Environmental Protection: How Much It Costs and Who Pays

Environmental Protection: How Much It Costs and Who Pays

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

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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
2For 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.
3In 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-230-11-
90-083] (Washington, D.C.: 1990). See http://www.epa.gov/docs/oppe/eaed/eedhmpg.htm for
other EPA reports on costs.
4Christine 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.
5The nonmanufacturing petroleum sector includes drilling and retail marketing, while the
manufacturing petroleum sector includes primarily refining.
6U.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.

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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
Operating (incl. depreciation)
Air
$4,311
$6,139
Water
2,430
7,031
Solid/contained Waste
838
5,601
Nonmedia/other
302
1,899
TOTAL
$7,880
$20,669
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
Petroleum
Electric Utilities
Air
$ 131
$2,628
$3,145
Water
191
1,114
606
Solid/contained Waste
113
449
428
Nonmedia/other
116
473
170
TOTAL
$ 551
$4,189
$4,179
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.
7OTA, p. 189, note 4 discusses netting operating costs.

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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 1972-
1994. 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.
8OTA, p. 191.
9OTA, Table 7-1, p. 190.

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Table 3: Manufacturing Pollution Abatement Costs & Expenditures by Industry: 1994a
(millions of 1994 dollars)
Capital Expenditures
Net
Total Pollution Control Expendituresd
Pollution
Abatement
Industry
% of Total
Operating
% of Value
% of
(SIC Code)b
$
Capital
Costsc
$
of
Value
millions
Expenditures
$ millions
millions
Shipments
Added
Food (20)
$ 284
2.90%
$1,216
$1,500
0.36%
0.90%
Tobacco (21)
3
0.78
26
29
0.10
0.13
Textile (22)
67
2.38
273
340
0.46
0.11
Apparel (23)
NAe
NA
NA
NA
NA
NA
Lumber (24)
163
8.31
275
438
0.52
1.34
Furniture (25)
72
7.63
112
184
0.40
0.79
Paper (26)
648
9.14
1,194
1,842
1.31
2.95
Pulp Mills (261)
73
29.32
104
177
4.08
9.38
Printing (27)
59
1.17
144
203
0.13
0.19
Chemical (28)
2,034
13.50
3,396
5,430
1.70
3.12
Inorg . Chem. (281)
155
12.83
461
616
2.70
4.48
Petroleum (29)
2,587
46.94
2,051
4,638
3.31
17.07
Rubber (30)
87
1.57
343
430
0.34
0.65
Leather (31)
6
4.83
51
57
0.64
1.31
Stone & glass (32)
217
8.44
438
655
1.70
1.89
Primary Metal (33)
446
6.90
1,765
2,211
1.46
3.68
Blast furnace (331)
231
7.36
1,020
1,251
1.81
4.56
Fabricated Metal (34)
159
3.35
673
832
0.48
0.94
Plating (3471)
12
8.39
136
148
3.58
5.20
Machinery (35)
297
3.47
365
662
0.23
0.45
Electronic (36)
294
2.38
598
892
NA
NA
Transportation (37)
351
3.01
856
1,207
0.27
0.72
Motor vehicles (371)
233
2.68
519
752
0.17
0.51
Instruments (38)
88
2.15
250
338
0.25
0.38
Miscellaneous (39)
18
2.02
79
97
0.26
0.46
TOTAL U.S. Manufacturers
$7,880
7.40%
$14,105
$21,985
0.71%
1.48%
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

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(millions of current dollars)
Sector
1991
1992
1993
1994
Personal Consumption
Air (motor vehicles)b
$ 7,425
$ 7,897
$ 8,436
$ 9,756
Sewage treatmentc
10,995
11,310
11,596
12,394
Subtotal - Personal Consumption
18,420
19,207
20,032
22,150
Government
Direct expensesd
25,229
26,639
28,394
31,234
Regulation & monitoring
2,288
2,604
2,343
2,201
R & D
633
1,015
1,133
1,304
Other
174
204
154
220
Subtotal - Government
28,324
30,462
32,024
34,959
Business
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
TOTAL
$97,905
$104,626
$110,053
$121,812
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.

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