posted on 06-06-2019

Abatement Cost

Updated October 1, 2019

What is an Abatement Cost?

An abatement cost refers to the cost associated with the voluntary or compulsory removal of an undesirable result of a production process.

How Does an Abatement Cost Work?

In many instances, companies produce goods or services that directly or indirectly result in a byproduct that may be medically or environmentally dangerous. This can be an indirect result of a cost-cutting measure to increase productive efficiency. Should governmental or regulatory authorities determine that a production process has hazardous side effects for the community at large, these authorities may require a company to eliminate or, at least reduce the incidence thereof. The cost to a company associated with reengineering the production process (whatever that may entail) for this purpose would be the abatement cost. For instance, if a company must begin using a more expensive raw material in order to reduce the amount of mercury released into the local environment, the additional cost would be the abatement cost.

Why Does an Abatement Cost Matter?

Abatement costs are often an indirect outcome of government-imposed regulations intended to benefit the greater community and environment. To this end, they represent, albeit by necessity, a source of economic inefficiency similar to a tax.