1.0 1.0 hours** Carbon Monoxide 8 hours* 02 02 (CO), 1 hour** 04 04 mg/m3 * Annual arithmetic mean of minimum 104 measurements