60OR80110
COMPARISONS OF ESTIMATED AND, ACTUAL
POLLUTION CONTROL CAPITAL EXPJafoiTURES
FOR SELECTED INDUSTRIES
Prepared for
Office of Planning & Evaluation
U.S. Environmental Protection Agency
Prepared by
Putnam, Hayes and Bartlett, Inc.
Cambridge, Massachusetts
Wash i ngton, D.C.
June 1980
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COMPARISONS OF ESTIMATED AND ACTUAL
POLLUTION CONTROL CAPITAL EXPENDITURES
FOR SELECTED INDUSTRIES
Prepared for
Office of Planning & Evaluation
U.S. Environmental Protection Agency
Prepared by
Putnam, Hayes and Bartlett, Inc.
Cambridge, Massachusetts
Washington, D.C.
June 1980
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COMPARISONS OF ESTIMATED AND
ACTUAL POLLUTION CONTROD CAPITAL EXPENDITURES
FOR SELECTED INDUSTRIES
SUMMARY AND OVERVIEW
Introduction
Federal environmental regulations have experienced
significant growth in the 1970 's. The costs of these regula-
tions are an issue of intense interest and controversy to both
industry and the government. The Environmental Protection
Agency (EPA) has routinely developed estimates of pollution
control costs and their economic impact for every major regula-
tion. It often has been suggested that EPA compare its cost
forecasts with actual expenditure data. The purpose of this
report is to compare estimates of pollution abatement costs
prepared by EPA, by EPA contractors, by industry, and by
independent groups with reported expenditures. 1 Pollution
abatement capital cost estimates for specific regulations are
compared with reported capital expenditures for the following
six industries.
.
Steam Electric Utilities -- Water Pollution Control
.
Electric Utility Flue Gas
-- Scrubbers
Desulfurization Systems
.
Pulp and Paper -- Water Pollution Control
.
Petroleum Refining -- Water Pollution Control
.
Iron and Steel -- Water Pollution Control
.
Automobiles
Controls.
Light
Duty
Vehicle
Air
Pollution
lExpenditure forecasts designated as an "industry estimate"
refer to studies prepared or sponsored by individual firms,
industry trade associations, or by a group of firms such as the
Utility Water Act Group.
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- 2 -
Methodology and Limitations of Analysis
For each industry and regulation several estimates are pro-
vided including an EPA and industry estimate developed at about
the time that the regulations were promulgated. In several
cases a number of other estimates are given from other spurces
such as the National Academy of Science, the National (~ommis-
sion . on Water Quality, the EPA Cost of Clean Air and Waterl
report to Congress, and so forth. Actual expenditure data are
taken from a variety of sources including surveys from the
Department of Commerce, Bureau of the Census; the Department of
Commerce, Bureau of Economic Analysis; McGraw-Hill Publica-
tions, Inc.; the Department of Labor, Bureau of Labor
Statistics; and, industry trade associations.
In a study comparing cost forecasts with actual expendi-
tures several limitations may arise. First, the accuracy of
the survey data on actual capital expenditures is difficult to
assess because the effort applied by industry personnel in com-
pleting the survey forms is unknown and can vary from one
company to another. Since reported expenditures are the bench-
mark by which cost forecasts are measured, errors in this area
could lead to misleading conclusions. Whenever possible a
number of surveys of actual expenditures are reported.2
lThe Cost of Clean Air and Water report had an advantage over
other cost forecasts in that it estimated expenditures from a
retrospective point of view rather than projecting future
expenditures.
2In cases where three or more sources
data are available, usually one source
ferent from the others. For example,
reported substantially higher figures
industry and pulp and paper industry
In the petroleum refining industry,
Analysis survey was considerably higher
of actual expenditure
was significantly dif-
the McGraw-Hi 11 survey
in the iron and steel
than the other sources.
the Bureau of Economic
than the other surveys.
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- 3 -
Another problem inherent in a study of this nature is
that surveys of actual expenditures and cost forecasts may not
measure or estimate the same quantity. The industry and EPA
cost forecasts examined in this study usually estimated the
incremental cost associated with federal regulation. The
surveys on the other hand, report actual expenditures for total
water or air pollution abatement. Therefore, when comparing
EPA and industry cost forecasts with reported expenditures,
pollution control costs associated with non-federal regulations
had to be added to the cost forecasts. Several other adjust-
ments were also required. First, the cost forecasts sometimes
used a different accounting procedure than the surveys of
actual expenditures, and this necessitated the addition of the
cost of construction work in progress to the cost forecasts.
Second, all figures were converted to cormnon dollars using in
most cases the Bureau of the Census I new plant and equipment
price deflator. Finally, when comparing the predicted expendi-
tures with reported expenditures, the EPA and industry fore-
casts were scaled by the actual industry compliance rate.l
It should be kept in mind that this study only compares
predicted capital expenditures with reported capital expendi-
tures. Analysis of the operating and maintenance cost com-
ponents should be conducted to verify and extend the analysis
of capital expenditures.
lIn the case of automobile pollution controls and electric
utility scrubbers, the adjustment for industry compliance rate
was not necessary because actual expenditures \vere reported on
a unit basis (e.g., dollars per car or dollars per kilowatt).
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- 4 -
Summary of Results
Table 1 compares EPA and industry capital cost estimates
with actual expenditures for five industries. (Please refer to
the industry sections of this report for a detailed discussion
of the expenditure forecasts, actual expenditure data, key
assumptions, and so forth.) The figures in Table 1 represent
the ratio of forecasted expenditures to actual expenditures.
For each industry, several forecasts (EPA, industry, and in
some cases the Cost of Clean Air and Water forecast) are used
and thus several ratios are calculated.
In addition,
a range
of ratios
is
shown
in cases
where
several
surveys
of actual
expenditures were available.
Table 1 illustrates several facts.
First,
for four of the
five industries examined the EPA estimates are lower than the
industry estimates. 1 EPA forecasts nave been closer to tne
actual figures for the iron and steel industry, the refining
industry, and for electric utility water pollution control
costs. Industry estimates have been closer to the actual
figures for the pulp and paper industry and for electric util-
ity scrubbers. Second, both EPA and industry forecasts tend to
overestimate compliance costs more often than they underesti-
mate these costs. For example, EPA forecasts (excluding the
Cost of Clean Air and Water forecasts) range from 26 percent
below to 156 percent above reported expenditures, while indus-
try forecasts range from 25 percent below to 162 percent above
reported expenditures. If this apparent bias to overestimate
compliance costs were further substantiated by looking at a
lHowever, for petroleum refineries and the iron and steel
industry, it is only the most recent EPA Cost of Clean Air and
Water report wnich is lower than the industry estimate.
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larger sample of industries and
nance costs as well as capital
tions for EPA decision-making,
requiring a balancing of benefits
including operating and mainte-
costs, it could have implica-
particularly for decisions
and costs.
Table 2 compares estimates of automotive price increases
due to pollution control with actual sticker price increases.
These data indicate that EPA estimates have been closer to the
reported
price
increases than the industry estimates.
estimates show a large degree of variance.
The
One
manufacturers'
would expect that the larger manufacturers would, because of
economies of scale, be able to produce pollution control
systems for their cars at a lower cost than smaller manufactur-
ers. However, since individual manufacturer estimates were not
available
for these
emission
standards,
it is impossible to
determine if they
without knowing
facturers.
overestimate or
underestimate
control costs
which
estimates
are
from
the larger manu-
In comparing EPA and industry cost forecasts, it is
important to bear in mind that differences in these forecasts
result from a variety of assumptions regarding unit control
costs, the amount of capacity affected by regulation, the
industrial growth rate, and the assumed rate of implementation
of the program. A more in-depth review of the cost studies is
needed to identify the key assumptions responsible for the
disparate EPA and industry estimates.
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- 6 -
TABLE 1
RATIO OF CAPITAL EXPENDITURE FORECASTS
TO REPORTED CAPITAL EXPENDITURES1,2
Expenditure Forecasts
1974-1977
TIME PERIOD
1975-1977
1972-1977
Utilities (Water Pollution)
EPA
Industry
.89-.91
1. 36-1. 40
Electric Utility Scrubbers
EPA
Industry
.74
.91
Pulp and Paper (Water POllution)
EPA
Cost of Clean3
Industry
Refineries (Water Pollution)
EP_~
Cost of Clean3
Industry
1. 27-1. 49
1.14
.75
1.87-2.5
1.82-1. 84
1. 91-2.62
Iron & Steel (Water Pollution)
EP~
Cost of Clean3
Industry
1. 32-1. 79
.55-.85
1.29-1.964
lThese ratios
expenditures.
2The range of values reflects comparisons with several expenditure
surveys.
are
forecasted
expenditures
divided
by
actual
3The Cost of Clean Air and Water, Report to Congress, August1979~
4These ratios are for the 1973-1977 time period.
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TABLE 2
RATIO OF ESTIMATED TO REPORTED
ACTUAL STICKER PRICE INCREASES
PRICE INCREASE FORECASTS
SOURCE OF
ACTUAL PRICE INCREASESl
BLS Data Manufacturers' Data
Model Year 1973-1974
EPA Estimate
Industry Estimate
1. 32-1. 45
".72-1. 74
1.54-1.69
.85-2.03
Model Year 1975-1976
EPA Estimate
Industry Estimate
.93-1.02
.51-2.31
.95-1.05
.53-2.37
Model Year 1980
EPA Estimate
.82
lThese price increases are that portion of the reported price
increases which are attributable to acdition or improvement
of pollution control equipment.
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Ie
EFFLUENT GUIDELINES FOR STEAM
ELECTRIC POWER PLANTS
Introduction
The effluent guidelines for steam electric powerplants
promulgated on October 8, 1974 included three categories:
thermal guidelines, chemical guidelines, and entrainment
regulations. The thermal guidelines require: (1) all new
units to install closed cycle cooling when placed in service,
and (2) all units greater than 500 MW and placed in service
between 1 January 1970 and 1 January 1974 to retrofit from open
cycle to closed cycle cooling by 1 July 1981. The chemical
guidelines limit pH levels, suspended solids, oil and grease,
metals, chlorine and certain other pollutants in waste streams.
Initial limitations went into effect in 1977 and more stringent
requirements are to go in effect in 1983. The entrainment
regulations require the location, design and construction of
cooling water intake structures to reflect the best available
technology for minimizing environmental impact. Since capital
expenditures due to the entrainment regulations are not
expected until after 1980, they are not included in this
analysis.
Methodology and Data Sources
with
In this analysis EPA and
two expenditure suryeys.
Temple, Barker & Sloane,
industry estimates were compared
The EPA estimates were prepared
Inc.~l the National Economic
by
lEconomic Analysis of Effluent Guidelines: Steam Electric
Powerplants, Temple, Barket & Sloane, Inc., December 1974.
- 8 -
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- 9 -
Research Associatesl prepared estimates for industry (Utility
Water Act Group), and actual expenditure data were provided in
the McGraw-Hill survey2 and the Bureau of Economic Analysis
survey. 3 To make these sources compatible, certain adjustments
were made to the EPA and industry expenditure forecasts. These
studies projected the incremental costs due to federal
regulation and they did not account for: (1) costs voluntarily
incurred 7 (2) costs of construction work in progress -- these
costs were included in the year when the unit was expected to
be placed in service instead of as incurred 7 and, (3) costs
associated with state and local requirements. As the McGraw-
Hill and Bureau of Economic Analysis data report total
pollution abatement expenditures, these types of expenditures
had to be added back into the EPA and industry forecasts.
A second adjustment was to scale the expenditure estimates
by the 68% compliance rate reported by the EPA Office of
Enforcement. Further, the industry study forecasted capital
expenditures only for the 1974-1983 period. Estimates for the
1974-1977 period were developed from this study by Putnam,
Hayes & Bartlett, Inc. by assuming the distribution of costs in
time would be the same as that assumed by the EPA study. This
assumption is reasonable when similar industrial growth rates
and capacity installation rates are used. The industry study
assumed a different industrial growth rate than the EPA cost
lUtility Water Act Group Economic Analysis
ments to the proposed effluent guidelines
powerplants, June 1974.
submitted as com-
for steam electric
2Historical Pollution Control
McGraw-Hill, November 1979.
Expenditures
and Related Data,
3"Capi tal Expenditures by Business for Pollution Abatement",
U . S. Department of Commerce, Survey of Current Business, July
1975, June 1977, June 1979.
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forecast. However, the EPA study included a comparison of the
industry's capital cost forecasts with its own forecasts
assuming similar industrial growth rates. The industry cost
forecasts used herein are taken from the EPA study. Finally,
all figures were adjusted to 1974 dollars using the Bureau of
the Census I new plant and equipment price deflator for water
pollution abatement equipment.
Cost Comparisons
Table 3 compares EPA and industry (UWAG) capital expendi-
ture estimates for water pollution abatement equipment with
actual expenditures reported for the years 1974-1977. The EPA
estimates are slightly lower than actual expenditures while the
industry estimates are considerably higher. The chart below
provides the ratio of estimated expenditures to actual expendi-
tures for the various forecasts and actual expenditure surveys.
RATIO OF ESTIMATED CAPITAL
EXPENDITURES TO REPORTED
CAPITAL EXPENDITURES
Estimated Expenditures
Reported Expenditures
McGraw-Hill Doc/BEA
EPA
.91
.89
UWAG
1.40
1. 36
Differences in EPA and UWAG projected capital expenditures
result from differences in a key assumption in their analysis.
UWAG and EPA used different capital cost factors. Table 4
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compares EPA and UWAG unit capital cost estimates on a dollars
per kilowatt basis. EPA' s estimates are only slightly lower
than industry's estimates for the thermal guidelines. However,
for the chemical guidelines, EPA's non-nuclear estimate is less
than one third of the corresponding industry estimate while the
nuclear estimates are about the same.
In addition, as previously mentioned, UWAG does not agree
with the future industry growth rates assumed in the EPA study.
The EPA assumptions were developed by the National Power
Survey I s Technical Advisory Committee on Finance. UWAG pro-
jected higher industry growth rates than did EPA.l The UWAG
estimates in Table 4 reflect just the higher capital cost
factors and not the higher growth rate in electrical generation
capacity. Using the UWAG assumed growth rate and capital cost
factors, the expenditures are projected to be $2.9 billion for
the 1974-1977 period as compared to the $2.6 billion using the
lower assumed growth rate. The ratio of forecasted to actual
capital expenditures would then range from 1.52-1.56 as com-
pared with 1.36-1.40.
lA later EPA study in May 1976 revised downward the total
capital expenditure estimates given in this study because even
lower growth rates were predicted which meant fewer new plants
would be built than had previously been expected.
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- 12 -
TABLE 3
CAPITAL
EXPENDITURES FOR WATER POLLUTION
ABATEMENT EQUIPMENT:
ELECTRIC UTILITIES
(Billions of 1974 Dollars)
EXPENDITURE FORECASTS
1974-1977
1974-1983
EPA - December 1974
1.7
6.6
(Economic Analysis of Effluent
Guidelines Stearn Electric
Powerp1ants
1
UWAG - June 1974
2.6
8.9
(UWAG Economic Analysis was pre-
pared by National Economic
Research Associates, Inc.)
ACTUAL FORECASTS
McGraw-Hill - November 1979
1.86
(Historical Pollution Control
Expenditures and Related Data)
DOC - Bureau of Economic Analysis
1.91
(Capital Expenditures by Business
for Pollution Abatement)
1This expenditure estimate assumes only the higher UWAG capital
cost factors shown in the previous table, and not the higher
growth rate in electrical capacity.
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- 13 -
TABLE 4
COMPARISON OF EPA AND
UTILITY WATER ACT GROUP CAPITAL COST FACTORS
(Expressed in 1972 Dollars/Kilowatt)
EPA Estimate
UWAG Estimate
Thermal Guidelines
For Retrofitted Units
Non-Nuclear
Nuclear
$20.43
$24.58
For New Units
Non-Nuclear
Nuclear
$4.89
$3.84
Chemical Guidelinesl
Capacity prior to 1974
Non-Nuclear
Nuclear
$1. 70
$0.58
Capacity 1974-1978
Non-Nuclear
Nuclear
$1.29
$0.58
lThe estimates are
chemical guidelines.
$22.44
$27.01
$6.40
$4.27
$5.78
$0.53
$4.58
$0.53
the projected costs to meet the 1977 BPT
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II.
ELECTRIC UTILITY FLUE GAS
DESULFURIZATION SYSTEMS
(SCRUBBERS)
Introduction
The 1970 Clean Air Act amendments required EPA to develop
National Ambient Air Quality Standards. The states were
required to implement measures to assure the standards would be
attained. As fossil fuel electric powerplants are among the
largest sources of air pollution, much effort was directed at
controlling these sources. Rather than focus on the total cost
of this program,
sulfur dioxide
this analysis examines the cost of scrubbing
emissions one of the most controversial
elements of EPA's program.
Methodology and Data Sources
In the analysis below, all cost estimates and reported
expenditures are compared on a unit (dollars/kilowatt) basis
rather than on an aggregate basis. Actual costs for the period
1970-1978 are reported in a recent EPA studyl which summarized
capital expenditures from 21 plants that have installed flue
gas desulfurization (FGD). The expenditures reported. include
only the sul fur dioxide portion of the emission control system
and were adjusted to 1977 dollars. The EPA cost estimates were
taken from a report prepared by Temple, Barker & Sloane, Inc.,
in May 1976.2 Industry estimates were prepared by the National
lUtili ty FGD Costs: Reported and Actual Costs for Operating
FGD Systems. PEDCO Environmental, Inc., January 1979.
2Economic and Financial Impacts of Air and Water
Controls on the Electric Util i ty Industry. Temple,
Sloane, Inc., 1976.
Pollution
Barker &
- 14 -
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- 15 -
. 1
Economic Research Assoclates. The National Public Hearings on
Powerp1ant Compliance with Sulfur Oxide Air Pollution Regula-
tions provided a third source of cost estimates.2 All cost
estimates and expenditures shown in Table 5 were adjusted to
1977 dollars using the Chemical Engineering index.3
Cost Comparisons
Table 5 compares EPA and industry cost estimates with
reported capital expenditures for sulfur dioxide (802) scrub-
bers. The reported capital expenditures are averages from the
21 plant sample. The observed spectrum of control costs ranged
from $67-$11S/KW for new units and from $56-$233/K"w for retro-
fitting existing units. EPA estimates are lower than industry
estimates and both are lower than average reported expendi-
tures. The chart below provides the ratios between scrubbing
cost estimates and the reported average expenditures. The
industry's estimate of the retrofit cost agrees quite closely
with the actual reported expenditures, while EPA's estimate was
77 percent of actual reported expenditures. Industry underesti-
mated the costs of scrubbers on new plants by 16 percent, while
EPA underestimated the costs by 30 percent.
lThe Cost of Reducing Sulfur Dioxide Emissions from Electric
Utility Plants. National Economic Research Associates, June
1975.
2Report of the Hearing Panel, National Public Hearings on
Powerplant Compliance with Sulfur Oxide Air Pollution Regula-
tions, October lS, 1973 to November 2, 1973.
3The survey on actual expenditures used this index to convert
reported expenditures to 1977 dollars. The EPA study suggested
an alternative inflation index7 however, the Chemical Engineer-
ing index was used to conform with the survey of actual
expenditures.
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- 16 -
RATIO OF SCRUBBING COST
ESTIMATES TO REPORTED EXPENDITURES
New Unit Cost
Retrofit Cost
EPA
National Public Hearings
Industry
.70
.77
.69-.89
.96
.84
Using its own cost factors, EPA would have estimated the
capital expenditures for the PEDCO 21 plant sample to be 26
percent (or $234 million) less than the actual figure. Using
industry unit cost estimates would have resulted in estimated
capital expenditures 9 percent (or $81 million) less than the
actual figure. 1 The ratios of estimated capital expenditures
to reported capital expenditures, provided in Table 1 of the
Summary and Overview section of this study, are derived from
the estimated capital expenditures and reported capital expendi-
tures for the 21 plant sample discussed above.
lTotal capital expenditures for the
million during the 1970-1978 period.
21
plants
were
$1,152
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- 17 -
TABLE 5
COST OF S02 SCRUBBERS ($/KW)
(1977 Dollars)
Expenditure Forecasts
New Unit Cost
Retrofit Cost
EPA - May 1976
621
791
Economic
of Air &
trols on
Industry
and Financial Impacts
Water Pollution Con-
the Electric Utility
Public Hearings - October 1973
71-92
National Public Hearings on
Power Plant Compliance with
Sulfur Oxide Air Pollution
Regulations
Industry - June 1975
74
99
The Cost of Reducing S02
Emissions from Electric-Utility
Plants
Actual Expenditures
EPA/PEDCO - September 1978
88
103
Utility FGD Costs: Reported
and Adjusted Costs for Operat-
ing FGD Systems
lusing the inflation rate suggested in the EPA report, the esti-
mated scrubber costs are $65 for a new plant and $82 to retrofit
an existing plant.
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III.
PULP AND PAPER INDUSTRY
Introduction
Best practical control technology (BPT) effluent guidelines
for the pulp and paper industry were developed for each of 17
subindustrial categories. The guidelines required limitations
on pH levels, biological oxygen demand, suspended solids, and
zinc in wastewater streams. The major industrial subcategories
examined in this analysis are the bleached kraft, groundwood,
sulfite, soda, de-inked and non-integrated paper segments of
the industry.
Methodology and Data Sources
Estimated costs of compliance with BPT regulations were
calculated by both the EPA and the pulp and paper industry.
These estimates are compared with the actual water pollution
abatement expenditures made by the industry. All of the cost
figures in this section are adjusted to 1975 dollars, using the
Bureau of the Census I new plant and equipment price deflator
for water pollution abatement equipment.
While there are a number of
studies
which calculate the
cost of compliance with BPT in the pulp and paper industry,
only three of these are used in this analysis. The reason for
this lies in the fact that most of the studies report the
estimated expenditures in dollars per ton by subindustry (e.g.,
bleached kraft; market pulp; papergrade sulfite; soda, de-
inked; and so forth). In order to compare these cost figures
with actual expenditures data, a conversion from dollars per
ton to total dollars would have to be made. To make such a
conversion,
an
estimate
for
the
number
of
treated
tons
of
- 18 -
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- 19 -
production
in
each
of
these
subindustries
is
needed.
Unfortunately, this tonnage figure is
Therefore, those estimates which are
per ton basis have been excluded.
not readily available.
stated only on a dollar
Two EPA studiesl and the one industry study2 provide esti-
mates of the industry-wide capital expenditures necessary to
meet BPT guidelines on a total dollar basis. These estimates
have been adjusted to reflect an 83 percent compliance rate for
the industry. 3 It was assumed that the EPA and industry
capital cost forecasts to meet the BPT effluent guidelines
represent total capital expenditures for water pollution
abatement. 4 Further, the industry study predicted capital
expenditures only for existing facilities. To make this
forecast comparable to the surveys of actual expenditures I the
estimated expenditure for new facilities developed in the EPA
study was added to the industry forecast.
lEconomic Analysis of Proposed and Interim Final Effluent Guide-
lines for the Bleached Kraft, Groundwood, Sulfite, Soda, De-
Inked and Non-Integrated Paper Sectors of the Pulp and Paper
Industry, January 1976, Arthur D. Little, Inc.; and The Cost of
Clean Air and Water Report to Congress, August 1979.
2Potential National Economic Impact of Federal Water Effluent
Standards and Goals for the U. S. Paper Industry, Arthur D.
Little, Inc., December 1973, prepared for the American Paper
Institute.
3This compliance rate was
obtained from the EPA Office
paper mills, and pulp mills.
4This assumption is valid because the original industry study
prepared by Arthur D. Little, Inc. projected capital
expenditures due to BPT as those expenditures in excess of a
prior years I baseline expenditure level which was provided by
an industry survey of capital expenditures for water pollution
control.
developed from compliance data
of Enforcement on paper products,
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- 20 -
There are four sources which provide information on actual
water pollution abatement capital expenditures in the pulp and
paper industry. These include the Bureau of the Census, 1 the
Bureau of Economic Analysis,2 McGraw-Hil13 publications in
addi tion to a National Council of the Paper Industry for Air
and Stream Improvement4 (NCASI) publication on environmental
expenditures. These sources were all comparable and no
adjustments were necessary.
Cost Comparisons
Table 6 provides the estimated capital costs for water
pollution abatement and the reported actual capital expendi-
tures. As the table indicates, EPA projected expenditures are
larger than the actual expenditures, while industry forecasts
were lower.
The chart below provides the ratio of estimated capital
expendi tures to actual expenditures for the various forecasts
and actual expenditure surveys. The range of ratios reflects
comparisons with different expenditure surveys.
lpollution Abatement Cost and Expenditures, U.S. Bureau of the
Census, 1973-1977.
2survey of Current
Bureau of Economic
1979, and June 1979.
Business,
Analysis,
U.S. Department of
July 1975, June 1977,
Commerce,
February
3Historical Pollution Control Expenditures and
November 1979, McGraw-Hill Publications Co.,
Economics.
Related Data,
Department of
4A Survey of Pulp and Paper Industry Environmental Protection
Expenditures - 1978, National Council of the Paper Industry for
Air and Stream Improvement, Special Report No. 79-03, September
1979.
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- 21 -
RATIO OF ESTIMATED CAPITAL EXPENDITURES
TO REPORTED CAPITAL EXPENDITURES
FOR WATER POLLUTION ABATEMENT
1974-1977
1972-1977
EPA Estimates
EPA!ADL
Cost of Clean
1.36-1.60
1.14
Industry Estimate
API!ADL
.82
The industry estimate is approximately 18 percent below the
actual 1972-1977 capital expenditures as they are reported by
NCASI and McGraw-Hill.l Both of the EPA estimates are slightly
higher than the actual expenditures. The- forecasted costs
reported in the January 1976 study by ADL averaged 48 percent
higher than the actual expenditures. The estimate taken from
the 1979 Cost of Clean Air and Water report averaged 14 percent
higher than the actual expenditures.
lIt should be noted, however, that the actual data are only
available for the entire "Paper and Allied Products" industry,
and therefore may overstate slightly the actual expenditures
for the pulp and paper segment of the industry.
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- 22 -
TABLE 6
CAPITAL
EXPENDITURES FOR WATER POLLUTION
ABATEMENT EQUIPMENT:
PULP AND PAPER INDUSTRY
(millions of 1975 dollars)
1974-1977
~972-1977
Actual Expenditures
$876.0-$1,028.61
$1,411.2-$1,411.92
EPA Estimates
ADL - January 1976
1397.4
Cost of Clean - Aug. 1979
1608.2
Industry Estimates
ADL - December 1973
1,156.4
lThe lower and
penditure data
mediate values
million.
upper bounds reflect the actual water pollution ex-
from BEA and McGraw-Hill respectively. The inter-
are: Census:. $972.2 million and NCASI: $916.3
2The upper and lower bounds of this range reflect NCASI and McGraw-
Hill expenditures data, respectively.
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IV.
PETROLEUM REFINING
Introduction
The BPT effluent guidelines promulgated in October 1974
for the petroleum refining industry require the control of
wastewater pollutants for five refinery categories: topping,
cracking, petrochemical, lube, and integrated. The effluent
guidelines require limitations on pH levels, biological and
chemical oxygen demand, suspended solids, oil and grease,
phenolic compounds, ammonia, sulfide, and chromium in
wastewater streams.
Methodology and Data Sources
The estimates of the cost of compliance with water pollu-
tion control regulations include EPA estimates, 1 industry
estimates,2 and an estimate taken from a study contracted by
the National Commission on Water Quality. 3 All of the cost
data in this section have been converted to 1974 dollars using
the Bureau of the Census' new plant and equipment price defla-
tor for water pollution abatement equipment.
lEconomic Impact of EPA's Regulations on the Petroleum
Industry, Sobotka & Co., Inc., April 1976; and The
Clean Air and Water Report to Congress, August 1979.
2The Economic Impact of Environmental Regulations on the Petro-
leum Industry, Phase II Study, Battelle Columbus Laboratories,
June 11, 1976.
Refinery
Cost of
3Water Pollution Control Act of 1972. Economic Impact pilot
Studies, Five Industries, The Conference Board, June 1975.
- 23 -
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- 24 -
The capital expenditure estimates in the petroleum
refining industry are comparable without adjustment. Each
estimate includes anticipated expenditures for both existing
and new refineries. However, in order to make these estimated
capital expenditures consistent with the actual expenditures
reported for the petroleum refining industry, all of the
estimates were adjusted to reflect an industry compliance level
with the BPT guidelines of 83 percent.l
There are four sources of actual water pollution abatement
expenditures for the petroleum industry as a whole. These data
sources are published by the Bureau of the Census,2 the Depart-
ment of Commerce Bureau of Economic Analysis, 3 McGraw-Hill, 4
and the American Petroleum InstituteS (API). Unfortunately,
only the Census data are broken out for the petroleum refining
sector of the petroleum industry.
The API data, while not disaggregated to the level
individual sectors of the petroleum industry, allocate water
of
lThis level of compliance was obtained from the EPA Office of
Enforcement.
2pollution Abatement Cost and Expenditures, U.s. Bureau of the
Census, 1973-1977.
3survey of Current
Bureau of Economic
1979, and June 1979.
Business,
Analysis,
U.s. Department of
July 1975, June 1977,
Commerce,
February
4Historical Pollution Control Expenditures and Related Data,
McGraw-Hill Publications Co., Department of Economics, November
1979.
SEnvironmental Expenditures of the United States Petroleum
Industry 1969-1978, American Petroleum Institute, 1979.
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- 25 -
pollution abatement capital expenditures to four industrial
activities: exploration and production; transportation;
marketing; and manufacturing. For the purposes of this study,
the manufacturing segment has been chosen as the best approx-
imation for the petroleum refining industry, and it is this
portion of the API data which is reported herein. In order to
utilize the remaining two sources of actual data, the ratio of
the manufacturing segment expenditures to the total industry
expenditures, as reported by API, has been applied to the
capital expenditures reported in the Bureau of Economic
Analysis and the McGraw-Hill publications.
tures data are very similar,
Analysis shows slightly larger
pollution abatement. These data
the
Bureau
of
expendi-
Economic
The Bureau
of the Census,
API,
wh i 1 e
and McGraw-Hill
capital expenditures
are shown in Table 7.
for water
Cost Comparisons
As is depicted in Table 7, both of the EPA estimates and
the industry estimate show substantially greater anticipated
expenditures than those that actually occurred. The National
Commission estimate is much closer to the reported actual
expenditure data. This is largely due to the fact that the
National Commission incorporated anticipated technological
changes into its analysis in order to arrive at the minimum
estimated cost of compliance with water pollution control
requirements.
The chart below provides the ratio of estimated expendi-
tures to actual expenditures for the various forecasts and
actu~l expenditure surveys. The range of ratios reflects
comparisons of the cost forecasts with different expenditure
surveys.
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- 26 -
RATIO OF ESTIMATED CAPITAL EXPENDITURES
TO REPORTED CAPITAL EXPENDITURES FOR
WATER POLLUTION ABATEMENT
1974-1977
1972-1977
EPA Estimates
Sobotka
1. 87-2.56
Cost of Clean
1. 82-1. 84
Industry Estimates
API/Battelle
1.91-2.62
National Commission on
Water Quality
Conference Board
.89-.90
The EPA studies overestimated capital expenditures by
82-156 percent. The industry forecast overestimated capital
expenditures by 91-162 percent. The National Commission on
Water Quality underestimated capital expenditures by about 10
percent.
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- 27 -
TABLE 7
CAPITAL
EXPENDITURES FOR WATER POLLUTION
ABATEMENT EQUIPMENT:
PETROLEUM REFINING INDUSTRY
(millions of 1974 dollars)
Actual Expenditures
1974-1977
$545.5-$747.81
1972-1977
$786.8-$791.62
EPA Estimates
Sobotka - April 1976
1,397.5
Cost of Clean - Aug. 1979
1,444.4
Industry Estimates
API/Battelle - June 1976
1,426.7
National Commission on Water
Quality
Conference Board - June 1975
707.3
iThe lower and upper bounds of the range depict the McGraw-Hill
and the BEA figures respectively. The intermediate expenditure
values are: Census - $585.8 million and API - $574.9 million.
2
The lower and upper bounds of the range depict the API and the
McGraw-Hill figures respectively.
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v.
IRON & STEEL INDUSTRY
Introduction
The BPT effl uent guide 1 ines for the integrated iron and
steel industry established limitations for each individual
manufacturing process (e. g., sintering, basic oxygen furnace,
etc.). The guidelines require limitations on pH levels,
suspended solids, oil and grease, heavy metals, and other
pollutants in wastewater streams.
Methodology and Data Sources
The capital expenditure estimates for water pollution
abatement in the iron and steel industry consist of two EPA
estimates,l one industry estimate, 2 and one estimate from the
National Commission on Water Quality.3 All of the cost figures
presented in this section have been converted to 1975 dollars
using the Bureau of the Census I new plant and equipment price
deflator for water pollution abatement equipment.
lEconomic Analysis of Proposed and Interim Final Effluent
Guidelines, Integrated Iron and Steel Industry, Temple, Barker
& Sloane, Inc., March 1976~ and Cost of Clean Air and Water
Report to Congress, August 1979.
2Steel and the Environment: A Cost Impact Analysis, Arthur D.
Little, Inc., May 1975, prepared for the American Iron & Steel
Institute.
3Water Pollution Control Act of 1972 Economic Impacts
Studies, Five Industries, The Conference Board, 1975.
Pilot
- 28 -
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- 29 -
In order to compare the cost estimates with actual expen-
diture data, all the estimates must be adjusted to a consistent
basis. In the case of the iron and steel industry studies, a
number of adjustments to the original estimates were necessary
to achieve such consistency. The methodology used to make
these adjustments is described below.
The EPA study prepared by Temple, Barker & Sloane, Inc.
(TBS) estimates capital expenditures to meet BPT guidelines.
However, TBS did not believe that compliance with the BPT
guidelines could be met in 1977 and they provided another
capital expenditure estimate for the 1975-1977 time period.
The estimate to meet BPT guidelines, weighted by an appropriate
compliance factor, was used in this analysis because it was
more comparable to the other cost forecasts and surveys on
actual expenditures. It is assumed that the expenditures to
meet BPT guidelines represent total water pollution control
expenditures during the time period of interest.
Putnam, Hayes & Bartlett, Inc derived the industry cost
forecasts from the industry study sponsored by the American
Iron and Steel Institute. The total capital costs were fore-
casted by estimating the cost to existing facilities to meet
the BPT effluent guidelines and by estimating the costs of
water pOllution abatement for new facilities built after 1974.
The capital requirements for existing facilities to comply with
BPT are provided specifically in the industry study.l The cost
of pollution control for new facilities is also provided, but
it is not divided into costs for air and water pollution
-
The portion of costs for water pollution control for
control.
lSee Figure I-l and Table I-2 of the Arthur D.
report for estimates of capital requirements
facilities.
Little, Inc.
for existing
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- 30 -
new facilities during 1975-1977 was estimated by prorating the
total pollution control costs for new facilities during the
1975-1977 period by the ratio of water pollution control costs
to total pollution control costs for new facilities during the
1975-1983 period. 1 Finally, all projected expenditures were
2
weighted by a compliance rate of 54 percent.
There are four sources which report capital expenditures
for water pollution abatement in the iron and steel industry.
These are: the Bureau of the census,3 the Bureau of Economic
Analysis4 (BEA), the American Iron and Steel Institute5 (AISI)
and McGraw-Hill. 6
The iron and steel industry capital expenditures are re-
ported separately in each of these sources except for the BEA
publication. The related industries for which expenditures
are reported by the BEA are "primary metals", "blast furnaces
lSee Table VI-23 of the Arthur D. Little report for the
estimates of total pollution control costs for new facilities,
and Table VI-3 for the ratio of water pollution control costs
to total pollution control costs for new facilities.
2This is the compliance rate for the Iron and Steel Industry as
reported by the EPA Office of Enforcement.
3pollution Abatement Cost and Expenditures, U;S. Bureau of the
Census, 1973-1977.
4survey of Current
Bureau of Economic
1979, and June 1979.
Business,
Analysis,
U.S. Department of
July 1975, June 1977,
Commerce,
February
5AISI Statistical
1969-1978.
Highlights
U.S.
Iron
and
Steel
Industry
6Historical Pollution Control Expenditures and Related Data,
McGraw-Hill Publications Co., Department of Economics, November
1979.
-------
- 31 -
and
steel products",
and
"non-ferrous metals",
In order to
capture the amount expended by steel and iron foundries, as well
as that expended by "blast furnaces and steel products," the
expenditures by the non-ferrous metals industry were removed
from total "primary metals II expenditures, The resulting
figures are the BEA capital expenditures included in this
analysis. The data from the Census Bureau for 1973 were not
divided into air and water pollution control expenditures. To
obtain the 1973 total expenditure figure for water pollution
control, the total 1973 figure was adjusted by the 1974 ratio
of water pollution control expenditures to total expenditures.
The data from the four sources differ somewhat and the range 9f
actual capital expenditures is depicted in Table 8.
Cost Comparisons
As is shown in Table 8, all of the earlier estimates of
capital expenditures for water pollution control were
significantly higher than the actual capital expenditures
reported by the four sources of actual pollution control costs.
The chart below lists the ratios of estimated to reported
capital expenditures for various forecasts and surveys of
actual expenditures. The range of ratios reflects comparisons
with various expenditure surveys.
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- 32 -
RATIO OF ESTIMATED CAPITAL EXPENDITURES
TO REPORTED CAPITAL EXPENDITURES FOR
WATER POLLUTION ABATEMENT
1975-1977
1973-1977
1972-1977
EPA Estimates
TBS
1.32-1.79
Cost of Clean
.55-.85
Industry Estimate
AISI/ADL
1.29-1.96
National Commission on
Water Quality
The Conference Board
1.23-1.88
The EPA forecast prepared by TBS overestimated capital
expenditures by 32-79 percent. The industry forecast overesti-
mated capital expenditures by 29-96 percent. When comparing
estimates with the AISI actual expenditure figure, the most
accurate forecast of the capital cost of water pollution
abatement was made by EPA in the 1979 Cost of Clean Air and
Water report. This estimate of $593.7 million for the years
1972-1977 is 15.2 percent lower than the AISI actual
expenditure figure.
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- 33 -
TABLE 8
CAPITAL EXPENDITURES FOR WATER POLLUTION
ABATEMENT EQUIPMENT
, THE IRON AND STEEL INDUSTRY
(millions of 1975 dollars)
1975-1977
1973-1977
1972-1977
Actual Expenditures
465.1-630.01
624.3-952.62
699.9-1070.63
EPA Estimates
TBS - March 1976
831.6
Cost of Clean
A.ug. 79
593.7
Industry Estimates
AISI/A.DL - May 1975
1225.5
National Council on Water
Quality
Conference Board
June 1975
1173.6
IThis range is bounded on the lower end by the AISI expenditures
figure and by the McGraw-Hill cost figure on the upper end. Tne
intermediate Census and BEA figures are $513.4 and $479.7 million
respectively.
2The lower bound of the range reflects the AISI cost figure and the
upper bound reflects the McGraw-Hill cost figure. The intermediate
Census and BEA figures are 714.8 and 645.0 respectively.
3The lower bound of the range is the AISI cost figure and the upper
bound is the McGraw-Hill cost figure.
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VI.
AUTOMOBILES
Introduction
The 1970 Amendments to the Clean Air Act called for EPA to
establish emission standards for 1975 and later model year
light duty passenger cars that would require a 90 percent
reduction in hydrocarbon (HC) and carbon monoxide .( CO) emis-
sions from 1970 levels, and to proscribe standards for 1976 and
later model years that would require a 90 percent reduction in
nitrogen oxide (NOx) emissions from 1971 levels. A number of
controversial suspension hearings, judicial reviews and legisla-
tive changes have altered the original emission standards and
extended their compliance dates. Consequently, many of the
earlier cost studies were for emission standards that were
never placed in effect or were delayed several years from their
original timetable.
Methodology and Data Sources
The methodology for this analysis was straightforward. It
consisted of collecting the data and adjusting the sticker
price increases to constant dollars. Estimates of sticker
price increases are provided by EPA,l the National Academy of
Sciences, 2 automobile manufacturers as reported in EPA
lAutomobile Emission Control - The Technical Status and Outlook
as of. December 1974, U.S. EPA, 1975; The Economics of Clean
Air, Annual Report to Congress, U.S. EPA, March 1972; EPA Fact
Sheet #1, U.S. EPA, 1978; Automobile Emission Control - The
Technical Status and Outlook, U.S. EPA, April 1976.
2Semiannual Report by the Committee on Motor Vehicle Emissions,
the National Academy of Sciences, 1972, 1974.
- 34 -
-------
- 35 -
control status reports, 1 and by the Counci 1 on Environmental
Quality.2 Actual price increases are taken from two sources:
the Bureau of Labor Statistics3 and manufacturers' reported
actual price increases submitted in letters to Senators E.S.
Muskie and P.V. Domenici.4
Cost Comparisons
Table 9 compares actual and estimated sticker price
increases due to emission controls. The chart below lists the
ratio of estimated price increases to actual price increases
for model years 1973-1974, 1975-1976, and 1980. All ratios are
based on cumulative estimates of
reported sticker price increases.
comparisons of various estimates
projected price increases and
The range of ratios reflects
of sticker price increases and
reported price increases.
For the 1973-1974 model year the EPA and CEQ estimates are
the most accurate, however, both estimates are substantially
higher than reported price increases. For the 1975-1976 model
year the EPA and NAS estimates are closest to the reported
figures. In comparing the EPA cost estimates for the 1980
lAutomobi1e Emission Control The
Outlook, U.S. EPA, 1975, April 1976.
2Economic Impact of Pollution Control, Council on Environmental
Quality, March 1972.
Technical
Status
and
3preliminary Report on Prices of New Passenger
Bureau of Labor Statistics, news releases 1971-1979.
Cars,
U.S.
4U.S.
1975.
Senate Hearings, May 13,
1975, May 19, 1975, and May 21,
-------
- 36 -
RATIO OF ESTIMATED TO ACTUAL
STICKER PRICE INCREASES
Actual Price Increases
Emission Standards
(HC/CO/NOx)
BLS Data
Manufacturers' Data
MY 1973-1974
(3.0/28/3.1)
EPA Estimate
NAS Estimate
Manufacturer
CEQ Estimate
Estimates
1. 32-1. 45
1. 59
.72-1.74
1. 29
1. 54-1. 69
1. 86
.85-2.03
1. 51
MY 1975-1976
(1.5/15/3.1)
EPA Estimate
NAS Estimate
Manufacturer
CEQ Estimate
Estimates
.93-1.20
.95
.51-2.31
1.42
.95-1. 05
.97
.53-2.37
1.47
MY 1980
( .41/7.0/2.0)
EPA Estimate
.82
model year with the BLS data we find that EPA has underesti-
mated the control cost by 18 percent. This is in contrast to
the 1973-1974 model year where EPA overestimated the cost by
32-69 percent.
mates
From analyzing
are closer
this data, it appears that the EPA est i-
to the actual price increases than the
manufacturer estimates.
The manufacturers'
estimates indicate
a large degree of variance. One would expect larger manu-
facturers to produce pollution control systems for their cars
at a lower cost than smaller manufacturers because of economies
-------
- 37 -
not
However,
available
since
individual
manufacturer
estimates
of
scale.
were
for
these
emission
standards,
it
is
impossible
overestimate
to
determine
if
the manufacturers consistently
control costs without knowing
or
underestimate
which estimates are from the larger manufacturers.
-------
un 1:is 1':>1\
Sc..iUJ.U'J:i
(IIC/CO/:-W,,)
~IY 70-71
(~ .I/J~/--)
~fY 72
(). 0/28/--)
~IY 73-7..
0.0/2d/J.1)
~fY 7~-76
(I. ~/l ~/J. 1)
~IY 77-79
( I . S/l Sn . 0)
~I\' dO
(...1/7.0/2.0)
~I\' d 1
( ... I /J . ../1. 0)
TABLE
9
CO~WARISONS OF ESTIMATED AND ACTUAL STICKER PRICE INCREASES DUE TO EHISSION CONTROLS
(J'I77 IIo11a r s)
Bureau of Labor
Statistics Actual
Price 11'creas~~1,2
~llInufac turers
Reported Actual
I'r Ice Increases3
EPA EsC1mates4
Incrc- Cumula- Incre-
mental t Lve mental
JJ )3 27
8 41 19
n 76 24
139 21~ 144
3~ 2~0
99 )49
Cumulo- Incre-
tive mental
27 }
39.00
41
6~ 61.00
Cumula-
tIve
39.00
100-110~
NAS Estimates6
Manufscturer
EsUma tes7
209 100-11 0 200-220
1~ 21~
70 28~
1~0 4)~
Incre-
mencul
Cumula-
tive
Incrc-
mcntHl
Cumula-
tive
}
28
28
121 ~~-132 ~~-1J2
204 55-364 110-496
0-1828
93
83
1~4-3788
(over MY 7~-76)
1These fi~ures are from the Bureau of Labor Statistics reports on price chongea of new passenger cars.
,
-lncr"mental prices are the prices over the previous model year.
CEQ (!..tlmates9
Incre- CUlUulo-
mental tlve
3~ )~
2 37
61 98
209 307
w
00
Cumulative prices are the prices over pre-1970 corso
Price increase.. were adjusted to 1977 dollars.
)Th.:"e prices are sales weighted averages of CH, Ford, and Chrysler average price increases due to emi..aion
President, Ceneral ~Iutors, to Senator E. S. Huskie. Hay 19, 197~; Hr. L. A. Iocacca, President, Ford Hotor
anJ ~Ir. J. J. Ricardo, President, Chrysler Corp., to Senator P.V. Domenici, May 21. 197~.
controls oa reported by Hr. E. H. Estes.
Co., to Senator P.V. Domenici, Hay 13, 197~;
~F.>r the 1970-1974 model years the EPA figures reflect estimates in The Economics of Clean Air, Annual
C1e.H Air and IJater Report to ConRress. August 1979. Other estimates are from the EPA Fact Sheet 01,
Emission Control - The Technical Status and Outlook aa of December 1974.
Report to ConRress, March 1972 and the Cost of
1978 and sn EPA report entitled Automobile
~The upper bound cumulative cost reflect EPA estimatea taken from the December 1974 atotus report.
r.h,}J~1 Y~..lr:i.
It did not give incrementsl coats for prevIous
°rlle est L",ates for mudel years 1970-1972 were taken from the NAS 1972 report (Semiannual Report by the Conunlttee on Hotor VehIcle Emlaslon..).
S.IS r,'purt provld.:d the estimates for the 197/, and 197~ model years.
7The m;lnutacturing estimates are reported in the December 1974 EPA status report on automobile emission controls cited above and in a sImilar status
repurt dateJ April 1976.
dThe Custs ,",ere only expressed as an Increment over the prIor model year In the April 1976 EPA Status Report.
9Th.:se cst imates are from the EconomIc Impact of Pol1utlon C.ontrol. Harch 1972.
The 1974
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