‘;;C 14.1%/:2: X - C» »~"' N..iGj5'R IE) 71Oa<9 m»'%: Hfimv ‘' ya‘ 5* :11 r‘~--'.v V3? 2: {f '7 .”"”"v ‘ '-‘- “sh ' ’ 1;‘. V A t ' ’>-V “ V.’ ' ‘- ' I L: $1‘ ..",‘. S v _: _ ‘. \ «_ ,: .‘ ,_ r_ . . ~ -' _.“ ' _ "’:C'\‘-. ;' ‘ r as ~. v,- u :1 Issue Brief _ ‘A 3-9» 1,. r «/ 427 N03! 1.5 i;:3;s'.* S ; . 7 F» * . _ _,\ . *1 . .u\ ‘ 0 ‘.3 J - v. ,_ 'l . “’"« '‘*J*' F ‘» 7 ; . ‘V "”-v ;‘ yr: gvhm‘ Q-'1-2 A ‘ jv ‘ W 31 -- f'f«‘.;§'; V ‘g £393 a guy: I ..'2.;:’ :2 k x“ 3 x. 0 Md‘ “‘7“" > /L’ \ , ~ \ A77 \\:§§\ gguuufllhlflluakflhl - ~ ;.~.~..--:'."—...-:..".:.‘1;..“--;-—;v,_~"'?'f..'_ _l..L' ~-»-~~--- - _.....—uun SERVICE LIBRARY OF CONGRESS CONGRESSIONAL — RESEARCH % 7 % ENVIRONMENTAL REGULATIONS: ECONOMIC IMPACT ISSUE BRIEF uuuaaa 1379025 AUTHOR: Biniek, Joseph P. Environment and Natural Resources Policy Division THE LIBRARY OF cousanss CONGRESSIONAL RESEARCH SERVICE HAJOB ISSUES SYSTEM DATE OBIGINATED g342§42g DATE nPDATED Q1 gggg FOR ADDITIONAL INFORHATION CALL 287~570O 0125 CRS- 1 1379025 UPDATE-01/2%/83h sU§_2§z.I.§;.t:;.9..r1 £§ The nation has demanded a cleaner environment but it is also committed tot economic growth to enhance the standard of living. with the rising concern over domestic energy supplies, debate has intensified on whether the nation_ can continue its pursuit of both environmental and economic goals. Two pertinent questions remain: (1) whether the costs of pollution control are too high; and (2) whether the costs of environmental enhancement present a significant constraint on resources for consumption. ; §A§l§BQQ!Q.AEQ POLICY A!AL$§l§ The U.S. economy has been experiencing severe economic problems during much of the 1970s. Inflation, unemployment, ,and scarcities, especially energy prices, have affected everyone. These problems have focused attention on the economic effects of government programs. Environmental programs have come under close scrutiny regarding their effects on jobs, prices, and energy demands. ‘ 2 Annually, the Council on Environmental Quality, the Department of Commerce, and the nceraw-Hill Publications Company prepare estimates of pollution abatement costs. As one would expect, the estimates differ because F‘ the use of different cost definitions. CEQ and EPA iestimates relate ,-imarily to Federal legislatiox and to State and local regulations enacted. to comply with the Federal laws. While CEQ estimates do not include costs of mmeeting State and local standards when they are more stringent than the Federal standards, the estimates by the Department of Commerce and ncGraw—Hill usually include these additional costs. Another difference stems from the definition of what is a pollution control expenditure and what is not. CEQ-EPA estimates are based primarily on the cost of installing, maintaining, and operating an “end eof the pipe"- device that has no function other than abatement of pollution. Commerce and ncGraw—Hill estimates often nincluce pollution abatement costs, that are integrated in the production process, which may improve production efficiency as well as reducing pollution. ‘ w 2 The latest CEQ estimate identifies the abatement costs resulting directly from Federal environmental legislation (incremental costs), in total public and private expenditures. Expenditures for air pollution wcontrol in 1977 reached a $32.2 billion level, of which $6.3 billion were capital costs and $5.9 billion were operation and maintenance costs. Capital costs for water pollution control were $2.3 billion in 1977b and operation and maintenance costs were $4.0 billion, for a total of $6.3 billion (Table 1). CEQ reportsi that the 1977 "incremental" annual costs of environmental’ programs ~(those costs resulting from Federal legislation) reached the $19.3 billion level, representing about 1% of the GNP of $1,887.2 billion. a cas- 2 1379025 UPDATE-01/24/80 Table 1: CEQ Estimated Incremental Pollution Abatement Expenditures(1) 1977 (in billions of 1977 dollars) _ 1977 _ _ ~0peration Capital Total and costs(2) annual maintenance costs(3) Air pollution A Public 0.2 0.1 0.3 Private . nobile 2.5 3.0 5.5 Industrial 1.9 2.2 4.1 I.1.1'=.'.1-l;1=..i.§§ 1-3 1-0 2-3 Subtotal 5.9 6.3 12.2 A water Pollution Public 1.3 0.4 1.7 Private Industrial 1.7 1.3 3.0 Q:.i...ll.’§.JZ-.s§ 1-0 0-6 1-6 Subtotal 4.0 2.3 6.3 Radiation Nuclear powerplants . 0.05(5) 0.05(5) » 0.05(5) Solid wastes Public K 0.2 0.1 0.3 Private 3 0.3 0.2 0.5 Subtotal 1 0.5 0.3 0.8 Land reclamation Surface mining * NA;4) NA NA Toxic substances NA NA 1 NA Noise 0 Nb NA NA (1) Incremental costs are expenditures made pursuant to federal environmental legislation beyond those that would have been made in the absence of such legislation. (2) Interest and depreciation . p 5(3) Operation and maintenance plus capitalucosts. 1(4) Nh=Not available. (5) Less than 0.05. . 3 Source:- Environmental Quality. The Ninth Annual Report of the icouncil on Environmental Quality. Dec. 1978: 429. The total environmental expenditures (incremental costs plus expenditures that would be made in the absence of Federal legislation) (of $39.9 billion are about 2% or -the current (GNP. CEQ's -projection (of the annual 1986 incremental costs ($52.4 billion) under current law shown in Table 2, and total costs ($85.9 billion) suggests that polluticn expenditures (incremental and total) are expected to remain at about 1% and 2% of the GNP, respectively. cns- 3 yIB79025 UPDATE—O1/24/80) Table 2: CEQ Estimated Incremental Pollution Abatement Expenditures (1) 1986 (in billions of 1977 dollars) ii“ jjjjjjjjij I 1986 _ Operation Capital Total and ’ costs (2) annual maintenance costs(3) Air pollution Public 2.2 0.9 3.1 Private Mobile 1.4 7.7 9.1 Industrial 3.5 4.7 8.2 Qiilitiée 5-1 3-8 9-9 Subtotal 12.2 17.1 29.3 Water Pollution Public 5.0 2.4 7.4 Private Industrial 4.9 3.9 8.8 9..1.‘;..‘.1.l.;.ti.e§ 1-8 1 - 1 2 -9 Subtotal * 11.7 7.4 19.1 Radiation ‘ Nuclear powerplants 0.05(5) 0.1 0.2 Solid wastes Public 0.4 0.1 0.5 Erizese 1-1 0-5 1-6 Subtotal 1.5 0.6 2.1 Land reclamation Surface mining 0.6 NA(4) 0.6 AToxic substances 0.2 NA-_ 0.2 Noise 0.4 0.5 0.9 TOTAL 26.6 25.7 52.4 (1) Incremental costs are expenditures made pursuant to Federal environmental legislation beyond those that would have been made in the absence of such legislation. (2) Interest and depreciation. (3) Operation and maintenance plus capitalficosts. (4) NA=Not available. (5) Less than 0.05.; 5. Source: -Environmental Quality.) The Ninth Annual Report of the 6 Council on Environmental Quality. December 1978: -429. CEQ also projects a cumulative annual expenditure for the decade in Table 3. The ~1978i report shows lthe 1977-1986 cumulative -incremental costs at 1$361.3 billion and the total costs of $645.3 .billion zsuming the relevant current laws remain unchanged). (Ihe‘ latter figures are occasionally used erroneously’ by comparing them to the A current annual GNP.) CRS- 4 1379025 UPDATE—O1/24/80 Table 3: CEQ Estimated Cumulative Incremental Pollution Abatement Expenditures (1), 1977-1986 (in billions of 1977 dollars) T: jj 2-- j r _____ _Qgmgi§§;ge 1977-1986 Capital Operation Capital Total investment and costs(2) annual maintenance costs(3) Air pollution Public 5.1 15.2 6.0 21.2 Private mobile 51.2 21.3 58.3 79.6 Industrial 18.8 27.3 33.9 61.2 Qtilitigg 20.8 28.5 22.1 51.6 1 Subtotal- 95.9 93.5 120.3 213.6 Water Pollution Public 26.4 31.4 13.8 45.2 Private Industrial 24.0 32.0 24.8 56.8 Qgilitigs 4.2 14.2 8.5 22.7 Subtotal 54.6 77.6 47.1 124.7 Radiation Nuclear poverplants -'0.2 0.1 0.3 0.4 Solid wastes j Public 1.2 2.9 0.9 3.8 ggiggtg 1.8 7.7 1.7 9.4 Subtotal A I 3.0 10.6 2.6 13.2 Land reclamation ._ . Surface mining NA(4) 4.0 NA 4.0 Toxic substances NA ’1.2 5 NA 1.2 Noise 3.0 2.0 2.2 4.2 TOTAL 156.7 188.8 172.5 361.3. \ 524 (1) Incremental costs are expenditures made pursuant to Federal environmental legislation beyond those that would have been 4 made in the absence of such legislation. (2) Interest and depreciation. I (3) Operation and maintenance plus capital costs. \ (4) flA=Not available. Source: Environmental Quality. The Ninth Annual Report of the Council on Environmental Quality. December 1978: 429. cns- 5 11379025 UPDATE-01/24/80 According to studies by the Department of Commerce, private expenditures ror pollution abatement amounted to about $6.9 billion in 1978, or about 4.5% of industry's total investment for new plant and equipment of $153.0 billion (Table 4). Approximately 80% of air and water pollution abatement expenditures were, for "end-of-the-pipe" methods. Changes—in—production processes (CIPP) accounted for the remainder of air and water pollution abatement expenditures. six industries account for $5.2 billion of the $6.9 billion, or about 76% of the private 1977 expenditures for air, water, and solid ,waste pollution abatement expenditures: electric utilities, $2.4 billion; petroleum, $1.3 billion; steel, $0.4 billion; chemicals, $0.56 billion; paper, $0.24 billion; and nonferrous metals, $0.25 billion. These pollution control expenditures amount to 10.0% of total investment for new plant and equipment of $24.5 billion by the electric power industry; 8.2% of the total investment of $15.5 billion by the petroleum industry; 7.8% of the total investment of $7.2 billion by the chemical industry; 7.0% of the total investment of $3.4 by the paper industry; and 10.0% of the total investment of $2.4 billion for new plant and equipment by the non—ferrous metal industry (Survey of Current A Business, June 1978). 0(4) Table 4: Table 4: CBS- 6 1379025 uynarr-01/2a/so Commerce Department Survey New Plant and Equipment Expenditures by U.S. Business: Total and for Pollution Abatement(1) [Millions of dollars] Total(2) nanufacturing.......-......... Durable goods......-......... Primary metals(3)..,........ Blast furnaces, steel works Nonferrous metals...-...... Electrical machinery........ Machinery, except electrical Transportation equipment(3). Motor vehicles....--....... Aircraft(4)............... Stone, clay and glass....... other durables(5).-......... Nondurable goods Food including beverage...... Textiles................-.... Paper............-......-.... Chemicals..............,..... Petroleum..-................. Rubber....................... other nondurables(6)......... 0 0 0 oo o 0 co 0 6'0 0 O uining....................... Railroad......;.............. Air transportation........... Other transportation......... Public»transportation........ EleCtric.OOCOOCCODCDOOOOCCOOH other.COOOO 00.. I COD 0 Communication, commercial OO0.000000.00C‘O (3) Less than-$500,000. (1) iExcludes agricultural business; educational, and cultural services; and nonprofit organizations. 67,646 31,749 5,971 2,622 2,387 3,937 6,416 6,271 4,655 1,396 2,484 6,6704 35,897 4,820 1,022 3,371 7,205 15,560 1,751 2,168 85,444 4,844 3,224 22,362 2,388 29,165 24,590 4,575 43,461 ‘ ----§§ll22i2n-§2e:§m22t.--- 1978 Solid -i2£al.--A;£.--!e2§£---2a§§s 6,924 3,951 1,561 752 441 247 30 111 224 198 23 164 181 2,389 172 29 239 565 1,294 58 32 206 36 154 25 2,5064 2,472 35 185 real estate; 3,642 1,992 901 530 290 189 26 57 93 82 9 109 87 1,092 75 13 105 236 611 40 11 1,649 107 13 ‘1,443 11,431 12 73 2,781 1,652 566 205 140 53 88 46 98 87 10 47 82 1,086 75 8 103 286 586 12 17 1,128 88 28 2 14 908 887 21 89 Pollution abatement operating costs are also excluded. (2) lrabatement expenditures; conducted in November and December 1978. (3) Includes industries not shown separately. Includes guided missiles and space vehicles. 502 306 94 17 10 5 16 9 33 28 5 7 12 211 22 N8 31 42 98 7 4 197 11 (*) 4 156 154 2 22 medical, legal, Estimates of total new plant and equipment expenditures are based on the same surveys as the estimates of pollution from the survey cas- 7 IE? 9025 UPDATE-01/24/80 (5) Consists of fabricated metal, lumber, furniture, instruments, and miscellaneous. consists of apparel, tobacco, leather, and printing-publishing. (6) Cmnsists of communication, trade, service, construction, (7) finance, and insurance Source: Survey of Current Business, June 1979. CRS- 3 I37 9025 upnun-01/T24/so Results of 12th Annual ncGrav-Hill Survey of Pollution-Contro' Expenditures by the private sector (Table 5) are somewhat higher than those developed by CEQ or the Department of Commerce. one reason for the difference, according to the Department of Commerce, is that the hcGraw-Hill estimate includes some items that DOC considers to be maintenance. costs and not capital investments (Sixth Annual Report of the Council or Environmental Quality: 521). The Department of Commerce survey is more accurate, in the view of CEQ, because it is based on more precise questions regarding pollution expenditures and because it is based on a larger sample of firms. Despite the differences, the annual estimates provide benchmark data for’ micro- and macro-economic analysis of pollution abatement. The CBQ estimates are probably more useful for aggregate analysis since they include both public and private expenditures. CBS- 9 IB79025 UPDATE-01/24/80 Table 5: HOW MUCH INVESTIIENT GOES FOR POLLUTION CONTROLS TOTAL AIR, WATER AND SOLID WASTE (Millions of Dollars) Actual Planned £!P..Q§1'.§Z ._J.22§.. ..l.9.22.._ Iron 6 steel $ 425 $ 675 Nonferrous Metals 293 224 Electrical Machinery 134 216 Hacninery 1 243 280 Autos, Trucks 6 Parts 193 619 Aerospace 5 45 66 other Transportation Equipment 10 8 Fabricated metals 137 192 Instruments 58 68 Stone, Clay 6 Glass 207 203 other Durables 190 307 TOTAL DUBABLES 1,935 2,858 Chemicals 547 639 Paper 274 474 Rubber 100 78 Petroleum 834 1,330 Food 5 Beverages 309 273 Textiles 81 48 other Nondurables 67 111 TOTAL NONDURABLES 2,212 2 ,953 ALL MANUFACTURING 4,147 5,811 mining 511 514 Railroads 54 78 Airlines 20 58 other Transportation 43 54 Communications Commercial 380 364 Electric Utilities 2,791 3,021 Gas Utilities 60 65 ALL NONMANUFACTURING 3,859 4,154 ALL BUSINESS 8,006 9,965 (1) Commercial figures based on large chain, mail order and department stores, insurance companies, banks and other commercial abusinesses. ' 12th Annual ncsraw-Hill Survey of Pollution Control Expenditures- - SOIIIICG: cns-10 IB79025 UPDATE—O1/24/80 BENEFIT ANALYSES The widespread concern about the costs of environmental regulations stems, in part, from the absence of comparable estimates of the benefits of pollution control. Benefits are more difficult to measure because they are commonly less tangible to those subject to regulation than the costs. Benefits are frequently spread among a larger population and the direct benefit to each individual may be relatively small. The aggregate benefit, however, may be substantial. The major challenge in benefit analysis is to find the appropriate method of placing monetary values on such elements as economic stability; confidence in business; maintenance of rural areas, small, towns, and urban residential areas; clean air and water; good health land reduction of pain and suffering; and life. The great variation in damage estimates suggests that the challenge is great. For example, evaluations placed on premature death range from $3,900 to $300,000; estimates of costs of illness due to photochemical oxidants range from $1 to $50 per hour, to $32 per day. Estimates of crop and vegetation damage range from $200 million to $2.9 billion annually. The wide variations in these estimates raise questions as to the comprehensiveness, accuracy, objectivity, and usefulness of the benefit or damage information for decision—making. To be useful to decision-makers, the benefit analyses must approach the sophistication of cost estimates. (For more information, see issue brief 80012 -- Benefit-Cost hhnalysis and Environmental Decision Making.) ' EMPLOYMENT EFFECTS .Critics of environmental programs commonly stress that environmental expenditurest affecti employment in two ways. First, they assert that pollution control expenditures are non-productive vexpenditures that reduce production capacity and therefore reduce employment opportunities. Second, pollution control expenditures hasten plant closures and directly increase unemployment. I ’ I The Environmental Protection Agency's s(EPA) "Early warning System" indicates that the closure of 118 plants from 1971 through December 1977 affected 21,900 employees (The Ninth Annual Report of CEQ: 032). The Department of Commerce has surveyed plant closings associated with pollution control requirements. In 1977, less than one-half oft 1%v of the survey respondents closed a facility in 1977. ~The Commerce survey shows that 98% of the 131 permanentx closings involved moutdatedl facilities, rising costs, declining sales, and other factors (Survey of Current Business, June; 1978).v It is not clear what plant closings mean, either in terms of economics impact «or in terms of lost jobs. nany closures take place in older facilities where economic consideration probably would have forced closure.. Regardless of the cause of closure, affected employees do not necessarily remain unemployed. For example, 0.5. Steel's closure of the Gary Indiana open-hearth furnace affected 2,500 workers but only 250 to 500 actually lost their jobs.~ In as vigorous economy, production lost from plant closings is .liKely Ito * transferred to another ‘facility (Pollution Control and Employment, CBt, February 1976: 3-0). 1 Plant closure data present only a partial view of the employment figures. A common employment stimulant during periods of recession is government and private expenditures; capital expenditure, even for pollution abatement, can CBS—11 j IB79025 UPDATE-01/24/80 generate employment opportunities. CEQ analyses indicate that the net impact af environmental programs is positive. They suggest that the $15.7 billion ,n environmental expenditures by private and public sectors in 1975 may have generated as many as 1.1 million new jobs. New job opportunities and increased national output occur in a new industry producing pollution control equipment, in research, in construction and installation of new facilities, and in operation and maintenance of these facilities. Critics argue that in the absence of environmental laws this investment would have been made in_ conventionally productive enterprises with comparable employment effects. The Bureau of Labor statistics reports that 66.9 jobs are generated for every million dollars expended by the Federal .governmentl for pollution control. This compares with 49.8 civilian jobs generated per million dollars of defense expenditures (in. 1972), and 73.9 for nondefense expenditures. (Impact of Federal Pollution Control and Abatement Expenditures on Manpower Requirements. Bulletin 1836. Bureau of Labor Statistics. 1975: vii.) It should be noted, however, that the measurement tools and data in this area are in dispute and the employment impact of environmental regulation will remain controversial until more accurate measurements are completed. . q PRODUCTIVITY The issue of the impact of pollution control on productivity has been raised by Edward Denison, Senior Economist with the Brookings Institution. His study of the impact on productivity of pollution control, employee health and safety legislation, and increases in dishonesty lead him to conclude that .e 1975loutput-was'1.8% smaller than it would have been if business had «operated under 1967 conditions. Pollution control was held responsible for more than half of the 1.8% tdecrease in productivity. vThe Macroeconomic, Impact of Federal Pollution Control Programs: 1978 Assessment, by Data Resources, Inc., indicates that productivity was 0.5% lower by 1978 and will be 1.4% lower by 1986 given the pollution control requirements. ‘ 1 Both studies assume that pollution control expenditures are “nonproductive" and, as such, they are extra investment costs to industry., Neither study attempts to assess the benefits that are derived from pollution control and that accrue to society or the individual firm. Furthermore there is no indication that either study considered the impact of changes in production processes (CIPP) as a pollution control method. .CIPP, according to the Commerce survey, accounts for about 20% of business pollution control expenditures. 1 1 Studies of some individual corporate programs suggest significant changes in production with concomitant cost reductions as a yresultm of pollution abatement.v For example, Dow Chemical reports that some of its pollution control expenditures have yielded a 10% return on investments, while other pollution -control investments are recovered in 1 ones year. The 3M Corporation's 0 “Pollution Prevention Pays“ (3P) . program. stresses * conservation—oriented technologies that prevent pollution. In the first year land a half the 3P projects eliminated the:equivalent of 73,000 fit0DS'-Of air rprllutants and 500 million gallons of waste water. The net savings of the 3P p igram was $11 million in actual or deferred pollution control equipment and operation, energy and raw material savings and product sales.v Bostonls North Shore refuse plant burns 038,000 tons of garbage per year to produce steam equal to energy value to 27 million gallons of fuel oil. Deere B .Co. burns waste material in solid waste incinerators at Dubuque, Iowa, to generate vsteam for the factory, saving $1,175 per day in waste disposal and fuel CRS‘12 IB79025 UPDATE-01/24/30 C'0StS . INFLATION EFFECTS For some time, the economy has been operating with an underlying inflation_ rate of about 6% annually. This problem is the impetus (for a concentrated effort to achieve a deceleration of inflation.v Because certain types of expenditures divert input from production and reduce the output per unit of, investment, it is argued, by some, that environmental _expenditures increase product prices and intensify inflation. Studies undertaken by CEQ, Brookings Institution, and Data Resources, Inc., with the underlying assumption that pollution control expenditures do not provide a compensating increase in production, arrive at similar conclusions: Pollution abatement expenditures create a noticeable but not large impact on inflation. All three studies establish the inflation rate impact of environmental expenditures at about 0.3% - 0.5% per year (The Economic Impact of Environmental Regulation: A study, "The Macroeconomic Impacts of Federal Pollution Control Programs: 1976 Assessment" prepared for‘ CEQ and EPA by the Chase Econometrics Associates, Inc., states: The fact that some price increase does occur is no surprise, since it is assumed that pollution control expenditures do not increase output per unit of labor or capital. The increased aggregate demand caused by the pollution control expenditures with no compensating increase in aggregate production inevitably results in higher prices. The amount of inflation will depend upon how much "slack" there is in the economy. At “full employment,“ the price increases caused by the additional demand would be greater than during a period of sluggish economic growth or actual decline. Even with a sluggish economy, however, there will be some price increase as firms pass on higher production costs in the form of higher prices, and as resources are competed away from other sectors to the production and installation of pollution control equipment. Studies by the Joint Economic Committee on the causes of inflation and such inflation-related problems as Federal spending; tight money and high interest; food, fuel and other shortages; credit policies; export policies; international exchange rates and indexing, as called for by S.Con.Res. 93, lead it to conclude: There should be no general relaxation of environmental standards for the same of reducing inflationary pressures because:" (1) The benefits of this investment clearly exceed the costs, (2) their contribution to inflation has been and will continue to be minimal, (3) delays will only increase the ultimate cost of environmental cleanup, and (4) the stimulative effect of these expenditures on employment in the near future will be beneficial to the economy (Achieving Price Stability through Economic Growth: 41-42). CBS-13 1379025” UPDATE—01/24/80 The Council on Wage and Price Stability, although not advocating_ relaxation of environmental regulations, suggests that major reductions in costs might be obtained by changes in approaches to achieve given goals.‘ The Council believes that substitution oi standards with fees or penalties, for uniform treatment requirement would result in significant cost and price reduction (Special Report on Inflation, No. 13: 107-108). (ENERGY IHPLICATIONS "Energy conservation and pollution control goals are in direct conflict. And the situation looks grim. Unless there are some technological breakthroughs soon, environmental requirements will pose a formidable demand on scarce energy sources" (Business Week, Mar. 29, 1976:’ 72). This statement by the director of environmental control at U.S.v Steel Corporation is widely echoed by industry spokesmen. _A formidable addition to this argument stems from a U.S. Department of Commerce study that suggests that environmental controls by 1983 could consume as much as 8.2% of, total energy input by industry. In contrast, a recent study by EPA indicates a much different view, namely,i that (pollution abatement accounted for approximately 2% of the 1977 national energy use., This may grow to about 3% within the next decade. . It is reported that at least some technologically advanced facilities are, thieving pollution control limitations without expanding additional energy. :0: example, Florida Power Corporation replaced ten burners with Air Pressure Recovery burners and reduced pollution by.40% while reducing oil consumption =by~ 4,000 barrels per year. The 3n Corporation's 3P program reduced fuelecosts by $150,000 per year. A capital expenditure of $4.2 million to improve water treatment by the Philadelphia Water Department is expected to 0 reduce power consumptions by’ $600,000 a 7year. The Aluminum Company of America has cut energy, consumption- by’ 30% vbyt utilizing fluidized bed technology while eliminating fluoride emissions. Conversion of all, potlines will reduce water requirements by 80 million gallons per day. i The President's position is succintly stated in the President's National Energy Plan (HEP): “there is no insurmountable vconflict between the twin objectives of meeting energy -needs and protecting the quality of the environment." REGULATORY ANALYSIS The President, by Executive Order 11821, Nov. 27, 1974, directed executive branch agencies to evaluate the inflationary impact of major proposals for legislation and for the promulgation of regulations or rules. The Office of mnanagement and Budget r(0HB), by ~its acircular no. A-10? implements the Executive 0rder.i It requires: (1) an analysis of the principal cost or other inflationary eifects of the actions on markets, ’consumers, businesses, etc., and where practical, an analysis of secondary cost and price effects. These analyses should have as much quantitative 1 precision as necessary and should focus on a time period sufficienu to determine economic and CRS-14 1379025 UPDATE-O1/2%/80, inflationary impacts. (2) a comparison of the benefits to be derived from the proposed action with the estimated costs and inflationary impacts. These renefits should be quantified to the extent practgcal, and (3) a review of alternatives to the proposed actions that were considered, their probable costs, benefits, risks, and inflationary impacts compared with those of the proposed action. T The Council on Page and Price Stability in the Executive office of the President, played a role in programs established by Executive Order 11821 and OMB Circular no. A-107. on Mar. 23, 1978, the President issued Executive Order 120u4 establishing procedures for “Improving Government Regulations.“; This Order supercedes Executive Order 11821 and establishes a Regulatory Analysis Review Group (RARG) headed by Charles L. Schultze, chairman of the Council of Economic Advisers (CEA) and includes member representatives from about a dozen, economic and regulatory agencies. ~1 A The major objectives of Executive Order 12044 is to improve existing and future regulations through a process that ensures: (a) the need for and purposes of the regulation are clearly established. (b) heads of agencies and policy officials exercise effective oversight; T (c) opportunity exists for early participation and comment by other Federal agencies, State and local governments, businesses, organizations and individual members of the public; (d) meaningful alternatives are considered and analyzed before the regulation is issued; and (e) compliance costs, paperwork and other burdens on the public are minimized. A Regulatory Council established in October by the President has these; vpurposes: to eliminate unnecessary economic and administrativef burdens; eliminate duplication, overlaps, and inconsistencies; accelerate efforts to carry out effective research, regulatory development, and enforcement; and establish a regulatory icalendar. Douglas Castle was named the first chairman. 1 m The debate as to whether the benefits of environmental regulations exceed .their costs was intensified by the announcement ‘by Robert Strauss, the President's special icounsel on Inflation, on Apr. 20, 1978, that environmental regulations would be a prime target in his fight against inflation. mflis statement was clearly echoing the views of; many; businessman that the costs of environment regulations result in vinflationary price increases. Actions of RARG have also raised issues surrounding the role of economics in the regulatory process. The RARG, along with many economists and industry spokesmen, has called for greater use of benefit-cost. analyses. iEnvironmentalists, some legislators, and other groups, question whether; such analyses can produce a credible input into decision-making, given 1 formidable conceptual problems associated with benefitwcost analysis and they benefit data deficiencies. The challenges to economists are great: 0 Should attempts be made to place a dollar value on life or health? cns-15 IB7 9025 UPDATE-01/211/80 o If not, how are rational decisions to be made on incremental additions or decrements to environmental protection programs? o Can such cost/benefit relationships be established in an objective and politically feasible manner? a o How are dollar values related to moral values in protecting flife and health? Comparable questions are raised in relation to health care, national idefense, etc. 0 Should the role of economics be confined. to minimizing them cost of; established goals? The controversy over the economics of regulations is but one facet of debates on the total impact of regulation. other vrelated components that affect costs within the regulatory maze include: permit requirements; site selection, public comment; conflicting federal, state and local requirements, ifuture requirements, and environmental impact statements. L§§l§LA$lQE In the 96th Congress, a number of bills were introduced which, among other purposes, would require the use of benefit-cost analyses or other analyses to reduce the costs of regulation. Representative of these are: vH.R. 2039 (oberstar) Establishes national policies to promote government programs providing the greatest net public benefits; requires cost/benefit assessment of ;proposed legislation or regulation for economic impact. Introduced Feb. 8, 1979; referred to the Committee on Government Operations. H.R. 3023 (Bitter) Requires the Environmentale Protection; Agency and thel Food and Drugm Administration to prepare a comparison of risk prior to the promulgation of any rule or regulation. Introduced Mar. 15, 1979; referred to the Committees on Interstate and Foreign Commerce and on Merchant Marine and Fisheries. I H.B. 6040 (hoorhead et al.) W Amends the Administrative Procedure Act to require Federal agencies to‘ yanalyze the benefits, costs, and other adverse ieffects of proposed rules; provides for judicial review of any such; analysis; increases public participation in agency policy determinations and interpretations; and has other purposes. Introduced Dec. 5, 1979; referred to mcommittee on the ‘Judiciary. S. 52 (Bentsen) Reduces duplicative and conflicting Federal rules or regulations, and has cc ‘er purposes.i Introduced Jan. 15, 1979; rreferred to the Committee on leovernmental Affairs. e S .9 53 (Bentsen) «Modifies the procedures used for the promulgation of rules or regulations CBS-16 1137 9025 UPDATE-0 1/24/30 by the independent regulatory agencies, and has other purposes. Introduced Jan. 15, 1979; referred to the Committee on Governmental Affairs. ~ 3. 54 (Bentsen) Reduces; the costs of Federal regulations, and has iother purposes. Introduced Jan. 15, 1979; referred to the committee on Governmental Affairs. 3. 262 (Bibicoff et al.) Provides for the regulatory analysis of proposed rules and the review of existing rules by the agencies, makes other- improvements in regulatory procedures, establishes the Administrative Conference of the United states, and has other purposes. Introduced Jan. 31, 1979; referred to the Committees on Governmental Affairs and on the Judiciary. § K S. 755 (Bibicoff et al.) Makes regulations more cost-effective, ensures periodic review of regulation, improves regulatory planning and management, eliminates needless legal formality and delay, enhances public participation in the regulatory process, and has other purposes. Introduced Mar. 26, 1979; referred to more than one committee. 5. 1969 (Dole et al.) Amends the Administrative Procedure Act to require Federal agencies to analyze the benefits, costs, and other adverse effects of proposed rules, i provide for judicial review of any such analysis, to increase public participation in agency policy determinations and interpretations, sand for other purposes. Referred to the Committee on the Judiciary. I S. 21u7 (Culver et al.) Establishes the Regulatory Policy Board, provides‘ for they regulatory analysis of proosed major rules to improve rulemaking procedures affecting small businesses and local ugovernments, requires the Congress and the ‘President to review certain regulatory agencies, increases competition tin regulated industries, makes other improvements in regulatory procedures, and‘ has other purposes. Introduced Dec. 18, 1979; referred to Committees on the Judiciary and on Governmental Affairs, jointly, by unanimous consent. m§§A§l!§§. 0.3. Congress. House. Committee on Banking, Finance and I 4- Urban Affairs.v Subcommittee on Economic Stabilization. The AdministrationFs anti-inflation program. Hearings, 95th Congress, 2d session. June 21, July 12 and 26, 1978. Washington, U.S. Govt. Print. Off., 1978. 0.5. Congress. Joint Economic Committee. vThe cost of government regulation. Hearings, 95th Congress, 2d session. Apr. 11 and 13, 1978. Washington, U.S. Govt. Print. Off. -—-- The economic impact of environmental regulations. ~Hearings, 93rd Congress, 2d session.v Nov. 19, 21, and 1974. mwashington, U.S. Govt. Print. Off. CBS-17 IB79025 UPDATE-01/24/80_ ---- Subcommittee on Economic Growth and Stabilization. The cost of government regulation. Hearings, 95th Congress, 2d session. Apr. 11 and 13, 1978. Washington, U.S. Govt. Print. Off., 1978. u.s. Congress. isenate. Committee on Banking, Housing, and Urban Affairs. Anti—inflation proposals. Hearings, 95th Congress, 2d session on oversight on inflation policies and tax-based anti-inflation proposals. May 22 and 23, 1978. Washington, U.S. Govt. Print. 0ff., 1978.15 U.S. Congress. Senate. Committee on Environment and Public Works. subcommittee on Environmental Pollution. Implementation of the Clean Air Act, 1975. Hearings, 94th Congress, 1st session. may 20-21, 1975. Enforcement of environmental regulations. Hearings, 96th Congress, 1st session. may 23 and 24, 1979. Washington, U.S. Govt. Print. Off., 1979. "Serial no. 96-H16" -—-— Executive branch review of environmental regulations. A Hearings, 96th Congress, 1st session. Feb. 26 and 27, 1979. Washington, U.S. Govt. Print. Off., 1979. "Serial no. 96-H4" U-S.. Congress. Senate. Committee on Governmental Affairs. Subcommittee on Intergovernmental Relations. The Regulatory Reform Act of 1977. ‘Hearings, 95th Congress, 1st session, on s. 600. hay is, 2a, 25 and June 3, 1977. Washington, U.S. Govt. Print. Off., 1977. 352-31§_AE2-QQE§3§§§£Q§AL.Q9§£§§HT§ Office of the President. Economic report of the President, together with the annual report of the Council of Economic Advisers. ‘January 1978. Washington, U.S. Govt. Print. Off. -+--+ Environmental Quality:9 the ninth annual report of the Council on Environmental Quality. December 1978. Washington, --—- A special report on inflation. acouncil on Wage and Price Stability report no 13.1 April 1978. Washington, U.S. Govt. Print. Off. nU.S. Congress. Joint Economic_Committee. Achieving price stability through economic growth. Committee Print. Union Calendar No. 000. (93rd Congress, 2d session. House. Report no. 33-0000) - ---- The costs of government regulations of business. Washington, At head of title: 95th Congress, 2d session. Committee print. CBS-18 IB79025 UPDATE-01/24/80 0.5. Congress. senate. Committee on Energy and Natural Resources. The President's energy program. may 1977. At head of title: 95th Congress, 1st session. Committee print. ' Publication no. 95-16. 0.5. Congress. Senate. Committee on Environment and Public Works. The status of environmental economics: an update. July 1979. Washington, 0.5. Govt. Print. Off., 1979. At head of title: 96th Congress. 1st session. Committee print. “Serial no. 96-6.“ 0.5. Congress- Senate. Committee on Governmental Affairs. Study on federal regulation.l December 1978. Prepared pursuant to 5.Res. 71. Volume VI: Eramework for regulation. Washington, 0.5. Govt. Print. Off., 1978- At head of title: 95th Congress, 2d session. Committee print. Study on federal regulation. December 1978. Prepared pursuant to S.Res. 71. Appendix to Volume VI: Framework for regulation. Washington, 0.5. Govt. Print. Off., 1978. 96th Congress, 1st session. Senate doc. no. 96-14. 0.5. Congress. Senate. Committee on Public Works. Air quality and automobile emission control (a report by the National Academy of Science). v. a, September 1974. At head of title: 93d Congress, 2d session. Committee print. “Serial no. 24" ---- Pollution taxes, effluent charges, and other alternatives for pollution control. may 1977. At head of title: 95th Congress, 1st session. Committee print. "Serial no. 95-5“ ---- The status of environmental economics. June 1975. At head of title: 94th Congress, 1st session. Committee print. “Serial no- 94-6“ §§R0NQLQ§Z_Q§-§!§!$§ O2/27/79 — O2/28/79 - Hearings held on Executive Branch Review of Environmental Regulation before the Senate Subcommittee on Environmental Pollution. 10/O0/78 -— Regulatory Council established by the President. 05/22/78 -O5/23/78 -— Hearings on anti-inflation, Senate Committee I A A on Banking, Housing and Urban Affairs. 04/20/78 -- Robert Strauss announced that the Postal Service, Teamsters Union, and environmental regulations are targets for inflation control. U8/07/77 -— Clean Air Act of 1977 (P.L. 95-95) enacted. 03/00/77 03/23/78 05/21/75 11/19/70 06/25/74 10/24/73 CRS—49 Provides, among other things, for study by the National Commission on Air Quality of the economic, technology and environmental consequences of achieving or not achieving the purposes of the Act (Section 323) and provides for an EPA-CEA study and assessment of economic measures for control of air pollution (Section #05). HAS completed a 3-year study for EPA. Regulatory Analysis Review Group established by Executive Order 1204fl. senator Muskie and Mr. Train, EPA Administrator, debated and discussed the balancing of costs against emission controls (hearings on the implementation of the Clean Air Act-1975). and 11/21/74 and 11/24/74 -- Joint Economic Committee held hearings, pursuant to S.Con.Bes. 93, on “The Economic Impact of Environmental Regulations." S.Con.Res. 93 introduced by Proxmire, Hansfield, and Javits directing an emergency study of inflation and the economy . P.L. S3-135 enacted. It directs EPA to contract with the National Academy of Sciences for a series of analytical advisory studies. The studies are to include: 1. The estimated cost of pollution abatement activities ‘over the next decade and the benefits to be derived versus the cost. (If we are to spend $287 billion over ‘the next decade, as estimated by EPA, how can we get the maximum pollution control for our money?); 2. The degree to which environmental regulations have contributed or will contribute to the current and_the long—term energy crisis; 3. The effect of emission control standards on the cost and performance of automobiles, including the cost/benefit iimplications of present standards; E4. The benefits and hazards to humans of agricultural and home use chemicals, such as pesticides, herbicides, Arodenticides and fertilizers; and the effect on food and fiber production and the protection of human health of the inability to use those chemicals now banned or restricted;,and 5. The utilization of scientific and technical personnel and the identification of policy level positions that should be staffed with scientific or technical personnel. IB79025 UPDATE-01/2Q/80% CBS-20 IB7 9025 UPDATE—0 1/2a/80 ADELE;Q!AL-§-§§§§!Q§-§Q§§§E American Lung Association. The health costs of air pollution: A survey of studies published 1967-1977. New York. 1978. Arthur Andersen 8 co. Cost of government regulations study. For The Business Boundtable. Executive Summary. March 1979. Chase Econometric Associates. The macroeconomic impact of Federal pollution control programs: 1976 assessment. A report prepared for the Council or Environmental Quality and the Environmental Protection Agency. 1976. I Data Resources, Inc. The macroeconomic impact of federal pollution control programs: 1978 assessment. Jan. 11, 1979. Denison, Edward F. Effects of selected changes in the institutional and human environment upon output per unit of input. Survey of Current Business, January 1978. The Environmental Industry Council. Economic growth pith environmental quality: representative case studies. February 1977, Washington. Lave, Lester and Eugene Seskin. Air pollution and human health. .Published for Resources of the Future by Johns Hopkins University Press. Baltimore-i 1977. Leung, Kenneth and Jeffrey Klein. The environmental control 1 industryzy an analysis of conditions and prospects for the pollution control equipment industry. A report submitted lto the Council on Environmental Quality, December 1975. National Academy of Sciences. Analytical studies for the u.s. Environmental Protection Agency. Vol. I: Perspectives on Technical Information for Environmental Protection. P 9 “ Vol. II: Environmental Decision Making. Vol. III: Research and Development in EPA. vol. IV: Environmental Monitoring. Vol. V: auanpover for Environmental Pollution Control.n Vol. VI: Implications of Environmental Regulations for Energy Production and Consumption. Vol. VII: Pesticide Decision Making. CRS-21 IB79025 UPDATE-O1/Zfl/80 Vol. VIII: bultimedium Approach to municipal Sludge management. Vol. IX: Societal Consequences of Transportation Noise Abatement. Vol. X: Disposal in the Marine Environment. Organization for Economic Co-operation and Development. Macro-economic evaluation of environment programs. Paris, 1978. Resources for the Puture. Current issues in U.s. environmental policy. Baltimore: The Johns Hopkins University Press. 1978. 8.5. Department of Commerce. Capital expenditures by business for pollution abatement, 1978 and planned 1978 [in]. Survey of Current Business. June 1978. ---- Energy consumption of environmental controls: fossil fuel.» steam electric generating industry. march 1977. ---- Pollution abatement costs and expenditure, 1975. March 1977. (bA—200(75)-4) 0.5. Department of Labor- Impact of Federal pollution control and abatement expenditures non manpower requirements. Bureau of Labor Statistics. Bulletin 1838, 1975. Washington. U.S. Environmental Protection Agency. vFirst order estimates of energy requirements for pollution control. February 1978. (EPA-600/7-78-O22) U.S. Environmental Protection Agency._ Office of Health and Ecological Effects. vcritical review of estimating benefits of air and water pollution control. June 1978. methods development for assessing air pollution control benefits. Volume I: Experiments in the Economics of Air Pollution Epidemiology; Volume II: Experiments in Valuing Hon-harxet Goods, etc.; Volume III: A Preliminary Assessment of Air Pollution Damages for Selected Crops within Southern California; Volume IV: Studies on Partial Equilibrium Approaches to Valuation of .Environmental Amenities; Volume V:. Executive Summary. U.S.- Environmental Protection Agency. Office of Planning and management. The cost of clean air and vater. Report to Congress. August‘1979. (EPA 230/3-79-001) _?m§ i V E,-I-1, If R‘ ~1~_ I LE =13‘. '. fix‘-‘ r-‘E ‘-4 G‘ '3 .1 E“-E N €3Ti3 N UNQ'%_+‘Ei‘-‘$3;-E«“i"a‘ ST. u.-cm%.i;5 — ‘MO.