A Summary of
               Recent Studies
              Prepared for the
Council on Environmental Quality, Department of Commerce, and
              Environmental Protection Agency
              March 1972


                      AN OVERVIEW

     The purpose of this overview is to put into perspective
studies which were conducted to assess the economic impacts
of air and water pollution abatement requirements on a
number of industrial activities.

     The studies were conducted under contract with the
Council on Environmental Quality, the Environmental Protec-
tion Agency, and the Department of Commerce.  The Council of
Economic Advisers provided guidance on economic methodology
for the studies.

     The contractors' reports included summaries, detailed
analyses, and background data.  Reprinted in this volume are
the summaries of the reports prepared by the contractors.

     Adequate data are not yet available on all the ways in
which pollution control requirements will affect industrial
activity.  Environmental standards as well as the changes
being induced in the way materials are extracted, processed,
transported, fabricated, consumed and ultimately disposed of
are not only extensive but still evolving.  Comprehensive
studies would require a great deal more time to conduct than
was allotted to these preliminary analyses.

     In view of these recognized limitations, none of the
studies can be considered definitive presentations of total
impact on the industrial activities examined or on the economy.
However, it is reasonable to believe that the relative rela-
tionship of postulated standards and pollution abatement cost
consequences are at least indicative of the nature and order
of magnitude of the economic impacts.

     In general, the studies found that the impact of those
pollution control costs that were estimated and examined
would not be severe in that they would not seriously threaten
the long-run economic viability of the industrial activities
examined.  However, the estimated impact is not inconsequen-
tial in that there are likely to be measurable impacts both
on the economy as a whole and on individual industries.


     Pollution abatement regulations have been implemented
by government at all levels in order to reduce the substan-
tial and rising costs society has been bearing as a result

of pollution.  These costs are reflected to varying degrees —
sometimes subtly, sometimes directly — in such factors as
increased demands for medical services, property devalua-
tions, lost man-hours of productive work, lower crop yields,
shorter useful lives of man-made structures, animal losses,
and soiling costs, as well as in such considerations as
aesthetics and the quality of life.

     In the absence of public action, the full costs to
society of producing goods are not reflected in the prices
of goods since society rather than the producer bears the
costs of pollution.  Environmental regulations are a means
to "internalize" these costs by requiring producers to bear
the costs of pollution abatement.  As prices change to reflect
pollution abatement costs, consumers can be expected to
shift their purchases to relatively less expensive goods which
are produced with lower pollution abatement costs.  Hence,
more low-pollution and fewer high-pollution products will be
produced.  As a result, less pollution will be created,
fewer resources will be required for pollution abatement,
and more resources will be available for meeting society's
demands for other goods and services.

     However, the process of reallocating society's economic
resources outlined above can in the short run have adverse
as well as positive impacts on society.  Specifically,
transitional economic dislocations may occur.  For example,
although sales and employment may be rising in one industry
while falling in another, the employees laid off from one
industry are not likely to be immediately hired by the other
industry due to such considerations as geography, skill
requirements, and lack of knowledge of job opportunities.

     The purpose of the economic impact studies was to
begin to develop a better understanding of the nature and
order of magnitude of the adverse impacts of environmental
regulations on the economy as a whole and on individual
industries and regions within the economy.

     Although these studies focused on adverse economic
impacts, it should be noted that there will be positive
economic impacts as well.  An example of positive economic
impacts, which were not addressed by the microeconomic
studies, is increased profits and employment (a) in the
industries that produce pollution abatement equipment and
services,  (b) the industries that produce relatively low-
polluting products, and  (c) some of the firms in the
industries that are impacted by environmental regulations
(i.e., firms that absorb  the market shares previously held

 by firms that are not efficient when measured by their use of
 total resources,  including the environment,  and thus close
 when they must incur pollution abatement costs).

      Examples of  positive economic impacts,  which were not
 addressed by either the microeconomic or macroeconomic
 studies, are (a^  possible productivity increases  where envi-
 ronmental regulations stimulate technological developments
 (e.g.,  changes in production processes which both increase
 productivity and  reduce pollution),  and (b^  increases in the
 average level of  productivity in some industries  as environ-
 mental  regulations result in the closing of  plants that are
 inefficient in their use of total resources.  Further, no
 attempt was made  to quantify the economic benefits of a
 cleaner environment (e.g.,  higher crop yield, increased man-
 hours of productive work) or to compare these benefits with
 the costs of pollution abatement.  Finally,  since the
 macroeconomic analysis employs the conventional national
 income  accounts framework,  it overstates the net  costs (or
 understates the net benefits) to society because  such account-
 ing fails to include the benefits of a cleaner environment.


     One macroeconomic study  and eleven microeconomic  studies
were conducted.  The macroeconomic study used a computer-based
econometric model to determine the impact of  pollution abate-
ment costs on such macroeconomic variables as growth of GNP,
inflation, unemployment,  interest rates and balances of trade
and payments.

     The microeconomic studies concentrated on major elements
of eleven specific industries selected in part because of
availability of pollution abatement cost data from the Environ-
mental Protection Agency and  in part because  they were thought
to represent a reasonably complete spectrum of industrial
activities that might experience significant  dislocations and
impacts.  The microeconomic studies concentrated on such
variables as sales, prices, profits, plant closings, employ-
ment and community impacts in the industries studied.

     While effects on related (customer, supplier, and com-
peting)  industries were examined, the simultaneous impacts
on different industries and their cross relationships were
not studied in detail.

     All of the studies were performed by contractors; the
specific industrial activity areas examined and the contractors
are listed in Exhibit I.

                                             Exhibit I
                    ECONOMIC STUDIES




Electric Power Generators
Fruit and Vegetable Canning
  and Freezing

Iron Foundries

Leather Tanning
Nonferrous Metals Smelting
  and Refining  (Aluminum,
  Copper, Lead, zinc)

Petroleum Refineries

Pulp and Paper Mills

Steel Making

Chase Econometric Associates,

Ernst & Ernst

The Boston Consulting Group, Inc,

National Economic Research
  Associates, Inc.

Agri Division, Dunlap and
  Associates, Inc.

A.T. Kearney & Company, Inc.

Urban Systems Research &
  Engineering, Inc.
Charles River Associates
Stephen Sobotka & Company

Arthur D. Little, Inc.

Booz-Allen Public Administration
  Services, Inc.
Chase Econometric Associates,
*A11 of the microeconomic studies analyzed the impact of
the pollution abatement costs associated with assumed
air and water emission standards on an industry, except
in the case of the automobile study, in which the impact
of the cost of the auto-emissions-control device rec[uired
to meet legislated auto emissions standards was analyzed.


     In interpreting the findings of these studies, it is
important to be aware of the nature and limitations of the
cost data and the key assumptions which were used.  Al-
though these are outlined in each report in detail, some of
the major considerations are outlined below:

     1.  Cost Definitions.   The investment costs of pollu-
         tion control equipment were defined to include
         uhe direct incremental investment required to at-
         tain environmental standards (a)  for existing
         facilities and (b) for new facilities.  The
         operating costs for pollution control equipment
         were defined to be incremental and net of any
         productivity increases or by-product revenues.
         It should be noted that the figures used in
         these studies sometimes differ from the cost
         estimates prepared by others.  However, in
         general, a significant portion of such differences
         can be explained by the fact that the costs were
         estimated using definitions different from those

     2.  Water Pollution Abatement Costs.   The water cost
         data were estimated under the assumption that the
         relevant standard is the best practicable treat-
         ment -- roughly the industrial equivalent of
         secondary treatment.  If the pending water
         quality bill set more stringent standards to be
         met at any time in the next decade, investment
         and engineering decisions would undoubtedly be
         affected and higher costs would result.

     3.  Air Pollution Abatement Costs.   The air cost
         data were estimated in most cases under the
         assumption that the same set of emission stan-
         dards would apply in every state.  The standards
         assumed were those published by EPA in the guide-
         lines for developing state implementation plans.
         If the states adopt different control strategies
         in order to meet national ambient air quality
         standards, the costs would vary accordingly.
         The studies did not include consideration of
         the proposed sulfur tax.

     4.  Other Pollution Abatement Costs.   Only air and
         water pollution abatement costs associated with

Federal standards were considered.  If localities
implement more stringent standards or other
standards (e.g., standards for odors), the total
pollution abatement costs would be higher than
assumed in these studies.  Further, although some
solid waste costs were reflected in the air -and
water estimates, these were not comprehensively
estimated.  Because the volumes of solid waste which
will require recovery and disposal will vary
appreciably depending upon how air, water and
solid waste control requirements are addressed,
no meaningful and comprehensive solid waste
control costs can as yet be estimated.

Phasing.  The year in which the pollution abate-
ment costs must be absorbed is a significant
determinant of economic impact.  For the purpose
of the studies, it was assumed that all pollution
abatement costs for existing plants and for those
to be completed by 1976 would be incurred by 1976.
Further, it was assumed that the water pollution
abatement costs would be incurred in equal incre-
ments over the period and that those for air
would be incurred over the 5 year period 1972-
1976 in the following annual proportions:  5%,
10%, 35%, 40%, 10%, respectively.

Time Frame and Coverage.  The microeconomic
studies covered only the period 1972-1976.  The
macroeconomic study covered the period 1972-
1980.  For the macroeconomic study the cost
estimates for the period 1972-1976 included
the same estimates as used for the microeconomic
studies plus additional estimates of pollution
abatement costs for other industries impacted by
environmental regulations.  For the 1977-1980
period, the cost estimates included (a) the
operating and maintenance, interest, and replace-
ment costs on the facilities and equipment
installed by 1976 in all industries, plus (b)
the capital and operating costs associated with
the equipment required for control equipment in
facilities expected to be built during the period.

Technology.  Most cost estimates were based on
end-of-line control technologies.  Since some of
these are still in the early stages of development,
the actual cost of these technologies may vary
considerably, in either direction, from current
estimates.  To the extent that firms meet abate-
ment requirements by production process changes

         rather than end-of-line controls, the costs
         employed in these studies could be over-

     8.  Inflation.  It was assumed that the prices of
         pollution abatement equipment and services
         remain constant relative to other prices over
         the decade.  In fact, the prices of pollution
         abatement equipment and services could rise
         faster than other prices due to significantly
         increased demand which is likely to peak in
         mid-decade.  If this occurs, the costs employed
         in these studies would be understated.

     All of the cost data were estimated by the Environmental
Protection Agency  (EPA).  Although the data were examined with
the assistance of industry experts identified with assistance
of the National Industrial Pollution Control Council (NIPCC),
the cost estimates provided to the contractors represented
the views of the interdepartmental task force and were not
necessarily endorsed by the industry experts.  The con-
tractors were asked only to assess the economic impact of
the cost data given them.  They were not asked to assess
the accuracy of the cost estimates.  Since definitive
cost estimates could not be developed, ranges of estimates
were given to the contractors so that they could test the
sensitivity of the impact to different cost estimates.
However, in some cases, additional cost analyses conducted
simultaneously with the economic studies indicated that the
actual costs could be higher than even the high range of
estimates given the contractors.   These additional analyses
are noted below in summarizing the contractor reports.


      The microeconomic studies indicated that none of the
industries studied would be severely impacted in that the
long-run viability of no industry is seriously threatened
solely by the pollution abatement costs estimated.  How-
ever, profits will decline for some firms in most of these
industries because firms will not be able to pass on the
full cost of pollution abatement to consumers in the form
of higher prices.  Costs will not be passed on completely
either because substitute or foreign produced products are
available so that none of the firms in the industry can pass
on their full costs or because the price increases of the
smaller firms which have higher unit abatement costs are
constrained by those of the larger firms with lower unit
abatement costs.  Accordingly, some firms will earn lower
profits, some will curtail production, and some firms and
plants will be forced to close.

      However, the studies indicated there will be some price
increases as a result of environmental regulations.  Depend-
ing on the industrial activity in question, prices are likely
to rise from 0% to 10% over the period 1972-1976.  This is
equivalent to average annual increases of from 0% to 2%
with the bulk of the increases likely to come in 1974 and

      Most of the firms or plants that will be forced to
close are currently marginal operations (e.g., smaller,
older, less efficient producers) that were already in eco-
nomic jeopardy due to other competitive factors.  In such
cases, the impact of environmental standards is only to
accelerate closings that would have occurred anyway.  The
pollution abatement costs either eliminate already slender
profit margins or reduce them to a level at which they fail to
justify the required capital expenditures in pollution abate-
ment equipment (in terms of an adequate return on investment).

      There are approximately 12,000 plants currently
operating in the industrial activities studied.  Of these
it is expected that approximately 800 would close in the
normal course of business between 1972 and 1976.  It
would appear from the contractors' evaluations that an
additional 200-300 will be forced to close because of
pollution abatement requirements.  Many of these additional
closings would appear to involve plants that were vulnerable
for other reasons and, hence, that were likely to have
closed anyway a few years later.

      These plant closings and production curtailments will
have both direct and indirect impacts.  The direct impacts
include the loss of jobs and reduced value of equity.  An
indirect impact is that related (customer and supplier)
firms will be forced to close or reduce production.  For
example, farms which have marketed their produce to a
cannery that closed might be unable to find new markets
for their produce.  Another indirect impact is that the
communities where such plants are located may suffer local
recessions--an impact which will be most severe in one-
plant towns.

      The studies suggest that direct job loss attributable
to environmental regulations in the affected industry
activities examined may range from 50,000 to 125,000 jobs

over the 1972-76 period*.  These figures represent  approxi-
mately 1% to 4% of total employment in the industry activities
studied.  The direct average annual unemployment created in
these industries represents .05% of the 1970 total national
work force.  However, the studies suggest that these esti-
mates could be substantially higher if the economy is not at
full employment.

      While the total plant closings in the industries in which
plant closings might have a community impact appear to be
about 150, the data presented are not in sufficient detail to
determine the number of these communities that will be
significantly impacted.

      It is important to note that the figures reported in
the preceeding paragraphs apply to the industrial activities
studied; neither the positive nor negative impacts on other
industrial activities have been included.  However, in a
general sense these other impacts are considered in the
macroeconomic study.

      In the appendix, a brief description of the impact of
pollution abatement costs on each of the industry activities
studied is presented.


      The macroeconomic study indicated that the national
economy will not be severely impacted by the imposition of
pollution abatement standards.  However, the impact is not

      In general, the dynamics of impact are as follows.
Pollution control costs are assumed to affect the economy
in the form of higher product prices and new demands for
investments in pollution control facilities by industry
($26 billion in 1971 dollars over the 1972-80 period).  Prices
rise as a result of the cost-push impact of pollution
control costs.  In the absence of compensatory macroeconomic
policies, the effect of rising prices, which tends to slow
the growth of demand in the economy, outweighs the stimu-
lating impact of investments in pollution control facilities.
*These figures represent the total number of people dis-
employed as a result of environmental regulations.  They are
not net figures because they do not account for the number
of people  (conceivably the same people that are disemployed)
who find employment in the industry over the same period.
In many industries the net figures indicate  that more
people find jobs than lose them.

 Consequently,  the rate  of growth of GNP in constant dollars
 is retarded.   The increase in unemployment is  tied to the
 slowdown in real product  growth.  The  current  account
 balance  of international  trade deteriorates primarily as
 a result of the increase  in domestic prices relative to
 world prices.*  Monetary  and fiscal policy adjustments can
 be initiated to completely offset the  slowdown in GNP and
 employment declines  but at the expense of more rapid price
 rises and further decline in the balance of international

       The impact of  pollution control  abatement costs is
 discussed below in the  context of three alternative pro-
 jections of the national  economy:

          a baseline  projection assuming a return to
          a near full employment economy and no
          pollution control costs

          the  addition of  pollution control costs to
          the  baseline projection using best estimates
          of pollution control costs as well as a variant
          wi th costs  50% hiaher than the best estimates

          the  addition of  compensatory  monetary-fiscal
          policies and pollution control costs  to the
          baseline projection.

       To put  these findings in perspective, the key assump-
 tions and possible sources of bias are discussed, followed
 by a brief description  of the methodology employed in this

       Baseline Projection

       The baseline used in this study  was constructed to
 push the economy toward full employment.  This trend
 toward full employment  shows the unemployment  rate falling
 to 4.4% by 1976.  Over the.1971-76 interval, the
 value of GNP  in constant  dollars grows at an average annual
 rate of  5.2% and consumer prices by 4%.** Because this
 study concentrates on the changes in the economy due to
 pollution control costs,  the specific  details  of the base-
 line case are  not at issue here.
 *For lack of data,  this  exercise assumes  that price increases
  resulting from pollution control occurs  only in the U.S.
  To the extent that similar price rises  do take place in the
  economies of our major  trading partners,  the trade effects
  are overstated.
**These guidelines were provided to the contractor before the
  Phase II economic  policy was announced.


      Impact of Pollution Control Costs

      Constant dollar GNP grows more rapidly in 1972 than
in the baseline case as a result of additional demand
generated by pollution control investments.  However, re-
flecting the impact of higher prices for consumer and
capital goods, constant dollar GNP falls below the base-
line in 1973 and remains below the baseline throughout the
decade.  As shown in Table 1, the annual rate of GNP
growth averages .3 percentage points lower over the 1972-76
interval (average annual growth rate drops from 5.2 to 4.9%)
 and .1 percentage  points lower over the decade
 (from 4.8 to 4.7%).   These averages are not fully informative
because the assumed time-phasing of pollution control
investments concentrated in 1975-1976  lowers the growth rate
by one-half of a percentage point in those years,  whereas
the economy recovers somewhat near the end of the decade.

      The impact on prices is felt immediately, with the
most significant increases occurring in plant and equipment
prices as a result of cost increases in steel, nonferrous
metals and electricity.  Over the 1971-76 interval, fixed
investment prices rise at an annual rate of .5 percentage
points above the baseline, while the consumer price index
increases by .2 percentage points on an annual basis from
a baseline average of 4.0% per year.   Here again,
the largest price increases occur in mid-decade.  Inflationary
pressures ease considerably by 1976, and near the end of
the decade prices rise at a lower rate than in the baseline
case.  In large part this is a result  of lesser incremental
pollution control costs in conjunction with a greater degree
of excess capacity in the economy.

      The unemployment rate is slightly higher (.1-.2
percentage points from a baseline of 4.6%)  over
the decade with employment declines nearly offset by new
jobs created by pollution control investments.


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      Fixed investment, excluding those for pollution con-
trol purposes, declines slightly over the decade as a result
of slower GNP growth, rising prices and a lower level of
capacity utilization in the economy.  By 1976, investment
levels for non-pollution control purposes are 3.2% below
the baseline level of $112 billion in 1958 dollars and 1.3%
below by 1980.  Total fixed investment lies above the
baseline until 1976 when pollution control investments fall
sharply.  The resultant decline leaves total fixed invest-
ment $.6 billion below the baseline in 1980.

      Net exports of goods and services fall
below the base case with imports risina due to
domestic price increases.  The current account balance
declines by more than $1 billion per year over the 1972-76
period from a baseline of $2 billion in current dollars.
Less confidence should be placed  on the reliability  of these
trade results because the model deals with such impacts very
crudely.  However, given the assumption that foreign prices
will not increase due to environmental regulations overseas,
it is clear that net exports would decline.

      Although the previous results were based on best esti-
mates of pollution control costs, another variant was run
assuming that pollution control costs were 50% higher, in
part to account for any costs which may have been excluded.
In general these new results (shown in Table 1)  were simply
about 50% greater than before for nearly all variables, e.g.,
GNP growth over the 1972-76 interval slowed by .45 percentage
points instead of .3.  Thus, except for the unemployment
rate, which increased by more than 50%, variations in
economic variables were roughly proportional to the per-
centage variation in pollution control costs.

      Impact with Monetary-Fiscal Policy Adjustments

      Assuming that the federal government may try to offset
some of these impacts, the contractor experimented with
monetary-fiscal policy changes in order to bring the
economy back to its baseline path with respect to GNP
growth and the level of unemployment.   Although it is not
at all clear that the particular mix of adjustment poli-
cies selected by the contractor, relying primarily on
government spending, would be the most appropriate one,
the results are nevertheless indicative of the magnitude of
adjustments required and the impact of expansionary policy

      The fiscal stimulus required to return the economy
to its baseline growth path is substantial.  Federal
spending over the nine year projection period sums to over
$70 billion above the baseline case, implying annual in-
creases in expenditures less revenues of from $7-10 billion
during the last half of the decade.

      This stimulus does bring the economy back to the
baseline growth path, but in the process  it aggravates the
impacts on prices and the balance of payments.  Inflationary
pressures increase slightly in 1972-76 but do not ease off
after that period as they did when only pollution control
costs were added.  For the 1972-80 period, the consumer price
index rises by about one-quarter of one percentage point
annually above the baseline.

      The sustained price increases further aggravate the
current account balance, generating an average annual de-
cline in net exports of about $2 billion per year over the
1972-80 period.

      Interest rates were essentially unchanged because the
policy adjustments employed in the study were designed to
maintain stable interest rates.

      In this case, the effect of raising pollution control
costs by 50% produces somewhat more than proportional
impacts on the economic variables.  The federal budget
deficit must be increased to attain baseline GNP levels
while prices and the balance of payments deficit increases
by slightly irore than 5n?£.

      Assumptions and Sources of Bias

      This section looks at issues which may have biased the
results in the areas of the basic pollution control cost
data, the method of inserting costs into the model and the
model itself.  Finally, a few comments are made concerning
the probable direction of bias in the macro-impact results.

      A.  The Input Data

          (1)  Coverage - pollution control costs were;
      included for 15 industry groups which were con-
      sidered the major sources of industrial pollution.
      It is probable that other sectors are affected but
      the empirical impact is expected to be negligible.
      As shown earlier, pollution control costs are pre-
      dominately air and water for industry which excludes

costs in the areas of solid waste disposal,
governmental water pollution abatement activities
and public air pollution abatement.  The absence of
these figures implies the assumption that there
are no incremental costs in industrial solid
waste disposal and that no adjustments were made
to increase revenues of state and local governments
above the baseline projections.

     (2)  Cost data issues - aside from any diffi-
culties in the engineering cost work, there are
some conceptual issues although the direction of
possible bias is not clear.  For example, invest-
ment costs in the water area include a 20% up-
ward revision in part to compensate for down time
required to install abatement facilities while down
time should be reflected as a decline in production,
not as an increase in aggregate demand.

     (3)  Cost phasing - phasing patterns clearly
have an important impact on the timing of economic
effects, e.g., assumptions used herein produce the
most significant effects in 1974-76.  However, it
is not clear that other phasing assumptions would
reduce impacts over the decade as a whole.

     (4)  Costs of pollution control facilities - a
key assumption underlying the cost data is that the
prices of abatement facilities relative to other
prices remain constant over the decade.  In fact,
if new demand is significant enough and especially
if demands are bunched, prices of facilities might
rise at a much greater rate relative to other prices
in the economy.  If these effects occur, costs would
be understated.  Obviously, the time phasing assump-
tion might have a critical impact on the basic cost

     (5)  Foreign trade assumptions - no allowance
was made in the results for any price increases of
world prices as a result of pollution control
efforts outside the U.S. or the use of higher cost
U.S. goods in production processes elsewhere.  To
the extent that foreign prices do rise, net exports
would rise.  Further analyses are to be made that
consider increases in world prices.  There is also
a probability that the U.S. may be exporting pollu-
tion control equipment in the future, a factor which
could improve the balance of trade but has not been
included in this study.

B.  Problems of the Treatment of Cost Data in the

    As mentioned above, a critical assumption in
this study is that pollution control costs are
entirely unproductive.  By making this assumption
we have by-passed an area of intense controversy
where a great deal of research is now taking

    Abatement costs are assumed to be based on end-
of-line control technologies.  In fact, a lower
cost approach may be adopted relying on managerial
improvements or changes in basic production processes.
Such changes would affect the results both with
respect to the magnitude of costs which in turn
affects the magnitude of increases in prices and in
cost of capital.

    There are many ramifications of this issue.  For
example, pollution control efforts may spur increases
in labor productivity because of a more rapid adop-
tion of new technologies, which often tend to produce
fewer pollutants per unit of output.  It can also be
argued that cost increases may eliminate marginal
firms and thereby average labor productivity could
increase if aggregate demand is maintained at full
employment.  The results also ignore possible feed-
backs on labor productivity from improved health,
etc., as a result of less pollution which could
lead to results different from those indicated by
the study.

C.  Problems with the Econometric Model

    It is not clear at this point what the nature
of bias may be from incorrect specification in the
model itself.  Clearly the model was not designed
to handle the special case of pollution control
and thus refinements could be made  (such as produc-
tion functions by industry to account for producti-
vity impacts varying with pollution control technolo-
gies) .  Whether such changes would substantially alter
the results reported is not known.  One part of the
model which may be weak is the trade sector, which is
quite simple, including only 4-5 sectors.  For
example, if imports fall off more than proportionately
as GNP declines, then net exports would not fall as

      much as they do in current results.  Another
      issue is the inability of the model to capture
      employment loses due to plant shutdowns or cut-
      backs as profits, in some cases, are squeezed.
      Because the mpdel relates unemployment only to
      aggregate variables, it may understate the impact
      of pollution control costs on unemployment.  While
      we are not sure bias in the model is significant,
      we do believe that further study and refinement may be
      warranted in order to realistically capture pollu-
      tion control impacts.

      D.  Possible Direction of Bias

          As a result of this complex set of qualifications,
      in which some have biases in opposite directions and
      other factors have unknown effects, no statement can
      be made with confidence about the direction of net
      bias in the present study.


      Pollution control costs are assumed to affect the
economy in several respects:  The efficiency of capital
in the aggregate production function is reduced, prices
of consumer and capital goods increase, the cost of
capital per unit output increases and finally pollution
control investments generate new output and employment in
industries producing abatement facilities.  It is worth-
while emphasizing that the quantitative magnitude of the
first three negative impacts hinges importantly on our
assumption that pollution control costs are entirely "un-
productive" in the sense of generating new capacity in
industrial establishments.

      A.  Prices

          Annual costs in the form of percentage cost
      increases were inputed into the industrial sector
      of an input-output table.  These cost increases are
      initially converted to first-round price increases
      by industry markup factors which range from .8-1.0.
      These price increases are then passed on through
      other industries which use other products as inputs,
      assuming that all raw material price increases are
      passed on 100%.   After taking account of these
      inter-industry effects, these price increases were
      passed on through another series of markup factors
      for final demand components,  such as cars, shoes, and

plant and equipment.  This set of price
increases is then used to move the economy off
the baseline growth path.

B.  Aggregate Production Function

    Pollution control investments are included as
a factor boosting aggregate demand in the economy,
thereby generating output and employment, but were
not considered to augment the productive or capacity-
augmenting capital stock of the nation.  No adjust-
ment was made for reducing the efficiency of labor
in the aggregate production function, although
this effect is probably small compared to that for
capital stock.

C.  Cost of Capital

    Since pollution control expenditures are assumed
not to be capacity-augmenting, some further adjust-
ment was necessary to reflect the negative incentive
this would have on industry's consideration of new
investments which would augment capacity.  This
adjustment was necessary because  the  determination
of investment in the macro model did not explicitly
consider the impact of more capital required per
unit of output.  This was done by boosting the "user
cost of capital" by the ratio of pollution control
costs to baseline investment levels.   Conceptually,
this is equivalent to raising the cost of capital
needed to produce a unit of output.  To provide
some feeling for the complicated set of factors which
affect investment (excluding pollution control)
demands in the model, we note that it is negatively
affected by the slowdown in GNP growth, the rise
in capital goods prices, the rise in the cost of
capital and by the decline in the degree of capa-
city utilization.  Offsetting these factors to
some degree, investment  demand is stimulated by
the increase in wholesale prices.


     The study of the automobile industry differed from
the studies of all other industry activities.  In all other
cases the studies focused on the impact of air and water
pollution control costs required in the production process
itself, while the auto study focused solely on the impact on
the industry of air pollution control equipment to be install-
ed on vehicles.

     The installation of required pollution control equipment
on automobiles and small trucks was estimated to add approxi-
mately $350 to the cost of manufacturing a vehicle by 1976-77.
This is the same estimate as reported in EPA's Economics of
Clean Air.   Since approximately $35 of the $350 was already
in place by the 1972 model year, only $315 remained to be
added.  The contractor rounded this figure to $300,  but
included a range of - 30% in estimating the impact of the
cost increase on the industry.  The range which he used for
cost increase after the 1972 model year is therefore $210 to
$390.  The cumulative cost increase over the uncontrolled car
is $35 higher or $245 to $425.

     The contractor was also given an estimate of increased
operating and maintenance costs of $65 annually or $325 over
a five year period (approximately 50,000 miles'* .  However,
these costs were not employed in the analysis because the
contractor was unable "to reject on either statistical or
theoretical grounds the hypothesis that for this range of
additions to operating costs the response of new car
purchases is negligible."  The high estimate (i.e.,  $425) may
or may not capture any impact which these costs might have on
auto sales.

     It is important to note that the purpose of this study
was to assess the impact on the automobile industry of the
requirements of the Clean Air Act.  It does not include cost
increases which can be expected from new safety regulations,
costs which some studies suggest are of a magnitude equivalent
to those for control of pollution.  The increased costs from
the two sources, control of pollution and new safety features,
could have impacts on the industry which are more than propor-
 tional to the sum of these costs.

     The contractor's study of demand relationships for all auto-
mobiles and among the different classes of automobiles indicated
that from 84% to 98% of the cost increases associated with air
pollution control equipment will be passed on to consumers in
the form of higher automobile prices.  Thus the price
of sub-compact cars was expected to rise approximately $294 by
1976-1977 because of required installation of pollution control
equipment.  The price of luxury cars was expected to rise
approximately $343.

     This increase in automobile prices was expected to have
two effects upon automobile sales.  First, some change was
expected in the class of car purchased.  In comparison with
baseline projections,  sub-compjact  automobiles were  expected
to lose 0.25% of the market, and standard sized automobiles
1.6%, by 1980 because of the cost of pollution control
equipment.  This market share would be absorbed to some:
extent by compacts, intermediate, and luxury cars (0.26%
to 0.4%); and to a greater extent  (0.8%) by a new class of
cars, the sub-sub-compacts,which was expected to be a factor
in the market by that time.

     It was also expected that because of increased automo-
bile prices, the total sales of new automobiles will be;
decreased.  Projections indicate that, in comparison with
baseline estimates, the total number  of new passenger car
registrations in 1976 would be reduced by 420,000 or 3% from
13.31 million to 12.89 million; in 1980 a reduction of 180,000
or 1.2% from 14.53 million to 14.35 million was expected.

     The reduced sales of automobiles through 1980 are expected
to lead to some reduction in employment from the baseline
projections, especially in the period 1973 through 1977.
Although total employment in the automobile industry is not
expected to be reduced below current employment at any time,
the growth in employment will be slower than the baseline
projections and in some years employment will be reduced  from
the previous year's level.

     The maximum reduction in jobs from baseline projections
was 1.8% or 18,000 jobs in 1976, from 1,025,000 to  1,007,000.
Only in one year,  1975, is the total number of jobs in the
industry reduced below the previous  year's  level.   In that year
jobs are expected  to decline by 13,000 or 1.3% from 979,000
to 966,000.  By 1980, it is expected that industry employment
will be 0.9% or 9,000 jobs below the  baseline projection of

     In eleven other industries significantly affected by
these changes, total employment in 1976 is expected to be  0.25%
or 35,000 jobs below the baseline  projection of  13,119,000.

By 1980, however, total employment in these industries is
expected to be 53,000 or 0.35% above the baseline projection

     Because the contractor assumed a substantial increase in
imports of sub-sub-compact cars,  the U.S. balance of payments
is expected to be adversely affected by the increased
automobile costs associated with pollution control equipment.
The annual net exports of goods and services of the U.S.  are
expected to be reduced by a maximum of $700 million in 1980.

     Total investment required to meet water pollution control
standards associated with the baking process from 1972 through
1976 was estimated to be $11.8 million to $21.3 million.
Annual costs were estimated to increase from $0.4 million in
1972 to $2.0 million in 1976.  Average costs per pound of
products were estimated to range from 0.011C to 0.02C for
bread and related products, and from 0.05* to 0.09C for biscuits
and crackers.

     Because costs of pollution abatement in the baking
process are so low—0.2% of sales—no impact was expected in
the bakery products industry.


     Capital expenditures required from 1972 through 1976 to
meet air and water pollution control requirements associated with
the manufacturing of cement in kilns and clinker coolers were
 estimated to total $122 million.   Annual costs were estimated
 to increase from $3.0 million in  1972  to $43 million in 1976.
 These costs average out to $0.08  to $0.10 per barrel of cement.

     Projections of cash flow and capital needs including
pollution abatement expenditures for the cement industry through
1980 indicated that the industry will be able to meet its cash
needs.  Given the most severe set of assumptions, however, many
changes in the industry's financial policies would be required.
These would include a reduction in the divident payout ratio
from 59% to 49%, and an increase in the debt/equity ratio from
0.39:1 to 0.6:1.  Both of these were considered manageable.
Alternatively, a 4%-5% real price increase would be employed
to provide most of the required funds.

     Pollution control costs in the cement industry were expected
to accelerate the current trend in the industry toward the clos-
ing of small, old plants and the construction of large, modern
facilities.  This, in turn, would increase the capital pressure
upon the industry.  The combined effect has been estimated to
result in the closing of approximately 25 cement plants in the
1972-1976 period.  The additional impact upon cement industry
employment was expected to be minimal.   Only one possible
community impact has been identified.

     The increase of prices because of pollution controls was
expected to accelerate the current increase in cement imports.
No estimate of the magnitude of this impact has been made,

     It was estimated that the total investment required to
meet air and thermal pollution control requirements associated
with the generation of electricity from 1972 to 1976 will be
$10.7 billion.  Of this, $7.5 billion would be requiared for air
pollution control, and $3.2 billion for thermal pollution
control.  It has been suggested that the cost of installing
pollution control equipment on existing plants might be twice
 those  included in these  estimates.   If  so,  the  total  investment
required through 1976 would reach $17.8 billion.  Annual costs
associated with pollution controls were estimated to rise from
$338 million in 1972 to $2.5 billion in 1976.  Costs per
kilowatt hour in 1976 would range from 0.22 mills to 1.52 mills
depending upon the region of the country.  These costs did not
include additional costs that might be required for the control
of nitrogen oxides and radiation.

     The impact of pollution control costs will vary from region
to region across the U.S. depending upon the source .of energy
employed.  In the West South Central, for example, almost
all generators are gas-fueled, and will require almost no
air pollution control facilities.  Consequently, pollution
control costs in this region in 1976 were estimated to total
only 2.8% of 1970 average revenues.  In the Tennessee Valley
Authority region, on the other hand, approximately 80% of the
generating facilities are coal- fired.   These will be  faced
with the full cost of air and thermal pollution controls.
This, combined with a low revenue level, was estimated to lead
to pollution control costs in 1976 totaling 10.65% of  average
1970 revenues.  The average of all regions' air and thermal
pollution control costs in 1976 was estimated to be 7% of 1970
average revenues.

     In the philosophy of utility regulation, justified cost
increases are passed on to the consumer.  Thus, it can be
assumed the above costs will ultimately be passed on
completely to the electric ratepayers through higher
electricity rates.  Past experience, however, indicates that
the passing on may not be complete and  in any event will
occur with some delay.  Furthermore, given  the  complexity and
variety of rate structures, it was not  possible to determine
how these price increases might be distributed  among the
various categories of consumers.

     No adequate  information was available  on the  demand
 responsiveness of the users of electricity  to changes  in
electricity's price.  The total demand  for  electricity
was judged to be  extremely unresponsive to  price.

     Six industries were identified for which electric
power costs amounted to 5% or more of the total value of
shipments.  These are Atomic Energy Commission plants, primary
aluminum, electrometallurgical products, alkalies and chlorine,
industrial gases, and hydraulic cement.  The anticipated increase
in the price of electricity was expected to have little impact,
even upon these industries.

     Water pollution abatement regulations were estimated to
require the investment of approximately $120 million by the
fruit and vegetable canning and freezing industry through 1976.
Annual costs of pollution control equipment were estimated
at $4.3 million in 1972 increasing to $21.3 million in 1976.

     In the fruit and vegetable canning and freezing industry,
the largest third of the plants produce about 80% of total
industry volume.  These plants enjoy a considerable cost
advantage over the remaining plants, and are consequently much
more profitable.  This advantage has created a trend over the
past 10-15 years toward fewer and larger processing plants.
Census figures indicate that from 1958 to 1967 the total number
of fruit and vegetable canning plants declined 25%.  The number
of fruit and vegetable freezing plants more than doubled from
1958 to 1964, but then decreased 6.6% through 1967.  Both of
these trends were expected to continue through 1980 with a 25%
decrease projected from 1971 through 1980.

     It was expected that the larger canning and freezing plants
will also enjoy a cost advantage in installing and operating
pollution control equipment.  For those plants which must
install their own facilities, for example, the price increase
that would be required to offset abatement costs would be 5.5%
for large plants, but 9.6% for small plants.

     Given estimates that half of the plants will be able to
find lower cost abatement solutions, and that 58% of the projected
abatement technology is already installed, actual price increases
were not expected to be as high as above.  Prices were expected to
rise 1.4% to 2.3%.  Such an increase would cover the average costs
of the larger producers, but not of the smaller plants.

     The increased prices were expected to lead to a 0.5% to 1.0%
decrease in consumption.  Such a decrease would be less than
the total annual increase expected in consumption because of
population expansion and increases in per capita consumption.

     The increased costs of pollution control were expected
to further reduce the profits of the already marginally
profitable small plants.  Many of these plants will be able to
tie into municipal systems or to find other low cost pollution
abatement techniques that will enable them to stay in business.
Experience in some states indicates that half of the small
plants might be unable to find such alternatives.  In this  case,
up to half of the small plants in the industry, or one-third of all
plants, were expected to be forced to close.  Of the 1,200 plants
included in the industry directory, therefore, 400 might be forced
to close because of pollution abatement costs.  As noted above,


25% of the plants,  or 300 of the 1,200, would be expected to
close by 1980 in any event.  Thus, the addition of pollution
control costs was expected to lead to the additional closing
of 100 plants, or 8.3% of the total.  In addition, closing of
the other plants was expected to occur some years earlier than

     It was estimated that the closing of 400 plants would result
in the loss of jobs by approximately 28,000 employees.  The
disemployment created by the 100 plants that were estimated to
close because of pollution controls would be one-fourth of that
number or 7,000.  Many of these would be in small towns and
rural areas where reemployment would not be readily available.
Up to 90% of the jobs lost would be part-time positions.

     Because many of the plant closings would be in small towns
or rural areas, the community impact of these closings could
be significant.  This would be further complicated if the farmers
in the surrounding areas are unable to find alternate markets
for their products.  This possibility was suggested, but no
careful analysis has been made of the experience in such cases
or of the technical factors involved.  Accordingly, no estimate
is available for the magnitude of this impact.

     The impact of increased prices in the industry upon the
U.S. balance of payments was expected to be small.
   458-471 O - 72 - 3

                        IRON FOUNDRIES
     Approximately $348 million in capital expenditures was
estimated to control the air pollution associated with the
making of iron castings through 1976.  Annual costs of pollu-
tion control equipment were expected to increase from $6.2 million
in 1972 to $125 million in 1976.  Average costs per ton of
castings produced would depend upon plant size,  with an expected
range of $2 per ton for large producers to $14 per ton for
small producers.

     The iron foundry industry is composed of a relatively small
number  (30%) of large producers whose costs and investment per
ton of castings are less than half of the smaller producers'.
From 1947 to 1969, the total number of foundries has declined
from 3,200 to 1,670.  Most of these closings have involved
small foundries which have been unable to raise capital to
modernize.  This trend is expected to continue through 1980,
with the additional closing of some 670 foundries.

     Requirements to install pollution control equipment were
expected to intensify capital availability problems, and thereby
accelerate the rate of plant closings.  It was estimated that
approximately 10% of these 670 closings would be caused wholly
or in large part by pollution control requirements.  In an
additional 50% of the closings, pollution control costs were
expected to be a significant factor.

     Pollution control costs will range from 1.5% to 4.0% of
sales.  Price increases of 1.7% to 5.0% were expected to be
necessary to cover these costs and to preserve current rates
of return.  Such increases were estimated to be possible with
a negligible effect upon demand.

     Total employment loss in all plants projected to close
by 1980 was estimated at 26,600, It was expected that approxi-
mately half of these would be reemployed in other iron foundries.
The net unemployment was therefore estimated to be 13,,300.
For the 60% of the plant closings in which pollution control was
expected to be a factor, disemployment would be approximately
16,000 with a net unemployment of 8,000.

     Approximately 2,250 of these 13,30^ unemployed workers
would possess transferable skills.   The  remainder would be
unskilled, and was  therefore  expected to experience difficulty
in obtaining reemployment.

     Because foundries are generally located near industrial
markets, it was not expected that many communities will be
severely impacted by the projected closings.

     Some increase was expected in imports of iron castings
because of increased costs in the U.S.  Because imports
currently account for 0.1% of the U.S. market, these
increases were not expected to be significant.

                     LEATHER TANNING

     The total investment required of the leather tanning
and finishing industry between 1972 and 1976 for water
pollution abatement equipment was estimated at $89 million.
Annual pollution control costs were expected to rise from
$2.1 million in 1972 to $10.7 million in 1976.

     A survey of the costs of pollution control alternatives
available to leather tanneries found that, on average, pol-
lution control costs were less than or equal to 1% of sales.
At most, costs were found to be 2%~3% of sales.  Such costs
were estimated to be well within the capacity of the industry,
which frequently experiences increases and decreases in the
costs of its raw-material hides of as much as 50% to 100% in
a one to two year period.  Selling prices have correspond-
ingly changed from 10% to 25% in the same period with no
apparent affect on production.  Thus, it was assumed that
cost increases of l%-2% because of pollution controls could
easily be passed on by the industry.

     Available financial data and an industry survey were
interpreted as indicating that those firms which were not
likely to close for other reasons would be able to finance
the required capital expenditures.  It was estimated that a
few small, marginal firms might close more quickly because
of pollution control costs, but this impact was judged to be

     The aggregate effects on employment or production in
the leather industry as a result of pollution control costs
were estimated to be minimal.  The closing of beam houses by
some firms was expected to result in the unemployment of
some 600 workers.  These job losses were expected to be widely
scattered geographically, however, with no important community
impacts.  Some subsequent increase in employment was expected
where the beam house work would be picked up.

                       NONFERROUS METALS
                    SMELTING AND REFINING
     Total investment expected to control the air and water
pollution associated with the smelting and refining of aluminum
for the period 1972 through 1976 was estimated at approximately
$935 million.  Annual costs were estimated to range from $22
million in 1972 to approximately $290 million in 1976.  Cost
increases per pound of aluminum in 1976 would average $0.020
to $0.032.

     Although the required capital expenditures are large,
aluminum producers were judged to have the necessary
financial resources.

     Cost increases are expected to be passed on to consumers
of aluminum.  Historically, demand for aluminum has been sensi-
tive to price.  Thus it was expected that by 1976 price increases
of approximately 5%-8% will lead to a level of aluminum con-
sumption 4%-6% lower than would otherwise have existed.  In
the longer run, price increases of approximately 10% were ex-
pected to lead to a 13% reduction in aluminum consumption.
This does not mean that the demand for aluminum would be reduced
below current levels.  Instead, demand would not grow as fast
as would otherwise be expected.

     It was not expected that pollution control costs will force
any existing plants to shut down, although it is possible that
some of the other plants may be closed sooner than otherwise.
No decline  of employment in the aluminum industry was expected
because of pollution controls.  As with demand for production,
employment would not grow as fast as otherwise.

     Increased costs were expected to have an adverse effect
upon the U.S. balance of payments by leading to a decline in
U.S. exports of ingot and mill products and an increase in
U.S. imports of mill products.

     The latter effect might be especially severe because
pollution control costs may lead to new aluminum smelters being
located outside of the U.S.  No total estimate of the balance
of payments effect has been made, although it was noted that
the eventual decline in exports may total $100 million to
$200 million.

     Because of the uncertainties associated with the financial
capacity of the industry and the economics of individual smelting
and refining plants, further study is currently being made of
the impact of pollution abatement requirements upon the aluminum


                      NONFERROUS METALS
                    SMELTING AND REFINING
     The capital investment required in the copper industry,
because of air and water pollution controls from 1972 through
1976, was estimated to total $300 million to $690 million, with
a most likely estimate of $341 million.  Annual costs were
expected to increase from $6 million in 1972 to $95 million
in 1976.  Per pound of refined copper, these costs average
$0.001 in 1972 and $0.025 in 1976, with a possible  high
estimate of $0.05 in 1976.

     It is expected that the industry can finance the required
capital expenditures.

     The effect of cost increases has been analysed considering
a basic projection for the copper industry without pollution
control costs; and two alternative assumptions:  (a) that
foreign competition will not compete in the U.S. market, so
that U.S. producers are able to raise prices, and  (b) that
foreign competition  will prevent any price increase in the
U.S. market as a result of pollution control co'sts.  It was
assumed that the actual impact of pollution control costs will
lie somewhere between these two extremes.

     If the average pollution control costs are considered,  (a)
U.S. production of copper in 1980 was expected to be approximately
7% less than the base projections of 4,169,000 short tons if
foreign competition prevents price increases while prices and
consumption would not change; (b) U.S. production would be 3.5%
lower than base projections; U.S. consumption 4.6% lower; and
U.S. prices 4% higher; if foreign competition is not a factor.

     If costs equal the highest estimates,  (a) U.S.product!on
would be 14% lower than projected, if no price increase is
possible;  (b) U.S. production would be 7.4% lower; U.S. consump-
tion 9% lower, and U.S. price 8% higher, if low foreign
competition permits price increases.

     Thus depending upon costs and foreign competition,it was
estimated that  U.S. supply be reduced 3.5% to 14% and U.S.
consumption 0% to 9%;and U.S. prices may increase  0% to 8%
because of pollution controls.

     It was estimated that most existing U.S. smelters will
continue to operate under pollution control requirements.
Two smelters were identified, however, as being forced to
close.  No estimate was made of additional smelters which
might close.

     With the imposition of pollution controls, employment in
the copper industry was not expected to decline, but would grow
more slowly than the base projections.  Without pollution
control costs, employment was expected to grow from 54,000 in
1970 to 76,900 in 1980.  Pollution control costs were
expected to reduce the 1980 employment by 2,800 to 10,900 or
3.6% to 14% depending upon the cost and foreign competition
assumptions discussed above.  Where individual smelters
close, of course, all workers would become unemployed.  The
two smelters identified as closing currently employ 1,150
employees.  No estimate was made of the associated
mining employment.  In both instances, a significant community
impact was expected.

     No estimate was made of the effects of pollution
controls in the copper industry upon U.S. balance of payments.
In the extreme case, it was mentioned, all new smelting
capacity might be located offshore.  This would mean that
the current capacity of 3,066,000 short tons would not be
expanded to the predicted 4,169,000 short tons in 1980, a
reduction of 26% from the baseline trend.  This would have
substantial financial and employment consequences within the
industry in addition to the balance of payments effects.

     As with the aluminum industry, further study is being
made of the copper industry to ascertain on a plant by plant
basis the costs of pollution controls and the economic
viability of the controlled plants.

                      NONFERROUS METALS
                    SMELTING AND REFINING

     The total capital expenditure required to control the
air and water pollution associated with  the smelting and
refining of lead was estimated at about  $70 million for the
1972-1976 period.   Annual costs were expected to increase
from $1.1 million in 1972 to $20 million in 1976.  Costs per
pound of lead in 1976 were estimated as  $0.012 to $0.017,
with a best estimate  of  $0.014.  These studies did not
consider the substantial changes in the  lead markets that will
be caused by other pollution abatement regulations such as
those which would lead to reductions in  the lead content of

     The U.S. lead industry currently can be divided into
the low-cost producers in Missouri which account for  55% to 60%
of U.S. production; and the high-cost producers located else-
where.   Estimates of production and pollution control costs
indicated that the low-cost producers would be atoxe to raise the
required capital and to maintain production even if forced to
absorb pollution control costs.  High-cost producers, on the
other hand, may not be able to raise the required capital.  If
some are forced to close, this will be an acceleration of the
current industry trend which could be expected to continue even
in the absence of pollution control costs.   Any price increases
were expected to be small, reflecting the costs of the low-cost
producers.  One estimate was of an increase of $0.007 per pound
or 5%.   Such an increase was not expected to alter the trend
towards the exit of high-cost producers.

     Because the demand  for lead was not very sensitive to
price,  no significant reduction in lead consumption was expected
to result from pollution control costs.   The shift in produc-
tion toward the less  labor intensive, low-cost producers was
expected to result in a  net loss of employment in the industry
even in the absence of pollution control costs.  One  smelter which
was expected to close soon would result in the unemployment of
some 200 persons.  Fewer employees would be needed in the low-cost
smelters which pick up this demand, and none would be needed in
the community where the  plant  closes.

     No estimate was  made of the impact of pollution  control costs
in the lead industry  upon the  U.S. balance of payments.   Some
increase in imports were expected, of course, if prices  are
raised, but the expected price  increase was judged to be  small.
No incentive to relocate smelters abroad is anticipated.
Further study is being made of the economic impact of pollution
abatement regulations on the lead industry.

                         NONFERROUS METALS
                       SMELTING AND REFINING
     During the period 1972-1976 it was estimated that $62
million of capital expenditures will be required
to control the air and water pollution associated with
the smelting and refining of zinc.  Annual pollution control costs
would increase from $1.5 million in 1972 to $27 million in
1976.  These would average $0.0123 to $0.0267 per pound, with an
expected cost of $0.0135 per pound.

     The U.S. zinc industry can be segmented into high-cost
and low-cost producers, with a trend toward the exit  of high-
cost producers from the industry.  Because pollution control
costs were expected to fall upon high-cost producers more
heavily than upon their low-cost competitors, and because
price increases were not expected to equal pollution control
costs, some acceleration in the closing of high cost
facilities was expected from pollution abatement regulations.

     An analysis of prices and average production costs for
low-cost producers indicated that these producers would be
able to absorb pollution control costs and raise the necessary
capital even if there is no resultant price increase.  It is
possible, however, that such a situation would inhibit the
expansion of some low-cost producers.  No similar analysis was
conducted for high-cost producers.  It was assumed, however
that because the profit margins after absorbing pollution
control costs were so small for low-cost producers, that the
margins of high-cost producers would be reduced-below the
opportunity cost of capital and possibly to a loss.  Given
the pressure of imports and substitute materials, it was not
expected that price increases could be large enough to alter
these conclusions.

     Total employment in the zinc industry is expected to
decline in the long run, with three or four smelters closing,
even in the absence of pollution controls.  The trend would
be hastened by abatement requirements, but no estimate was made
of the time periods involved.  Total employment in the smelters
expected to close was approximately 3,000.  No estimate of
related mining employment was made.

     The accelerated demise of high-cost producers and the cost
increases for low-cost producers would have a number of effects
on the U.S. balance of payments.  The closing of some U.S.
smelters and the inhibition of expansion of others would lead
to an increase in zinc metal imports.  This would be partially
offset by the reduced imports of concentrates formerly used

by high-cost producers.   Additional imports of zinc metal
were estimated to reach $78 million to $124 million per
year.  No estimate was made of decreased imports of z:inc

     Further study of the zinc industry is being conducted
to ascertain the impacts of pollution abatement requirements
on individual smelting and refining plants.

                      PETROLEUM REFINERIES
     From 1972 through 1976, it was estimated that the petroleum
refining industry would be required to make capital expendi-
tures of $634 million to $1155 million to meet the air and water
pollution abatement requirements that apply to the refining of
petroleum.   Annual costs of $2 million in 1972 rising to $21
million in 1976 would also be required.  In addition, the cost
of using low sulfur fuels in refinery operations was estimated
to be $108 million annually by 1976.  The average pollution abate-
ment costs per barrel in 1976 were estimated to be $0.06, thus
increasing the total cost per barrel by approximately 1.4%.

     Because capital expenditures for pollution control equip-
ment would equal only 5% of the $21.4 billion capital expen-
ditures otherwise projected for the industry in the next ten
years, it was considered that these expenditures would be
manageable.  A price increase of $0.08 per barrel was expected
to help defray the added costs.  In addition to the annual costs
mentioned above, this $0.08 figure included an 8% return
judged to be necessary to attract the capital
required to install control equipment in new facilities.
This price increase was assumed to be possible because imports
are restricted by law and the demand for petroleum is not

     Given this $0.08/bbl. price increase, it was estimated
that most small producers will be able to sustain added pollu-
tion control costs.  A few, perhaps 12, might be forced to close.

     .If a dozen small refineries do close, approximately 1,000
workers would become unemployed.  These small refineries would
probably be located near smaller communities, and thus would
have a noticeable local impact.  Otherwise, industry employment
is expected to increase at about the rate projected without
pollution control costs.

     If desulfurization of the liquid fuels used in refinery
oeprations is required, additional imports of such fuels were
estimated to cost $40 million per year.  No other balance of
payments effects as a result of pollution abatement requirements
on refinery operations were estimated.

     This study did not take into account a number of major
changes likely to occur in the petroleum industry.  These
include federal requirements for making lead-free gasoline
available, restriction of lead content in leaded gasoline,
higher average sulfur content in crude oil supplies, and
higher market demand for desulfurized residual oil.  Further,
although environmental regulations will impact almost every
aspect of the petroleum industry from exploration through
production, transportation and refining to marketing, only


the pollution abatement costs related to refinery operations
have been estimated.  Consideration of the full impact of
environmental regulations on the petroleum industry could
result in substantial increases in capital requirements and
operating costs above those estimated for this study.
Additional studies of pollution abatement costs and the economic
impact of these costs will be undertaken.  The findings of
these studies will be made available on completion.

                      PULP AND PAPER MILLS

     Approximately $3.3 billion was estimated to be required in
capital expenditures by the paper industry for the period 1972-
1976 to meet air and water pollution abatement requirements.
Annual costs  per ton of product were estimated to range from
$5.50 to $12.50 depending upon product sector.

     Because of an anticipated tightening of supply/demand
balances, price increases were expected in the paper industry.
These increases were likely to reflect the above-mentioned
annual costs of pollution controls.  Increases of this magni-
tude would represent a 3.5% to 10% increase over current prices
depending upon product sector.

     Given these increases it was anticipated that most mills
will be able to manage pollution control expenditures.  However,
of the 752 pulp and paper mills in the U.S., 329 accounting
for 15% of U.S. production have been identified as marginal.
These mills currently have profit margins much below industry
averages  (-7.7% to 4.8% vs 6.6%)  and may experience pollution
control costs approximately twice as large as industry avarages.
Price increases were not expected to cover their increased costs.
This will reduce already low profit margins  and create some
difficulty in raising the capital required for pollution control

     Even in the absence of pollution control requirements, 30-35
of these marginal mills were expected to close in the 1972-76
period.  It was estimated that an additional 60-65 mills would
be forced to close with the imposition of abatement regulations.
These additional closings were expected to result in the loss
of 16,000 jobs by 1976.  A larger number of jobs will be made
available in plants which are expected to expand, but these of
course may not be in the same community.   Many of the shut
downs are likely to be in rural areas where they would have
significant community impact.

     Assuming that pollution abatement measures will be similar
in all paper producing countries, it was not anticipated that
pollution abatement costs would significantly affect the
international competitiveness of U.S. paper products.

                           STEEL MAKING
      Capital  expenditures  required by air and water pollution
  abatement  regulations  were estimated to total $2.4 billion to
  $3.5 billion  for  the period 1972 through 1976.  Annuail operating
  and maintenance costs  were estimated to be $45 million to $70
  million  in 1972,  increasing to $760 million to $1,100 million in
  1976.  Per net ton of  steel shipped, these costs would average
  from $0.47 to $0.73 in 1972 and $6.60 to $9.60 in 1976.

      Price increases to cover pollution abatement costs would be
  necessary  to  generate  the  cash required to meet projected
  expenditures.  The estimated 0.7% to 1.5% annual increases
  were considered moderate,  however, in relation to historical
  price  increases.

      It  was expected that  most facilities would be able to install
  pollution  abatement equipment and continue operation.  This
  conclusion was strengthened by the fact that the demand
  may exceed the capacity of the industry to supply steel so
  that the industry would need all of its current capacity.

      The possible effect of price increases upon the U.S. balance
  of payments was assumed to be negligible because of continued
  voluntary  import  restrictions, the re-alignment of currencies,
  and the  moderate  size  of expected price increases.

      Because  the  estimates of the industry's ability to
  finance  the required capital expenditures and to maintain
  operations in the less modern facilities are sensitive to
  several  key assumptions  (e.g., substantial increases in
  demand for domestic steel, current industry capacity),
  additional analysis is being conducted to confirm the; validity
  of these assumptions.
•d U.S. Government Printing Office: 1972—721-200/647 Regent No. 3-1     42