97-459 ENR April 16, 1997 CRS Report for Congress Received through the CRS Web Environmental Protection: How Much It Costs and Who Pays John E. Blodgett Environment and Natural Resources Policy Division Summary A recurring issue in environmental policy is the cost of pollution control imposed on individuals, businesses, and governments. To inform policymakers about these costs, a number of surveys and analyses have been conducted over the years. Consistent, basic sources have been an annual survey of costs to manufacturers, conducted by the Bureau of Census (BOC), and an annual analysis of total costs, prepared by the Bureau of Economic Analysis (BEA). Overall, the BEA analysis showed the nation spent $122 billion for pollution abatement and control in 1994, or about 1.76% of Gross Domestic Product. Personal consumption expenditures for pollution control were $22 billion, government $35 billion, and business $65 billion. These 1994 data represent the end of the annual series: the BOC survey and BEA analysis have been discontinued. Background While debate continues over defining environmental protection costs and what they mean for society as a whole,1 every year individuals, communities, businesses, and industries pay billions of dollars to control pollution. They pay both directly for pollution control technologies and services (e.g., catalytic converters on autos and sewerage fees) and indirectly for pollution control costs embedded in goods and services (e.g., the price of electricity may include the costs of electrostatic precipitators and flue-gas desulfurization units to reduce air pollution). Efforts to measure those costs at the national level began shortly after national environmental protection programs emerged in the 1960s. Beginning in the 1970s, several general sources of cost data were widely available. Key sources were annual surveys by the BOC and McGraw-Hill, regular analyses by the BEA and the Council on 1 For an overview of literature on the relationship between Federal regulations, including pollution control requirements, and the economy, see Robert W. Hahn and John A. Hird, “The Costs and Benefits of Regulation: Review and Synthesis,” Yale Journal on Regulation, Vol. 8, no. 233 (1990), 233-278. For a spirited debate reflecting divergent views of pollution control costs, see David Gardiner and Paul R. Portney, “Does Environmental Policy Conflict with Economic Growth,” Resources, no. 115 (Resources for the Future, Spring, 1994), 19-23. Congressional Research Service ˜ The Library of Congress CRS-2 Environmental Quality (CEQ), and various studies by the Environmental Protection Agency (EPA).2 These sources of information varied in coverage, but taken together they provided a multifaceted picture of pollution control costs. The McGraw-Hill surveys ended in 1988; EPA’s reports have appeared irregularly3; and the CEQ ceased analyzing data in the 1980s and recently has merely reproduced data from the BOC and BEA reports. Now, the BOC survey and the BEA analysis—both basic sources to many studies of environmental protection costs—are being discontinued: the BEA explains it “is reallocating resources” toward more “urgent priorities for maintaining and improving the U.S. economic accounts.”4 The survey data and analysis series running from 1972 cease with 1994 (published in 1996), so the 1994 data will be a benchmark for pollution control costs, pending future surveys and analysis. Pollution Abatement Expenditures by U.S. Industries The BOC survey report “Pollution Abatement Costs and Expenditures: 1994” is the last of a series that has been a primary source of data on the costs of pollution control for manufacturing industries. Surveying manufacturing establishments with 20 or more employees, the BOC collects data on capital and operating costs by industry sector. The data also distinguish expenditures by media (air, water, solid/contained waste, and nonmedia); and by state. Additional details are also provided, for example, a breakdown of operating costs; and capital expenditures are presented for three nonmanufacturing sectors, mining, petroleum, and electric utilities.5 Despite the thoroughness of the survey, the figures probably underreport actual costs. In a report on competitiveness in 1994, the congressional Office of Technology Assessment (OTA) analyzed the BOC’s cost data and concluded that the survey may underreport costs by as much as 25%.6 2 For a list and discussion of cost surveys and studies, see U.S. Congress, Senate, Committee on Environment and Public Works, The Status of Environmental Economics: The 1984 Update [Prepared under contract to CRS by J. Biniek] (98th Congress, 2nd session) S. Prt. 98-248 (Washington D.C.: U.S. Govt. Print. Off., 1984), pp. 12-40. 3 In 1990 the EPA published a comprehensive analysis of the costs of environmental protection. Using BOC and BEA data as a starting point, the report expanded the analysis by including additional costs (e.g., drinking water protection), recalculating some costs, and supplementing data by drawing on additional sources. Using actual data through 1987, EPA projected costs through the year 2000. EPA, Environmental Investments: The Cost of a Clean Environment, Report of the Administrator of the EPA to the Congress of the U.S. [EPA-230-1190-083] (Washington, D.C.: 1990). See http://www.epa.gov/docs/oppe/eaed/eedhmpg.htm for other EPA reports on costs. 4 Christine R. Vogan, “Pollution Abatement and Control Expenditures, 1972-1994,” Survey of Current Business (Sept. 1996), 48. The pollution abatement cost programs were among several that were canceled or scaled back during reallocation of resources. 5 The nonmanufacturing petroleum sector includes drilling and retail marketing, while the manufacturing petroleum sector includes primarily refining. 6 U.S. Congress, Office of Technology Assessment, Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities, OTA-ITE-586 (Washington, D.C.: U.S. Govt. Print. Off., 1994), pp. 222-225. CRS-3 From the extensive data reported in the BOC survey, two kinds of figures stand out. First—and often the only question asked of these data—are the total costs of pollution abatement. The BOC’s 1994 survey identified pollution abatement capital expenditures of $7.88 billion for manufacturing establishments and $8.92 billion for nonmanufacturing establishments (see tables 1&2); plus operating costs for manufacturing establishments amounting to $20.67 billion (see table 1)—however, BOC included depreciation in operating costs. Net operating costs7 for U.S. manufacturers totaled $14.1 billion (see table 3). This gives a grand 1994 total of $30.9 billion. Second, within these totals, expenditures concentrate in a few geographic areas and industrial sectors. For 1994, Texas, California, and Louisiana accounted for approximately 35% of pollution abatement capital expenditures. At the same time, four major industry groups—chemicals and allied products, petroleum and coal products, paper and allied products, and primary metal industries—accounted for approximately 73% of new capital expenditures; similarly, pollution control costs were significantly higher for a number of subsectors than for an industry group—for example, the proportion of capital expenditures Table 1: Manufacturing Pollution Abatement Costs and Expenditures: 1994 (millions of 1994 dollars) Manufacturing Capital Air Operating (incl. depreciation) $4,311 $6,139 2,430 7,031 Solid/contained Waste 838 5,601 Nonmedia/other 302 1,899 $7,880 $20,669 Water TOTAL SOURCE: U.S. Bureau of Census; Current Industrial Reports; MA200(94-1) Pollution Abatement Costs and Expenditures, 1994 (Washington, D.C.: U.S. Govt. Print. Off., 1996), p. 3. Table 2: Nonmanufacturing Capital Expenditures for Pollution Abatement: 1994 (millions of 1994 dollars) Nonmanufacturing Mining Air Petroleum Electric Utilities $ 131 $2,628 $3,145 Water 191 1,114 606 Solid/contained Waste 113 449 428 Nonmedia/other 116 473 170 $ 551 $4,189 $4,179 TOTAL SOURCE: U.S. Bureau of Census; Current Industrial Reports; MA200(94-1) Pollution Abatement Costs and Expenditures, 1994 (Washington, D.C.: U.S. Govt. Print. Off., 1996), Table 14, p. 71. 7 OTA, p. 189, note 4 discusses netting operating costs. CRS-4 for pollution control by pulp mills was three times that by the paper industry as a whole (see table 3). Total compliance costs—capital costs plus net operating costs (not including recovered costs and depreciation) also vary substantially among industries. The OTA analysis suggests that share of value added may be the most accurate measure of environmental regulatory burden—since it measures the level of economic activity performed by the establishment, and does not include the cost of materials purchased.8 By this measure, petroleum refining bears the largest burden of pollution control requirements (table 3). National Pollution Abatement and Control Expenditures BEA’s annual “Pollution Abatement and Control Expenditures” analysis, which appeared in Survey of Current Business, takes a broader look at the nation’s pollution control costs. It examines spending for pollution abatement across all sectors of the economy, including personal consumption, business, and government; it also breaks down data by media—air, water, solid wastes, and other. Surveys, including the BOC survey of manufacturing costs, are sources of nearly two-thirds the data; indirect sources and estimates account for the remainder. The primary values of the BEA analysis have been its comprehensiveness and its consistent time-series data, which cover the period 19721994. Overall, the BEA analysis shows the nation spent $121.8 billion for pollution abatement and control in 1994, or about 1.76% of Gross Domestic Product. This represented an increase of 3.1% over 1993; the largest increase was for air pollution control, largely to implement the 1990 Clean Air Act Amendments (CAAA). In terms of evaluating who pays for pollution control, one characteristic of the BEA analysis can be misleading: it attributes pollution control costs to the sector that performs, rather than pays for, the air or water pollution abatement or the solid waste collection and disposal. In response to questions about who bears the costs of pollution control, both CRS and OTA have in earlier years reanalyzed the BEA data to transfer certain costs from those who performed pollution control to those who paid for it. The primary shift was to move costs of private septic systems and sewer connections to personal consumption from business. This reanalysis has been repeated here, adapting slightly the method used by OTA9 (see table 4). This indicates 1994 personal consumption expenditures for pollution control were $22.2 billion, government $35 billion, and business $64.7 billion. Pollution Control Cost Data in the Future The end of the BOC survey and the BEA analysis diminishes the limited data on pollution control costs and adds to the difficulty of fulfilling mandates for improved cost analyses of environmental regulations. For example, EPA’s report, The Benefits and Costs of the Clean Air Act, 1970-1990 [1996], the first in a series required by the 1990 CAAA, relied heavily on BOC and BEA data; sources of cost data when EPA extends its analysis beyond 1994 are problematic. Congress has recently enacted requirements for cost-benefit analyses of other regulations, as well. Even if new data sources for pollution control costs emerge, demonstrating reliability and establishing continuity will take time. 8 OTA, p. 191. 9 OTA, Table 7-1, p. 190. CRS-5 Table 3: Manufacturing Pollution Abatement Costs & Expenditures by Industry: 1994a (millions of 1994 dollars) Capital Expenditures Industry (SIC Code)b Food (20) Tobacco (21) Textile (22) Apparel (23) Lumber (24) Furniture (25) Paper (26) Pulp Mills (261) Printing (27) Chemical (28) Inorg . Chem. (281) Petroleum (29) Rubber (30) Leather (31) Stone & glass (32) Primary Metal (33) Blast furnace (331) Fabricated Metal (34) Plating (3471) Machinery (35) Electronic (36) Transportation (37) Motor vehicles (371) Instruments (38) Miscellaneous (39) TOTAL U.S. Manufacturers Net Pollution Abatement Operating Costsc $ millions $ millions % of Total Capital Expenditures $ 284 3 67 NAe 163 72 648 73 59 2,034 155 2,587 87 6 217 446 231 159 12 297 294 351 233 88 18 2.90% 0.78 2.38 NA 8.31 7.63 9.14 29.32 1.17 13.50 12.83 46.94 1.57 4.83 8.44 6.90 7.36 3.35 8.39 3.47 2.38 3.01 2.68 2.15 2.02 $1,216 26 273 NA 275 112 1,194 104 144 3,396 461 2,051 343 51 438 1,765 1,020 673 136 365 598 856 519 250 79 $7,880 7.40% $14,105 Total Pollution Control Expendituresd % of Value of Shipments % of Value Added $1,500 29 340 NA 438 184 1,842 177 203 5,430 616 4,638 430 57 655 2,211 1,251 832 148 662 892 1,207 752 338 97 0.36% 0.10 0.46 NA 0.52 0.40 1.31 4.08 0.13 1.70 2.70 3.31 0.34 0.64 1.70 1.46 1.81 0.48 3.58 0.23 NA 0.27 0.17 0.25 0.26 0.90% 0.13 0.11 NA 1.34 0.79 2.95 9.38 0.19 3.12 4.48 17.07 0.65 1.31 1.89 3.68 4.56 0.94 5.20 0.45 NA 0.72 0.51 0.38 0.46 $21,985 0.71% 1.48% $ millions a This table lists expenditures and costs reported by industry to the U.S. Census Bureau. It parallels Table 7-2 in U.S. Congress, Office of Technology Assessment, Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities, OTA-ITE-586 (Washington, D.C.: U.S. Government Printing Office, 1994), p. 193, which provides figures for 1991. As discussed by OTA, these data may underreport actual costs, possibly by as much as 20 to 30 percent. b Pollution abatement and control costs data are only for establishments with 20 employees or more. To ensure comparability, total capital expenditures, value-added, and value of shipments were estimated for establishments of 20 employees or more, using ratios from 1992, the most recent year the Census provides data for. c Net Pollution Abatement Operating Costs = Total pollution abatement operating costs including payments to governmental units minus costs recovered and equipment depreciation. d Total Pollution Control Expenditures = Total pollution abatement operating costs including payments to governmental units plus total pollution abatement capital expenditures minus costs recovered and equipment depreciation. e NA = Not Available SOURCES: U.S. Bureau of the Census, Current Industrial Reports; MA200(94)-1; Pollution Abatement Costs and Expenditures: 1994 (Washington, D.C.: U.S. Government Printing Office, 1996). U.S. Bureau of the Census, 1994 Annual Survey of Manufacturers; M94(AS)-1; Statistics for Industry Groups and Industries (Washington, D.C.: U.S. Government Printing Office, 1996). Table 4: Sector Spending on Pollution Abatement and Control, 1991-1994a CRS-6 (millions of current dollars) Sector 1991 1992 1993 1994 Air (motor vehicles)b $ 7,425 $ 7,897 $ 8,436 $ 9,756 Sewage treatmentc 10,995 11,310 11,596 12,394 18,420 19,207 20,032 22,150 25,229 26,639 28,394 31,234 2,288 2,604 2,343 2,201 R&D 633 1,015 1,133 1,304 Other 174 204 154 220 28,324 30,462 32,024 34,959 Plant & Equipment 44,133 48,519 50,636 55,369 Capital 14,173 16,150 17,478 19,094 Operating 31,531 34,325 34,770 38,008 Costs recovered (1,571) (1,956) (1,612) (1,733) Motor Vehiclesb 5,793 5,892 6,625 8,649 R&D 1,235 546 736 685 Subtotal - Business 51,161 54,957 57,997 64,703 $97,905 $104,626 $110,053 $121,812 Personal Consumption Subtotal - Personal Consumption Government Direct expensesd Regulation & monitoring Subtotal - Government Business TOTAL a This table rearranges data from the Bureau of Economic Analysis (BEA); it is similar to Table 7-1 in U.S. Congress, Office of Technology Assessment, Industry, Technology, and the Environment: Competitive Challenges and Business Opportunities, OTA-ITE-586 (Washington, D.C.: U.S. Government Printing Office, 1994), p. 190, which provides figures for 1991 (differences for 1991 between this table and OTA’s derive from slight changes in the method of calculating and from BEA revisions to 1991 data in later years. b BEA divides the costs of mobile source pollution control between personal consumption and business. c Includes private septic systems and sewer connections linking household plumbing to street sewers, and household payments for sewage treatment. d Includes primarily capital expenditures for sewage treatment facilities. SOURCE: Christine R. Vogan, “Pollution Abatement and Control Expenditures, 1972-1994,” Survey of Current Business (September 1996), 48-62. EveryCRSReport.com The Congressional Research Service (CRS) is a federal legislative branch agency, housed inside the Library of Congress, charged with providing the United States Congress non-partisan advice on issues that may come before Congress. EveryCRSReport.com republishes CRS reports that are available to all Congressional staff. The reports are not classified, and Members of Congress routinely make individual reports available to the public. Prior to our republication, we redacted names, phone numbers and email addresses of analysts who produced the reports. We also added this page to the report. We have not intentionally made any other changes to any report published on EveryCRSReport.com. CRS reports, as a work of the United States government, are not subject to copyright protection in the United States. 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