United States
Environmental Protection
Agency
Office of Pesticides and
Toxic Substances
Washington, DC 20460
EPA-560/12-80-001 a
October 1980
Toxic Substances
Economic Implications
of Regulating Nonaerosol
Chlorofluorocarbon Emissions:
An Executive Briefing
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EPA-560/12-80-00 la
October 1980
ECONOMIC IMPLICATIONS OF REGULATING
CHLOROFLUOROCARBON EMISSIONS FROM
NONAEROSOL APPLICATIONS: AN
EXECUTIVE BRIEFING
Contract No. 68-01-3882
& 68-01-6111
Project Officer:
Ellen Warhit
REGULATORY IMPACTS BRANCH
ECONOMICS & TECHNOLOGY DIVISION
OFFICE OF TOXIC SUBSTANCES
WASHINGTON, D. C. 20460
U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF PESTICIDES AND TOXIC SUBSTANCES
WASHINGTON, D.C. 20460
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Disclaimer
This document is an executive briefing of a contractor's
study done with the supervision and review of the Office of
Pesticides and Toxic Substances of the U.S. Environmental
Protection Agency. The purpose of the main study was to evaluate
the economic implications of alternative policy approaches for
controlling emissions of chlorofluorocarbons (CFCs) in the United
States.
The briefing was submitted in fulfillment of Contracts No.
68-01-3882 and 68-01-6111 by the contractor, The Rand
Corporation, and by its subcontractor, International Research and
Technology, Inc. Work was completed in July 1980.
The briefing is not an official EPA publication. The
document can not be cited, referenced, or represented in any
court proceedings as a statement of EPA's view regarding the
chlorofluorocarbon industries, or of the impact of the
regulations implementing the Toxic Substances Control Act.
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PREFACE
This report documents a briefing presented to the Environmental Protection
Agency on November 29-30, 1979. The purpose of the briefing was to summarize
the results of a three-year Rand study of the economic implications of alternative
policy approaches for controlling emissions of chlorofluorocarbons (CFCs) in the
United States. The briefing was presented to various staff members and officials
at EPA, including the Assistant Administrator for Planning and Management,
William Drayton, and to the Assistant Administrator for Pesticides and Toxic Sub-
stances, Steven Jellinek. By invitation from EPA, representatives from the Council
on Wage and Price Stability and the Council of Economic Advisers also attended
sessions at which the briefing was delivered. Later (and with the prior approval of
EPA), versions of the briefing were also presented to industry trade associations
with a particular interest in the issue of chlorofluorocarbon regulation. Because of
the length and complexity of the research report whose results were summarized
in the briefing, this documentation of the briefing is being released as a summary
for the larger report.
The research described herein was performed under Contracts 68-01-3882 and
68-01-6111 from EPA. The analysis of the refrigeration applications of chlorofluoro-
carbons was largely performed by International Research and Technology, Inc.,
under subcontract to Rand. The final report on the project is R-2524-EPA, A. R.
Palmer et al., Economic Implications of Regulating Chlorofluorocarbon Emissions
from Nonaerosol Applications, June 1980. Two other supplementary documents
concerning the study will be published in conjunction with the final report. One, by
William Mooz and Timothy Quinn, is a more detailed examination of flexible foam
products (N-1472-EPA). The other, by Kathleen Wolf, is a description of the indus-
tries that produce CFCs and their precursor chemicals (N-1483-EPA).
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ACKNOWLEDGMENTS
Many companies, trade associations, and individuals went to extraordinary
lengths to assist us in obtaining essential information for the research described in
this report. Naming these individuals or companies would result in a list of perhaps
400 entries, and the list would omit the names of many people who contributed
indirectly through their firm's representatives or who responded anonymously to
our questionnaires. Rather than perform the injustice of selecting only a few names
for explicit mention, we prefer to express implicit, but genuine, appreciation to the
many industry contributors to this study.
The authors also owe a substantial debt for the special efforts of several persons
at Rand. First, we acknowledge the pervasive contribution of the project's original
director, George Eads, whose insights and talents laid a firm foundation for the
research. The two reviewers of this report, James Dertouzos and Bridger Mitchell,
showed exceptional attention to substance and detail in their comments, and de-
serve no blame for any remaining oversights in this final version. Martha Cooper
prepared this manuscript with efficiency and skill, while our editors, Patricia Be-
drosian and Mary Vaiana, made a substantial contribution to the quality of the
presentation, in matters of both format and style.
Our acknowledgments would be incomplete without a mention of our original
project monitor at EPA, Douglas Hale. His guidance and administrative skill were
essential in allowing the research to adjust to the many, not inconsiderable "sur-
prises" encountered along the way. James Hughes at EPA also provided valuable
assistance to the project.
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CONTENTS
PREFACE iii
ACKNOWLEDGMENTS v
Section
I. INTRODUCTION 1
II. THE EMISSIONS PROCESS 3
III. POLICY STRATEGIES 7
IV. BASES OF POLICY COMPARISON 12
V. CFC DEMAND 14
VI. OUTCOMES OF ALTERNATIVE POLICIES 16
Costs to the Economy as a Whole 16
User Industry Expenses 18
Mitigating Transfer Payments 20
Other Policy Concerns 20
VII. SUMMARY OF INSIGHTS INTO THE POLICY CHOICES 22
Setting Goals 22
Controls Versus Incentives 24
Taxes Versus Quotas 25
Advantages and Disadvantages of Compensation 26
VIII. CLOSING COMMENT 27
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I. INTRODUCTION
Several scientific studies since 1974 have indicated that chlorofluorocarbons
(CFCs) can deplete stratospheric ozone that protects the earth from ultraviolet
radiation harmful to human, plant, and animal life.' By the end of 1978, the United
States had banned virtually all uses of CFCs as propellants in aerosol products, such
as hairspray and other personal hygiene products. However, those bans eliminated
only about half of U.S. emissions. The chemicals continue to be used in a large
number of nonaerosol applications in the United States. These include:
manufacture of flexible and rigid foams for cushioning, insulation, and packaging;
industrial cleaning and drying of electronic components; home and food store
refrigeration, and air conditioning in autos; liquid fast freezing of foods; and
sterilization of medical supplies.
The research summarized in this report examines a variety of policy options
for limiting CFC emissions in the United States. Because aerosol applications are
already regulated, the analysis deals only with nonaerosol applications of CFCs.
Our research identifies the economic costs of regulations to achieve various degrees
of emissions control. The existence and potential magnitude of social, environmen-
tal, and economic benefits from reducing emissions were not examined in this
study, but are being studied by other researchers.
This document reviews all the major components of the study. Section II de-
scribes the basic features of the CFC emissions process and projects future emis-
sions in the absence of policy action. Section III identifies policy strategies for
reducing emissions; these include some candidates for mandatory control policy
and, alternatively, policies that would make use of economic incentives; Sec. IV
explains basic concepts necessary for comparing the different policy mechanisms.
The demand for CFCs, which must be estimated in order to analyze economic
incentives policies, is discussed in Sec. V. Section VI compares the two types of
policy along a number of dimensions, including costs to the economy as a whole and
effects on the CFC-using industries.
Neither policy approach is clearly superior to the other along all the dimensions
considered in this study. Consequently, the study does not recommend a particular
policy strategy. Instead, the study (and this document) concludes in Sec. VII with
a survey of major insights concerning the nature of the policy issues that now
confront the federal government.
The following methodological observations are relevant. First, all quantitative
projections extend through the year 1990; predicting even that far in the future is
risky, and to go much beyond that date would be excessively so, particularly be-
cause the private firms that contributed data for this study do not project their own
activities beyond that year. Second, the baseline projections of emissions are a
"most likely" case, based on what industries told us about their own plans for the
future. In contrast, the predictions of the outcomes of policy are very cautious.
'See The National Research Council, Stratospheric Ozone Depletion by Halocarbons: Chemistry and
Transport, 1979, and citations noted there.
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When we are confronted with uncertainty, prudence dictates we should tend to err
on the "safe" side. Hence, the cost estimates may be overstated and the estimates
of emissions reductions may be understated. However, the caution is even-handed;
it is specifically designed not to favor one policy alternative over another.2
Throughout the report, policy effects on emissions are measured in terms of
reductions relative to the baseline case in which annual emissions are projected to
grow. All but one of the policy designs analyzed herein would permit some growth
in CFC use over the next decade, though less than in the absence of policy action.
Finally, all of the cost data reported here are measured in 1976 dollars.
bias toward caution in the estimates tends to favor the case against regulatory action of any
kind. However, this study was not designed to evaluate the desirability of regulation, which would have
required an investigation of the benefits as well as the costs of ozone protection. Moreover, as explained
later in this summary and in the larger report it summarizes, the study does examine the implications
of alternative assumptions that might place an upper bound on emissions reductions and a lower bound
on regulatory costs.
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II. THE EMISSIONS PROCESS
To examine policies for reducing emissions, it is necessary to know how and
where emissions occur, and how and why emissions in different product areas are
changing over time. For analytical purposes, the study divides the life of final
products made with CFCs into three stages represented in Fig. 1: manufacture,
normal use, and disposal.
Final Product Life
Fig. 1—The CFC emissions process
CFC is used during the manufacturing stage in all product areas. Some prod-
ucts such as flexible foams emit essentially all of the CFC at the time of manufac-
ture. In this case, the CFC emissions in any year are equal to the CFC used during
the final product manufacturing process in that year.
In other products, such as the refrigeration and insulation applications, the
CFC performs a vital function during the normal use of the product. Although there
may be some CFC emissions during the manufacturing stage, most of the CFC
remains confined in the product during normal use. We call this phenomenon
"banking," and the CFC retained in the product is referred to as the bank. Emis-
sions from these products may occur during normal use, and some CFC may be
replaced through servicing; but much of the CFC will not be emitted until disposal
of the product, perhaps 50 years after it is manufactured. For a product of this type,
the emissions in a particular year are equal to the manufacturing and servicing
emissions that occur during that year plus the emissions from the CFC bank formed
by prior years' production of the product.
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Virtually all the CFCs sold into nonaerosol applications are ultimately emitted
to the atmosphere. Hence, an estimate of the eventual sum of manufacturing,
normal use, and disposal emissions can be obtained directly from estimates of CFC
use over time. The magnitude of emissions during the manufacturing stage is
relatively well-known, since manufacturers generally pay close attention to materi-
al losses. The division of emissions between normal use and disposal is debated, but
while this uncertainty affects estimates of the timing of emissions, it has relatively
little effect on estimates of cumulative emissions over long periods of time. How-
ever, the particular emissions characteristics of the final product do determine the
point in time at which policies become effective in reducing emissions. For example,
policies that affect the amount of CFC retained in a product may not have an impact
on emissions until many years later.
Table 1 reports baseline estimates of 1976 and 1990 CFC purchases (sales) and
emissions in several product categories. The values are based on industry-supplied
data and on models of the emissions process in individual product areas. More than
200 firms were contacted to obtain this information, and our interim reports con-
taining the information were reviewed by industry.
Table 1
ESTIMATED CFC SALES AND EMISSIONS FROM U.S.
NONAEROSOL APPLICATIONS IN 1976 AND 1990
(EXCLUDING CFC-22)"
(Millions of Pounds)
Analyzed
Applications
Mobile air conditioning
Solvents
Flexible foams
Rigid foams
Other refrigeration
Miscellaneous
Total
Other Applications
Sales
90
69
34
60
30
23
306
51
1976
Emissions
76
69
34
33
27
23
262
51b
Sales
125
147
72
226
39
70
679
47
1990
Emissions
122
147
72
113
33
64
551
47b
a
R. Palmer et al., Economic Implications of Regulating Chloro-
fluorocarbon Emissions from Nonaerosol Applications, The Rand
Corporation, R-2524-EPA, June 1980. Annual sales do not neces-
sarily equal annual emissions because of CFC banking.
k
Estimated emissions figures assume all CFCs are promptly
emitted because of lack of information on banking in these
applications.
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The product areas represent the major applications of se\ eral CFCs. The most
commonly used are CFC-11,12, and 113, all of which are fully halogenated.3 We do
not incude here, or elsewhere in this report, uses of CFC-22. The latter CFC is not
fully halogenated, and for that reason, it is thought to pose less of a hazard to the
ozone layer.4
CFCs perform various functions in the different product areas. CFC is the
refrigerant in automotive air conditioning units. It is a solvent used in metal
cleaning and for the defluxing of printed circuit boards. It is a blowing agent that
forms the cells or "bubbles" in flexible foams used for cushioning in furniture,
bedding, and carpet underlay applications. The rigid foams category includes two
types of products: insulation and packaging. The CFC acts as an insulating medium
as well as a blowing agent for rigid insulating foams used in the construction of
homes and offices, and as a blowing agent in rigid packaging foams. CFC is the
refrigerant in three types of refrigeration devices: in chillers used to cool large
industrial and commerical buildings, in home refrigerators and freezers, and in
display and storage cases used in retail food stores. The "other refrigeration"
category shown in Table 1 combines uses in all three of these applications.
CFC is used in a variety of other ways represented here by the miscellaneous
category. The largest applications in this category are in the liquid fast freezing of
food and in the sterilization of hospital supplies.
As Table 1 indicates, annual CFC purchases do not equal CFC emissions in
certain of the product areas. This is a result of the banking phenomenon.
Both total purchases and emissions are growing rapidly and will approximately
double by 1990. The largest rate of increase in emissions for the period is in rigid
foams, followed by flexible foams and solvents. Although mobile air conditioning
is a large current source of emissions, it is not growing as rapidly. Note that the
"other refrigeration" category, composed of three refrigeration applications, is a
small contributor to emissions in 1976; in 1990 it is the smallest emitting category.
This last observation is important because refrigeration has often been mentioned
as an important product area that might have to be sacrificed to achieve substantial
emissions reductions—a speculation that is not supported by the data in Table 1.
Because of the growth in certain CFC-using products, the CFC bank is growing
rapidly. Table 2 lists the major product areas that retain CFC and thereby contrib-
ute to the bank. These three categories—insulating foams, vehicle air conditioning,
and other refrigeration—account for more than 90 percent of CFC banking.
The bank is an important source of future emissions. Even if all sales of CFCs
were immediately banned in the United States, the emissions potential from the
existing (1980) bank of CFCs is such that total cumulative emissions over the period
1980 through 1990 would be reduced by only 85 percent. In the absence of regulato-
ry action to limit banking, the total bank will approximately triple by 1990, domi-
nated by increased banking of CFC in insulating foam.
3A fully halogenated CFC molecule contains only chlorine, fluorine, and carbon, and has no double
or triple bonds between carbon atoms.
4The omission of CFC-22 accounts for the omission of home air conditioners from the products we
examined.
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Table 2
ESTIMATED SIZE OF THE U.S. BANK OF CFC
IN 1976 AND 1990 (EXCLUDING CFC-22>
CFC Bank
(millions of Ib)
Product Area 1976 1990
Rigid foams 250 1291
Mobile air conditioning 222 384
Other refrigeration 201 274
Total 673 1949
Calculations were based on analysis re-
ported in Palmer et al. (1980).
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III. POLICY STRATEGIES
A number of commercially available technical options exist for controlling CFC
emissions from the manufacture, service, and disposal of nonaerosol products. The
available technical options fall into one of three general categories: recovery and
recycle of CFCs before their escape into the atmosphere, substitution of alternative
chemicals for CFCs, and improvements in manufacturing equipment to help reduce
the rate at which CFCs escape into the atmosphere. One or more of these types of
options is currently available in several of the nonaerosol product areas, though
there are no commercially available options in some applications. To achieve near-
term reductions in emissions beyond those available through increased implemen-
tation of existing technical options, it would be necessary to restrict the availability
of some or all products made from CFCs.
Table 3 lists the four general policy strategies available to EPA for achieving
emissions control. The first of the strategies, CFC bans, directly prohibits the use
of CFCs in some or all applications, and would represent an extension of the current
aerosol regulation to nonaerosol applications. In this study, policies that would
eliminate nonaerosol products from the U.S. market were not a focus of quantita-
tive analysis; however, a few qualitative comments about this policy approach are
noted in Sec. VII.
Table 3
POLICY STRATEGIES
o CFC bans.
o Voluntary action programs.
o Mandatory controls.
o Economic incentives.
Voluntary action programs can take two forms. First, they might consist of
"jawboning" or other encouragement to firms to implement known technical op-
tions. The detailed analysis in our study investigates the costs of alternative techni-
cal options and can thus provide some insight into the cases in which
encouragement is least likely to encounter serious resistance, but it is impossible
to predict with any confidence how effective specific encouragement might be; we
make no attempt to render such predictions. Second, EPA might provide informa-
tion or research and development services to industry. Such a program might be
more effective than simple encouragement because it shifts some of the costs of
regulation from firms to the government. Beyond this qualitative inference, which
is reiterated in Sec. VII, this study does not investigate the costs or prospective
benefits of voluntary action programs.
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The last two policy strategies listed in Table 3 are the focus of the quantitative
analysis of this study. By mandatory controls, we mean regulatory requirements
that specify the technical options firms must use to control emissions.5 In contrast,
economic incentives function by making CFCs costly enough that firms would find
it cost-saving to implement technical options that reduce their use and emissions
of virgin (newly produced, as opposed to reclaimed) CFCs.
We began our policy analysis by examining all currently available technical
options for reducing emissions in each of the product areas. For each option, we
determined the cost to industry of a mandatory requirement to use the option as
well as the CFC price required to induce industry to use the option under an
economic incentives policy.6
Next, to compare the costs of alternative policies, it was necessary to identify
policy designs that would be equally effective in reducing emissions. For this pur-
pose, we identified a set of technical options as candidates for mandatory controls,
thereby establishing a benchmark level of emissions reduction.
The technical options included in the benchmark had to meet three criteria:
First, they had to be enforceable at reasonable levels of monitoring and enforce-
ment activity. If a technical option were very costly to industry, so that there were
strong incentives for noncompliance, and if effective enforcement required virtual-
ly continuous monitoring at many different sites, we judged the option unenforce-
able. Two of the unenforceable options that prove to be especially important in this
analysis are: substitution of methylene chloride for CFC-11 in flexible foams, and
substitution of alternative solvents for CFC-113. In both of these cases, it would be
very difficult to be sure the substitution occurs on a continuous basis without
taking the relevant CFC off the market altogether—which would effectively ban
the production of certain products that cannot be made without these CFCs. Per-
haps even more important, substitution in these cases is a poor candidate for a
mandatory requirement because the substitute chemicals are currently under
investigation themselves as potential hazards to health or the environment. Note,
however, that some firms would find it less costly to convert to an alternative
chemical than comply directly with CFC mandatory controls and that conversion
to alternative chemicals could be induced by an economic incentives policy; these
possibilities are reflected in our analysis.
Our second criterion for the benchmark is that the options had to be effective
by 1990. Nearly all the technical options that reduce the amount of CFC banking
in final products would take several years to mature because of long delays for
research and development and for industry retooling, and because the newly made
products would not fully replace those with higher normal use emissions until the
products already in use are replaced. If these slow-maturing options had been
included in the benchmark as mandatory controls, all of their costs and little of
their emissions effects would have been apparent in the data estimates through the
5Another mandatory control approach would be simply to specify the degree to which emissions must
be limited without specifying how. If it is assumed that such regulation is designed to permit continued
production of final products, then the extent of emissions reduction that can be achieved in this way
is dependent on existing technology and will be similar to emissions reductions under policies
that specifically require implementation of current emissions-limiting technology.
6In all product areas, historical data proved inadequate for empirically estimating industry responses
to CFC prices. Consequently, CFC demand schedules were estimated by determining the CFC price
necessary to justify the capital investment and operating costs for each technical option.
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.year 1990, thus putting the controls at an apparent disadvantage in comparison
with economic incentives policies. The slow-maturing options are analyzed in the
study, but they are omitted from the quantitative analysis of the benchmark con-
trol candidates.7
Third, a technical option could not be included in the benchmark set of controls
if there were insufficient data to estimate costs or effectiveness. In most cases, these
options are still on the drawing boards and will not be commercially available for
several years; while they might be very promising prospects, regulations requiring
their use could not be implemented anytime soon and so their cumulative emissions
effects by 1990 would be limited. In a few cases, technical options might be commer-
cially available, but lack of relevant data means they could not be implemented by
EPA without further technical assessment.
The mandatory controls that met the three criteria for inclusion in the bench-
mark are listed in Table 4. Some product areas had no technical options that met
the criteria and would thus be unaffected by the benchmark control policy.
Table 4
BENCHMARK MANDATORY CONTROL OPTIONS
Flexible foams: recovery and recycle of CFC-11 in
slabstock and molded flexible foam plants.
Solvents: equipment standards for users of CFC-113
in cleaning and drying applications.
Rigid foams: recovery and recycle of CFC-12 in
thermoformed extruded polystyrene sheet plants.
Chillers: conversion to CFC-22 test gas at manufac-
ture.
Retail food refrigeration: conversion to CFC-22
test gas in manufacture.
Retail food refrigeration: conversion to R-502
refrigerant in medium-temperature (nonfreezing)
systems.
Table 5 shows the estimated effectiveness of the benchmark mandatory con-
trols in reducing emissions below baseline levels. If implemented in 1980, the
controls would cause 1980 CFC use and emissions to drop below 1979 levels. How-
ever, use and emissions would increase in succeeding years as production of final
products increases.
The largest emissions reduction is obtained through the recovery and recycle
of CFC during the manufacture of flexible foam. Requiring equipment standards
for solvent users and the recovery and recycle of CFC in the manufacture of
7 Analyses of the slow-maturing options are not reported here but are documented in Palmer
etal. (1980).
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10
Table 5
ESTIMATED EMISSIONS REDUCTIONS UNDER
THE BENCHMARK MANDATORY CONTROLS"
Annual Reductions
in Emissions'3
(millions of Ib)
Product Area
CFC
1980
1990
Flexible foams
Solvents
Rigid foams
Retail food
refrigeration
Chillers
Total
CFC-11
CFC-113
CFC-12
(CFC-12
\CFC-502C
CFC-12
Non CFC-22d
26.5
10.0
7.2
1.0
-0.7
0.1
44.1
40.5
32.5
11.3
4.0
-3.9
0.1
84.6
Calculations were based on analyses presented
in Palmer et al. (1980).
Reductions are measured relative to baseline
emissions that are expected to grow over the next
decade.
The negative signs for CFC-502 emissions ef-
fects indicate emissions of this CFC would in-
crease under the benchmark controls.
The totals for non-CFC-22 exclude the 48.8
percent of CFC-502 that is composed of CFC-22.
extruded polystyrene sheet (a rigid packaging foam) both lead to substantial emis-
sions reductions. The substitution of CFC-502 for CFC-12 in new medium tempera-
ture retail food store units decreases emissions of CFC-12, but also simultaneously
increases emissions of CFC-502; on balance, however, there is a net improvement
in ozone protection because CFC-502 is a less hazardous CFC.8 In retail food store
refrigeration and chillers, manufacturers currently use CFCs to test whether the
units will hold a refrigerant charge; substitution of other test gases would lead to
minimal decreases in emissions.
An alternative to mandatory controls is the use of economic incentives. They
function by raising CFC prices. Confronted with sufficiently high prices, users will
find it cost-saving to conserve CFCs by recovery and recycling, improving equip-
ment, and substituting other chemicals. Since virtually all the CFC that is used is
ultimately emitted, reducing use reduces emissions.9
We examined two alternative mechanisms for raising prices. The first raises
the price directly by taxing CFCs. The second raises the price indirectly by setting
8CFC-502 is about half CFC-22, which is not fully halogenated.
9As a practical matter, the incentives policies we studied would have little effect on banking, so
reductions in annual use would be nearly equal to reductions in annual emissions.
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11
a quota on CFC sales. A quota that creates a shortage would encourage the CFC
producers to raise their prices. Alternatively, the regulatory agency could issue
permits (ration coupons) that the user must have in order to buy CFCs. The permits
would be marketable; users could sell them to each other. The price of the permit
in this case represents an increase in the cost of purchasing CFCs.
Taxes and quotas share several important features that distinguish their ef-
fects from those of mandatory controls. First, both types of economic incentive
policies are self-enforcing for users. Enforcement consists of collecting the appropri-
ate revenues from taxes or monitoring CFC production.10 It is not necessary to
monitor users because their own self-interest encourages them to conserve CFCs
and control emissions. An implication is that some technical options users would
resist under mandatory control policy would be implemented under the economic
incentive generated by higher CFC prices.
Second, economic incentives can be fine-tuned to reflect the differences among
CFCs in potential hazard to the ozone layer caused per pound of emissions. This
is achieved by raising prices more for the most hazardous CFCs. Making the most
hazardous CFCs the most costly encourages emissions reductions where they do
the most good.
Finally, economic incentives offer a more flexible time profile of annual emis-
sions and costs than do mandatory controls. The emissions effects under the bench-
mark mandatory controls depend on the assumption that the controls would be
instituted immediately and fully enforced every year through 1990. If implementa-
tion or enforcement were changed, the emissions outcome would change also. In
contrast, there are many different economic incentive policy designs that can
achieve the same cumulative reduction in emissions. For example, the same
cumulative goal can be reached by holding a tax constant throughout the period,
or by setting a low tax initially and raising it gradually over time. Similarly, a given
cumulative effect can be achieved through many different patterns of annual
quotas.
There are operational differences between taxes and quotas that are discussed
later in this report. However, the increase in CFC prices that is consistent with a
given reduction in CFC use is the same whether taxes or quotas are used. This
similarity allows us to treat the two types of economic incentives as equivalent in
much of our analysis. At the same time, the features that distinguish incentives
from mandatory controls require us to establish some common bases for comparing
the two policy strategies; the bases for comparison are addressed next.
10This implicitly requires controls on CFC imports.
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IV. BASES OF POLICY COMPARISON
Because the mandatory control and economic incentives policies differ in major
ways, we needed to develop common bases for comparing them. Table 6 shows our
approach.
Table 6
BASES FOR POLICY COMPARISON
o CFG emissions weighted by chlorine content: "permit
pounds."
o Effectiveness: cumulative emissions reductions below
baseline, 1980 through 1990.
o Costs: discounted cumulative, 1980 through 1990:
— To economy as a whole: resource costs.
— To user industries: resource costs plus transfer
payments.
o Other policy concerns, e.g., substitution of hazard-
ous chemicals for CFCs
As we noted earlier, different CFCs are believed to impose different levels of
hazards to the ozone layer per pound of emissions. Since mandatory controls and
economic incentives can differ in the mix of CFCs whose emissions are reduced, it
is necessary to develop a common basis of emissions measurement that yields
comparable estimates of ozone protection. The "permit pound" is such a measure;
it weights the CFCs according to chlorine content, a factor that is critical in deter-
mining the potential hazard of the various fully halogenated CFCs. For example,
when a pound of CFC-502 is substituted for a pound of CFC-12 in retail food
refrigeration, emissions decline by 0.75 permit pounds.
Mandatory controls and economic incentives can yield quite different time
profiles of annual emissions, but in comparing the overall effectiveness of the two
policy strategies, we use cumulative emissions from 1980 through 1990. This sim-
plification was suggested to us by EPA and is based on the assumption that the
ultimate damage to the ozone layer from a given amount of emissions is indepen-
dent of the timing of the emissions within a decade."
Mandatory controls impose costs on user industries by requiring firms to make
expenditures on capital, labor, energy, and other resources used to limit emissions.
Economic incentives also cause firms to buy resources. However, the levels of
"There may be some slight difference in the timing of the ultimate emissions effect. However,
because the ultimate effect is several decades in the future, discounting the future ozone effect to take
account of differences in timing would not yield noticeable changes in the differences between the
measured effectiveness of different policies.
12
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13
resource expenditure can differ between the two policies even when their effective-
ness in reducing emissions is equal. The reason is that the technical options used
to reduce emissions under the alternative policies can differ; in particular, incen-
tives induce some users to implement options that would be difficult to enforce
under a mandatory control strategy.
The resources expended to control CFC emissions cannot be used to produce
other goods and services. Hence the resource costs imposed by policy represent an
economic cost to the economy as a whole, and form one important basis for compar-
ing the economic implications of alternative policy strategies.12 Since the time
profile of annual resource costs can differ between the two policies—and since
industry is not indifferent to when costs are incurred—we compare the sum of
annual resource costs, discounted at 11 percent per year.13
Costs to the economy as a whole are not the only basis for comparing the
economic implications of alternative policies. The distribution of costs is also impor-
tant because of its implications for the prices of consumer products and the likeli-
hood of plant closures and worker unemployment in various industries. Resource
costs are distributed among CFC-using industries differently under mandatory
controls and economic incentives, even when the policies are equally effective in
ozone protection. Moreover, economic incentives policy can impose another type of
expense on user industries that is not imposed by mandatory controls: transfer
payments.
Depending on how an incentives policy is implemented, firms might have to pay
taxes, buy permits, or otherwise pay higher prices for the CFCs they continue to
use. These payments do not reflect increased purchases of resources and thus do
not restrict the ability of the rest of the economy to produce other goods and
services; instead, the payments return to the economy elsewhere, for example,
when the government uses the tax revenues to pay for various government pro-
grams. In short, the payments transfer wealth away from CFC users to the rest of
the economy. Transfer payments are an added expense in the industries that pay
them, and can contribute to higher consumer prices, plant closures, and worker
unemployment in those industries.14 To compare the distribution of industry
expenses under mandatory controls and economic incentives, therefore, it is
necessary to compare the resource costs under controls with the sum of resource
costs and transfer payments under economic incentives. Like our measure of
resource costs, the summary measure of industry expenses is the discounted sum
of annual expenses from 1980 through 1990.
There are several other bases for policy comparison, such as effects on the use
of substitute chemicals that might be hazardous to health or the environment.
Those effects are also discussed below.
12The larger report on which this document is based uses the term "compliance costs" to refer to
resource costs.
13Eleven percent is used for consistency with other CFC research sponsored by EPA and is currently
the estimated real rate of return to nonconstruction investment.
"Because the transfers return to the economy elsewhere, there should be offsetting effects on prices
and employment in other industries.
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V. CFC DEMAND
We determined the effects of economic incentives on CFC use by estimating
annual CFC demand curves like the one shown in Fig. 2 for the year 1980. The
vertical axis measures the price increase per permit pound resulting from policy
action. Because the permit pound weights more hazardous CFCs more heavily, a
given tax or permit price per permit pound yields larger price increases for more
hazardous CFCs.15 Use is measured in permit pounds, summed over all CFCs and
applications.
w»
"o
-------
15
In the absence of policy action, the tax or permit price is zero, users pay only
the CFC sales price, and 1980 use would amount to about 450 million permit
pounds. As the CFC price increases, some of the technical options we studied
become cost-saving to firms, and CFC use declines accordingly. The higher the CFC
price, the more costly are the options that will be used.
The dotted line in the figure indicates the 1980 level of use under the bench-
mark mandatory controls. It is very unlikely that mandatory controls could be used
to reduce CFC use much further, because all the enforceable, immediately effective,
and commercially available technical options are included in the controls. However,
further reductions would be possible by increasing the tax or permit price. Raising
it to as much as $2 could reduce 1980 CFC use by at least 25 percent.
The analysis of the CFC demand curve is based on the assumption that demand
for final products made from CFCs is very inelastic (unresponsive to higher prices).
Consequently, all the reductions in CFC use shown in the demand curve are pre-
sumed to be due to implementing technical options that reduce use and emissions
while holding final product output constant. A further implication of the inelastici-
ty assumption is that cost increases in user industries would be passed through to
consumers in the form of higher product prices.
For small changes in the CFC price, the inelasticity assumption is reasonably
accurate; in nearly all product areas, CFCs account for only a small percentage of
final production costs, so even doubling the CFC price (current price levels for
various CFCs range from 34 cents to about $1.50) would increase final product
prices by much less than five percent. We expect most consumers to pay the higher
prices. However, as the CFC price rises further, it becomes more likely that demand
for the final product will be affected; thus the reductions in CFC use shown in Fig.
2 increasingly understate the likely effect of higher CFC prices. When taxes or
permit prices exceed $2 per permit pound, the likelihood of curtailed production of
final products becomes substantial, and plant closures in at least some user indus-
tries become more likely.
Given the estimated CFC demand curve, large reductions in use (25 percent or
more) appear difficult and costly to achieve. To some degree, the cost might be
overstated because there may be some technical options that could not be analyzed
because of inadequate data on their costs and effectiveness. One of our "cautious"
assumptions is that these options are so costly to implement that firms would not
use them unless CFC prices rise by more than $2 per permit pound. A less cautious
assumption is used later in this report to generate a lower-bound estimate of the
costs of stringent reductions in CFC use.
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VI. OUTCOMES OF ALTERNATIVE
POLICIES
COSTS TO THE ECONOMY AS A WHOLE
The benchmark mandatory controls would reduce cumulative emissions by a
little over 800 million permit pounds—15 percent of the baseline estimate—and
would cost the economy $185 million over the period. An equally effective economic
incentive policy would require CFC prices to rise by about 50 cents per permit
pound, whether through a tax or a quota. Overall, the incentives policy would cost
the economy only $108 million (cumulative), about 40 percent less than the equally
effective mandatory controls.
To understand why economic incentives are less costly to the economy even
when they achieve the same emissions reduction as the mandatory controls, it is
useful to look at outcomes by product area displayed in Table 7. Economic incen-
tives cause much larger emissions reductions in solvent applications, where chemi-
cal substitution is a relatively low-cost way to reduce CFC use and emissions. With
solvents carrying more of the burden of emissions reductions, rigid packaging foam
applications do not have to pursue as much costly recovery and recycling. Basically,
economic incentives generate lower compliance costs because they redistribute
emissions reductions from high- to low-cost activities.
Economic incentives policies can be designed to achieve even larger emissions
reductions than the benchmark. The most stringent policy design we examined
Table 7
PRODUCT AREA OUTCOMES UNDER MANDATORY CONTROLS AND
EQUALLY EFFECTIVE ECONOMIC INCENTIVES"
Cumulative Emissions Discounted Cumulative
Reductions, 1980-1990 Resource Costs
(millions of permit pounds) (millions of 1976 $)
Mandatory Economic Mandatory Economic
Product Area Controls Incentives Controls Incentives
Flexible foam
Solvents
501
186
381
390
93
46
29
67
Rigid packaging
foam 106 27 39 4
Retail food 18 18 77
Chillers 11 <1 <1
Total 812 817 185 108
Calculations based on data in Palmer et al. (1980).
16
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17
would double the effectiveness of the benchmark-equivalent policy, reducing
cumulative emissions by about 30 percent. This policy is described as a "zero-
growth" design because it would reduce cumulative emissions by the same amount
as a policy that holds annual CFC use constant at 1980 levels throughout the period.
However, the actual design of this policy in our analysis is such that there would
be a drop in use in the first year of the policy followed by some growth from that
level over the remainder of the period. This design is less costly than true zero
growth because relatively inexpensive reductions in the early years of the policy
can be used to offset higher use and emissions later on. Resource costs under our
zero-growth design would accumulate to $600 million (discounted) over the period.
We cannot estimate the costs of a policy that actually holds growth to zero because
the necessary increase in 1990 CFC prices would be beyond the range of the de-
mand-curve estimates based on our cautious assumptions.
Table 8 summarizes the findings for the mandatory controls and the two eco-
nomic incentives policies just described.16
Table 8
SUMMARY COMPARISON OF POLICY EFFECTS"
Cumulative Discounted Cumulative
Emissions Reductions Compliance Costs
Policy Options (millions of permit pounds) (millions of 1976 $)
Benchmark mandatory
controls 812 185
Economic incentives
Benchmark-equivalent 816 108
Zero-growth 1602 268-600
Based on calculations reported in Palmer et al. (1980).
AD the predictions of policy effects shown in Table 7 are based on cautious
assumptions that yield rather inelastic demand curves, like the one for 1990 shown
by the solid curve in Fig. 3. Given such a curve, large reductions in emissions
appear very costly. However, our cautious assumptions probably overstate the
costs of stringent policies.
Consider, for example, our assumption that technical options would not be used
in applications where data are scant or unreliable. Suppose, instead, that these
applications are just as responsive to CFC prices as the applications with better
data. Then the demand curves would be much more elastic, like the dashed one in
Fig. 3. If the curves are more elastic, the tax or quota policy required for the
zero-growth case would be less than half as costly ($268 million) than the more
cautious assumption implies. If the alternative assumption is accurate, a zero-
growth policy would achieve about twice the emissions reduction of the benchmark
mandatory controls at less than one-and-a-half times the cost.
16For economic incentives, a low-growth policy design and a cost-minimizing benchmark-equivalent
design are also analyzed in the larger report summarized here.
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18
S 2.00
1.50
E
s.
1.00
0.05
0.00
J __
500 600 700
Permit pounds of total CFC use (millions)
Fig. 3—Alternative estimates of 1990 demand schedules
for fully halogenated CFCs
800
USER INDUSTRY EXPENSES
On the basis of compliance costs and emissions effects alone, economic incen-
tives are attractive alternatives to mandatory controls. But to get a more complete
picture of economic incentives, it is necessary to consider the transfer payments
they can generate.
Figure 4 shows total industry expenses to achieve the benchmark emissions
reduction. Compliance costs under economic incentives are shown by the unshaded
bars, while compliance costs under mandatory controls are indicated by the solid
bars. The cross-hatched bars are transfer payments. As Fig. 4 indicates, the cost of
transfer payments can dwarf compliance costs, but expenses vary widely from one
product to another. For example, in retail food, transfer payments make total
expenses five times as great under economic incentives as under mandatory con-
trols. But in rigid packaging foams, total expenses under incentives are only about
twice as high as under controls. The comparison differs within product areas as
well. In fact, for some small producers of rigid packaging foams, total expenses are
actually less under incentives—though this situation is clearly the .exception rather
than the rule.
For industries that do not use technical options to reduce CFC use, transfer
payments would be the only expense under an economic incentives policy. If we
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1200|
300
JO
"o
•8
CO
o> 200
100
KEY:
Resource costs under mandatory controls
Resource costs under incentives
Transfers under incentives
Flexible foams
Solvents
Rigid packaging
a foams
Benchmark-equivalent policy, constant-price design.
Retail food
Chillers
Other
Product areas
Fig. 4—Cumulative industry expenses under mandatory controls
and uncompensated economic incentives3
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20
take all the product areas where our cautious assumption is that no reductions in
CFC use would be induced by an incentives policy, and we add in all product areas
that have no known technical options, we get the transfer payments indicated by
the right-hand bar in the figure. Combined, these product areas would pay $1.7
billion in transfers—about two-thirds of all the transfer payments generated by the
policy.
MITIGATING TRANSFER PAYMENTS
Although transfer payments do not represent a real resource cost to the econ-
omy as a whole, they are clearly large enough to cause difficulties in user indus-
tries. However, it is possible to mitigate these difficulties in various ways.
One straightforward approach would be to exempt certain product areas from
the policy. However, there are three disadvantages of exemptions. First, the prod-
uct areas that are expected to yield emissions reductions cannot be exempted
without reducing the policy's effectiveness; thus, transfer payments would continue
to'pose a problem for several user industries. Second, even some of the product
areas that are not expected to reduce emissions in our analysis might actually have
technical options that could reduce emissions; exemptions of those products would
remove the incentives for use of available technical options. Third, other product
areas do not have technical options simply because in the past economics did not
encourage their development. Exemptions would perpetuate that state of affairs,
generating no inducement for new technology to control emissions.
An alternative to exemptions is the use of compensation techniques. The design
of such techniques was not a focus of this study, but we have identified some
promising approaches that might be used. For example, permits could initially be
allocated to users free of charge.17 Or users might be reimbursed for transfer
payments.
The design of a compensation policy is a complicated issue in its own right. A
basic principle that must be preserved is that the compensation policy should not
interfere with the basic incentives the larger policy is intended to create; not all
forms of compensation policy would satisfy this principle. Moreover, compensation
policy is likely to be politically sensitive because it requires decisions about who to
compensate and at what level. Nevertheless, compensation policy deserves further
study because it would permit the use of economic incentives that are less costly
to the economy as a whole without imposing unnecessary expenses on user indus-
tries.
OTHER POLICY CONCERNS
There are other bases for evaluating policy aside from emissions effects, cost
to the economy as a whole, and user industry expenses. Four important concerns
l7The permits would still have a price in the aftermarket in which CFC users buy and sell permits
among themselves.
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21
are consumer prices, plant closures, potential predatory behavior, and risk trade-
offs.
Because in most product areas CFCs represent a very small fraction of total
production costs, regulation causes only modest increases in final product prices.
Under mandatory controls, the price increases would generally be much less than
5 percent. Under economic incentives, the price effects would be somewhat greater
because of transfer payments, but in principle these would be offset by price reduc-
tions elsewhere in the economy.
We do not expect large numbers of plant closures, especially under mandatory
controls or compensated economic incentives, for much the same reason that only
small price increases are expected. Most closures will occur in businesses whose
survival is already borderline. However, one product area that might be especially
susceptible to closures is rigid packaging foams, where paper and cardboard are
major competitors. Notably, for this product area, either mandatory controls or
economic incentives policies would pose some danger of plant closures.
Predatory behavior refers to any attempt by a small number of firms to buy
up all the permits to drive their competitors out of business. The possibility appears
exceedingly remote, and easy to deal with if it arises. In 1980 alone, there would
be 400 million permits under the benchmark-equivalent policy. It would cost a firm
at least a quarter of a billion dollars to control this market for that single year. To
prevent this, Congress could provide authority for the same types of antitrust
regulations that apply to securities and commodities markets.
Risk trade-offs refer to the fact that CFC regulation encourages substitution of
alternative chemicals. Among the substitutes in various product areas are methy-
lene chloride, methyl chloroform, perchloroethylene, and pentane. Each of these is
suspect as some type of health or environmental hazard. Hence, CFC policy in-
volves trade-offs among risks to health and the environment. These trade-offs are
more important under economic incentives because that policy would induce more
chemical substitution, especially in solvents and flexible foams applications. How-
ever, some substitution occurs even under the mandatory controls because it is
cheaper for some firms to substitute another chemical than to comply directly with
CFC regulation.
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VII. SUMMARY OF INSIGHTS INTO
THE POLICY CHOICES
This section reviews some of the important insights this research offers into the
major policy choices with regard to CFC nonaerosol regulation. The choices include
setting a goal for emissions reduction and selecting a policy strategy for achieving
that goal. If mandatory controls are selected, further choices must be made about
whether to grant exemptions to individual firms or product areas, and what level
of enforcement activity to pursue. If incentives are chosen, decisions must be made
about whether to use taxes or quotas, and whether to engage in compensation.
Although all these matters are touched upon in the next few pages, much of the
discussion focuses on choices involving incentives policies because these are far less
familiar policy tools than mandatory controls.
SETTING GOALS
To a large degree, setting a goal for emissions reduction involves making a
trade-off between the costs of regulation and the benefits from protecting the ozone
layer. This research does not address the latter issue, but it does specify how costs
vary with the level of emissions control to be achieved. Figure 5 illustrates the
relationship between costs to the economy as a whole (compliance costs) and degree
of emissions control. The latter variable is measured as a percentage reduction in
cumulative U.S. emissions over the coming decade, and (alternatively) as a percent-
age reduction in cumulative world emissions achieved by U.S. policy action.
Mandatory controls occupy the lower left portion of the figure. Compliance
costs are moderate, and emissions effects are modest; the benchmark controls
would reduce cumulative U.S. emissions by 15 percent, world emissions by 3 per-
cent. The effectiveness and costs of mandatory controls can be varied by changing
the set of controls, changing their implementation dates, granting exemptions, or
choosing among various levels of enforcement activity. But, however they are
implemented, mandatory controls that require firms to use specific technologies to
reduce emissions will have quite limited effects on cumulative emissions over the
next decade. The effects of all the technologies that are commercially available at
present and appear enforceable as mandatory controls are already reflected in the
benchmark estimates. Technologies that are on the drawing boards at present
might help if they measure up to expectations, but time is required for them to
become commercially available and to pass through the regulatory steps required
to implement them as mandatory controls; even if they are very effective in reduc-
ing annual emissions by the end of this decade, their effects on cumulative emis-
sions between now and 1990 are limited by the magnitude of annual emissions for
the years before implementation. In short, it appears most unlikely that mandatory
controls could reduce cumulative U.S. emissions by as much as 40 percent.
High levels of emissions reduction can be achieved by banning the use of CFCs.
While we have not researched the use of such policies, we can be sure that they
22
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High
Low
Mandatory
controls
CFC bans
I
I
I
I
10 20 30 40 50 60 70
Reduction in cumulative U.S. emissions, 1980-1990 (percent)
80
90
TOO
8 12 16 20
Reduction in cumulative worldwide emissions, 1980-1990 (percent)
24
Fig. 5—Cost and effectiveness of alternative U.S. policies
-------
24
would be far more costly than the mandatory controls. Note that the maximum
emissions reduction that could be achieved even by a total and immediate ban on
CFC use would be 85 percent, because there would continue to be emissions from
the CFC bank that already exists.
Economic incentives can be used to achieve a wide range of emissions reduc-
tion. While we have not analyzed the costs of reducing emissions by more than
about 30 percent, we do know that costs would rise rapidly if further emissions
reductions were to be achieved. We also have reason to believe that for the middle
range of emissions reductions, economic incentives would be less costly than CFC
bans; the costs of the two policy approaches become similar only near the maximum
level of emissions reduction. The reason is that incentives policies cause all less
costly options for limiting emissions to be used before any product is eliminated.
In summary, Fig. 5 shows that, for modest emissions reductions, the policy
choice is between economic incentives and mandatory controls. For larger emis-
sions reductions, however, the policy choice is between economic incentives and
CFC bans. Furthermore, even the most stringent of the U.S. policy options would
have only very modest effects on total worldwide emissions unless other countries
also participate in reducing emissions.
CONTROLS VERSUS INCENTIVES
Suppose a goal is set for which both mandatory controls and economic incen-
tives are effective. Figure 6 lists some of the factors that might influence the choice
between the policies. Economic efficiency, which is greater when resource costs are
low, is greater under economic incentives. Moreover, this is true not only over the
short run, when technical options are fixed, but it is also true in the long run
because economic incentives also induce innovations to help reduce emissions in
the most cost-effective manner.
By implementation, we mean the full set of activities involved in promulgating
a regulation; such activities include dealing with legal challenges, collecting data,
holding public hearings, and so on. Implementation is simpler to some extent under
mandatory controls because this type of policy mechanism is far more familiar to
EPA. Taxes are not altogether unfamiliar policies, but they are not a common
technique for environmental regulation, and their implementation is complicated
by the probable need to obtain congressional authority.
While implementation of mandatory controls is relatively straightforward, en-
forcement of the regulations is both costly and difficult because there are so many
user sites to be monitored. Economic incentives are easier to enforce given the
handful of CFC production sites to be monitored.
Under mandatory controls, attempts to ease the industries' transition to regula-
tion implies delaying the regulations and thereby reducing their emissions effects.
Under economic incentives, it is possible to achieve the same cumulative emissions
effects while gradually increasing the incentives during the period.
Any type of regulation imposes more costs on some firms and consumers than
on others. As Sec. VI showed, the total losses to CFC-using industries under manda-
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25
Features
Economic efficiency
Implementation
Enforcement
Transition
Distributive effects
Risk tradeoffs
Controls
Incentive!
More familiar to EPA
Lesser effects than
uncompensated incentives
Less chemical substitution
Greater in short and long run
Fewer sites to monitor
Greater flexibility
Lesser effects than controls
when compensated
Fig. 6—Comparison of features relevant to the choice
between mandatory controls and equally
effective economic incentives
tory controls are smaller than under economic incentives, unless, of course, the
incentives policy is compensated.
Finally, possibly undesirable health and environmental side-effects due to
chemical substitution are somewhat less under mandatory controls because they
do not cause as much chemical substitution as do economic incentives.
TAXES VERSUS QUOTAS
If the policy decision is to use economic incentives, there is a choice between
taxes and quotas. One major difference is in the nature of any discrepancies be-
tween actual and predicted outcomes. Given a demand curve like those estimated
here, the two techniques yield the same outcomes. But if the estimated curve differs
from the actual one—and we suspect that the actual curve may lie below the
estimated one, as indicated in Fig. 7—a quota would increase CFC prices by less
than we predict. The policy would still achieve the desired emissions reduction, but
the resource cost per pound of reduction would be less. In contrast a tax would lead
to emissions reductions greater than predicted.
Equally effective uncompensated tax and quota policies generate equally large
transfers of wealth away from user industries. However, uncompensated tax and
quota policies can differ with respect to who receives the transfers. While the tax
policies cause the payments to enter the general treasury for eventual redistribu-
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26
CFC price
increment
caused
by policy
Tax rate X,
Error under
quota policy
Quota
CFC use/emissions
Error under
tax policy
Fig. 7—Potential discrepancies between actual and
estimated outcomes under taxes or quotas
tion throughout the economy, the destination of transfers caused by a quota policy
depends on how the policy is implemented. If EPA sells permits under the quota,
the transfers will be paid into the general treasury. However, if permits are not
issued, or if they are directly allocated to the CFC producers, the producers will be
the recipients of the transfers paid by CFC users.
ADVANTAGES AND DISADVANTAGES OF COMPENSATION
Because an economic incentives policy can generate large transfer payments,
the regulatory agency might want to engage in compensation. Designing a compen-
sation scheme that does not distort the policy's incentives is not a simple matter
operationally. Moreover, because such a scheme involves redistributing wealth
among firms and industries, it is politically sensitive. But these disadvantages must
be weighed against the fact that compensation can reduce consumer price and plant
closure effects—which could be considerable under a stringent goal for emissions
reduction. Moreover, even mandatory controls impose more costs on some firms
and industries than on others, so compensation might be considered even under
mandatory controls.
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VIII. CLOSING COMMENT
The CFC regulatory problem is an exceptionally complex one, spanning dozens
of CFC applications in thousands of firms throughout the U.S. economy. If CFC
depletion of the ozone layer warrants domestic regulation, several policy strategies
—voluntary action, CFC bans, mandatory controls, and economic incentives—are
available.
Each policy has advantages and disadvantages. Voluntary action, while less
costly to industry, promises to be relatively ineffective in reducing emissions over
the next decade. CFC bans could effectively reduce near-term emissions, but would
also impose excessive regulatory costs. Mandatory controls favorably compare
with economic incentives along the dimensions of ease of implementation, costs
borne by the CFC-using industries, and the risk trade-offs inherent in CFC reg-
ulation. In contrast, economic incentives impose lower costs on the economy as
a whole and offer far greater flexibility in both the timing and extent of emissions
reductions. An incentives policy might seriously disrupt the CFC-using industries,
depending on the magnitude of transfer payments; compensated economic incen-
tives could mitigate transfer payments, but may be quite difficult to implement.
Clearly, no policy ranks first along all of the dimensions of policy comparison.
Consequently, this study cannot—and does not—recommend a particular choice
among the policy strategies. Ultimately, the choice will depend upon which dimen-
sions of policy are deemed most important. That evaluation is left to the policymak-
ers.
27
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Sample C. Technical Report Data Sheet, EPA Form 2220-1
TECHNICAL REPORT DATA
(flease read Instructions on the reverse before comrt/etinzl
1. REPORT NO.
EPA-560/12-80-001a
3. RECIPIENT'S ACCESSION NO.
«. TITLE AND SUBTITLE
Economic Implications of Regulating Non-
aerosol Chlorofluorocarbon Emission:
An Executive Briefing
5. REPORT DATE
July, 1980.
6. PERFORMING ORGANIZATION COO£
7. AUTHOR(S)
Adele Palmer, William E. Mooz,
Timothy H. Quinn, Kathleen A. Wolf
8. PERFORMING ORGANIZATION REPORT NO
R-2575-EPA
9. PERFORMING ORGANIZATION NAME AND AOORESS
The Rand Corporation
1700 Main Street
Santa Monica, California 90406
10. PROGRAM ELEMENT NO.
B2CL2S
11. CONTRACT,'GHANT NO.
68-01-3882
68-01-6111
13. SPONSORING AGENCY NAME AND AOORESS
U.S. Environmental Protection Agency/
OTS/ETD/RIB (TS-779)
401 M Street, S.W.
Washington. D.C. 2Q460
.
Tina
'OPT ANO PERIOD COVERE3
14. SPONSORING AGENCY CODE
18. SUPPLEMENTARY NOTES
16. ABSTRACT
This report documents a briefing presented to the
Environmental Protection Agency on November 29-30, 1970. It
summarizes the results of a three year Rand study of the economic
implications of alternative policy approaches for controlling
emissions of chlorofluorocarbons (CFCs) in the United States.
17.
KEY WORDS ANO DOCUMENT ANALYSIS
DESCRIPTORS
b.IDENTIFIERS/OPEN ENDED TERMS
COSATI Fieid/Group
1«. DISTRIBUTION STATEMENT
Unlimited Distribution
19. SECURITY CLASS /Tha Report I
non-sensitive
21. NO.
PAGES
20. SECURITY CLASS /This page!
non-sensitive
22. PRICE
IPA form 2220-1 O-73)
*U S GOVERNMENT PRIHTTUO
i: I960 341-085/4609
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