COMPARISONS OF ESTIMATED AND ACTUAL
POLLUTION CONTROL COST FOR
SELECTED INDUSTRIES
Prepared for
Office of Planning & Evaluation
U.S. Environmental Protection Agency
Prepared by
Putnam, Hayes & Bartlett, Inc
February 1980
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COMPARISONS OF ESTIMATED AND
ACTUAL POLLUTION CONTROL COST FOR
SELECTED INDUSTRIES
SUMMARY AND OVERVIEW
Introduction
Federal environmental regulations have experienced
significant growth in the 1970's. The costs of these regulations
are an issue of -intense interest and controversy to both indus-
try and the government. The Environmental Protection Agency
(EPA) has routinely developed estimates of pollution control
costs and their economic impact for every major regulation. It
often has been suggested that EPA compare its cost forecasts with
actual expenditure data. The purpose of this report is to com-
pare estimates of pollution abatement costs prepared by EPA, by
EPA contractors, by industry, and by independent groups with
reported expenditures. Pollution abatement capital cost esti-
mates for specific regulations were compared with reported
capital expenditures for the following six industries.
• Steam Electric Utilities — BPT effluent guidelines
• Electric Utility Flue Gas Desulfurization Systems —
Scrubbers
• Pulp and Paper — BPT effluent guidelines
• Petroleum Refining — BPT effluent guidelines
• Iron and Steel — BPT effluent guidelines
• Automobiles — Light duty vehicle air pollution controls.
For each industry and regulation several estimates are
provided including an EPA and industry estimate developed at
Expenditure forecasts designated as an "industry estimate" refer
to studies prepared or sponsored by individual firms, industry
trade associations, or by a loose collection of firms such as the
Utility Water Act Group.
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about the time that the regulations were promulgated. In several
cases a number of other estimates are given from other sources
s.uch as the National Academy of Science, the National Commission
on Water Quality, the EPA Cost of Clean Air and Water report to
Congress, and so forth. Actual expenditure data are taken from
a variety of sources including surveys from the Census Bureau,
the Department of Commerce/Bureau of Economic Analysis, McGraw-
Hill, the Bureau of- Labor Statistics, and industry trade associa-
tions. In cases where three or more sources of actual expenditure
data are available, usually one source was significantly different
than the others. For example, the McGraw-Hill survey reported
substantially higher figures"in the iron and steel industry and
pulp and paper industry than the other sources. In the petroleum
refining industry, the BEA survey was considerably higher than
the other surveys.
Methodology
When comparing EPA and industry cost forecasts with
actual expenditures a number of adjustments were made. First,
forecasted expenditure studies usually project only incremental
costs due to federal regulations and do not account for: (1)
construction work in progress — these costs are included in the
year when the plant is placed in service;. (2) pollution control
costs voluntarily incurred, for example, for economic reasons;
(3) costs associated with state and local requirements. As these
costs are included in the survey of actual expenditures they had
to be added back into the EPA and industry forecasts. A.second
major adjustment was to scale forecasted expenditures by the actual
compliance rate. Finally, for each industry all figures were
In the case of automobile pollution controls and electric utility
scrubbers, these adjustments were not made because actual expendi-
tures were reported on a unit basis (e.g., dollars per car or
dollars per kilowatt).
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converted to constant dollars using the appropriate pollution
control deflator.
Summary of Results
Table 1 compares EPA and industry capital cost estimates
with actual expenditures for five industries. (Please refer to
the appropriate industry section for a discussion of the expendi-
ture forecasts, actual expenditure data, forecasts by independent
groups, key assumptions, and so forth.) This table illustrates
several trends. First, for four of the five industries examined
the EPA estimates are lower than the industry estimates. How-
ever, for refineries it is only the most recent EPA Cost of Clean
Air and Water report which is lower than the industry stimate.
Second, both EPA and industry forecasts tend to overe. imate com-
pliance costs more often than they underestimate these costs.
For example, EPA forecasts (excluding the Cost of Clean forecasts)
range from 26 percent below to 156 percent above reported expendi-
tures, while industry forecasts range from 25 percent below to 247
percent above reported expenditures. If this trend to overestimate
compliance costs were further substantiated by looking at a larger
sample of industries and including operating costs, it could have
implications for EPA decision-making, particularly for decisions
requiring a balancing of benefits and costs.
When comparing expenditure forecasts to reported expendi-
tures, EPA forecasts are closer to the actual figures for the
iron and steel industry and for electric utilities; industry
estimates are closer for the pulp and paper industry and for
electric utility scrubbers, while the forecasted expenditures for
the refining industry are about the same.
Table 2 compares estimates of automotive pollution control
price increases with actual sticker price increases. These data
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indicate that EPA estimates are closer to the actual price in-
creases than the industry estimates. The manufacturers' esti-
mates indicate a large degree of variance; however, since
individual manufacturer estimates were not given in this data
source, it is impossible to determine if they overestimate con-
trol costs without knowing if the higher estimates are from the
larger manufacturers.
Finally, in comparing EPA and industry national aggregate
cost forecasts, differences in these forecasts result from a
combination of different assumptions regarding unit control costs,
the amount of capacity affected, the industrial growth rate, and
the assumed rate of implementation of the program. A m<— in-
depth review of the cost studies is needed to identify the key
assumptions responsible for the disparate EPA and industry es
mates. However, for the steam electric BPT guidelines some infor-
mation is available. The industry unit cost estimates for non-
nuclear plants complying with the chemical guidelines were three
times higher than EPA's estimates. Additionally, industry
projected higher capacity growth rates. Taken together, these
two assumptions result in an industry estimate 70 percent higher
than EPA's estimate. Even assuming EPA's growth rate, the
industry's higher unit cost factors result in an estimated cost
of compliance 53 percent higher than EPA estimates.
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TABLE 1
RATIO OF EXPENDITURE , -
FORECASTS TO ACTUAL EXPENDITURES '
Expenditure Forecasts 1974-1977 1975-1977 1972-1977
Utilities (BPT Guidelines)
EPA .89-.91
Industry 1.36-1.40
Electric Utility Scrubbers
EPA .74
Industry .91
Pulp and Paper (BPT Guidelines)
EPA . 1.27-1.49
Cost of Clean 1.14
Industry .75
Refineries (BPT Guidelines)
EPA . 1.87-2.5
Cost of Clean 1.82-1.84
Industry 1.91-2.62
Iron and Steel (BPT Guidelines)
EPA 4 1.32-1.79
Cost of Clean . .55- .85
Industry 2.56-3.47
These ratios are forecasted expenditures divided by actual
expenditures.
2
The range of values reflects comparisons with several expendi-
ture surveys.
These are composite figures representing comparisons including
scrubbers installed on new units and scrubbers retrofitted on
existing units on a 21 plant sample. (See Section II for more
details.)
The Cost of Clean Air and Water, Report to Congress, August 1979
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TABLE 2
RATIO OF ESTIMATED TO
ACTUAL STICKER PRICE INCREASES
ACTUAL PRICE INCREASES'
BLS Data
Manufacturers' Data
Model Year 1973-1974
EPA Estimate
Industry Estimate
Model Year 1975-1976
EPA Estimate
Industry Estimate
Model Year 1980
EPA Estimate
1.32-1.45
.72-1.74
.93-1.02
.51-2.31
.82
1.54-1.69
.85-2.03
.95-1.05
.53-2.37
These price increases are that portion of the reported price
increases which are attributable to addition or improvement
of pollution control equipment.
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I. 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 the 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
In this analysis EPA and industry estimates were compared
with two expenditure surveys. The EPA estimates were prepared
by Temple, Barker & Sloane, Inc.; the National Economic Research
2
Associates prepared estimates for industry (Utility Water Act
Economic Analysis of Effluent Guidelines; Steam Electric
Powerplants, December 1974.
2
Utility Water Act Group Economic Analysis submitted as comments
to the proposed effluent guidelines for steam electric power-
plants, June 1974.
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1-2
Group), and actual expenditure data were given in the McGraw-
1 2
Hill survey and the Bureau of Economic Analysis survey. The
EPA and industry studies used a different accounting procedure
to tabulate capital expenditures than the survey data. 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,for example, because
of economic reasons; (2) costs of construction work in progress —
these costs were included in the year when the unit was expected
to be placed in service; (3) costs associated with state and local
requirements. As the McGraw-Hill and BEA data report total pollu-
tion abatement expenditures, the types of expenditures listed
above had to be added back into the EPA and industry forecasts.
Another major 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 by assuming the distribution of
costs in time would be the same as in the EPA study. This assump-
tion is reasonable when similar industrial growth rates and cap-
acity installation rates are used. Finally, all figures were
adjusted to 1974 dollars using the Census Bureau's new plant and
equipment price deflator for water pollution abatement equipment.
Historical Pollution Control Expenditures and Related Data,
McGraw-Hill, November 1979.
2
"Capital Expenditures by Business for Pollution Abatement",
Survey of Current Business, July 1975, June 1977, June 1979.
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1-3
Cost Comparisons
Table 3 compares EPA and industry (UWAG) capital cost
factors on a dollars/kilowatt basis. EPA's estimates are only
slightly lower than industry's estimates for the thermal guide-
lines. 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. Table 4
compares EPA and industry capital expenditure 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 (see chart below).
RATIO OF ESTIMATED CAPITAL
EXPENDITURES TO REPORTED
CAPITAL EXPENDITURES
Actual Expenditures
Estimated Expenditures McGraw-HillDOC/BEA
EPA .91 .89
UWAG 1.40 1.36
Differences in EPA and UWAG projected capital expenditures
for water pollution control equipment result from differences in
two key assumptions in their financial models. First, UWAG and
EPA used different capital cost factors as shown in Table 3.
Second, 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's Technical Advisory Committee on
Finance. UWAG projected higher industry growth rates than EPA
approaching historical rates observed in the past. (A 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 means fewer new plants would be built than
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1-4
had previously been expected.) 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. These
figures are 52-56% higher than actual expenditures.
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TABLE 3
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
$22.44
$27.01
For Ne.w Units
Non-Nuclear
Nuclear
$ 4.89
$ 3.84
$ 6.40
$ 4.27
Chemical Guidelines
Capacity prior to 1974
Non-Nuclear
Nuclear
Capacity 1974-1978
Non-Nuclear
Nuclear
$ 1.70
$ 0.58
$ 1.29
$ 0.58
$ 5.78
$ 0.53
$ 4.58
$ 0.53
The estimates are the projected costs to meet the 1977 BPT chemical
guidelines.
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TABLE 4
CAPITAL EXPENDITURES FOR 1977 BPT GUIDELINES
(Billions of 1974 Dollars)
1974-77 1974-83
EXPENDITURE FORECASTS
EPA - DECEMBER 1974 1.7 6.6
(Economic Analysis of Effluent Guidelines
Steam Electric Powerplants)
UWAG2 - JUNE 1974 2.61 8.9
(WAG Economic Analysis was prepared by
National Economic Research Associates, Inc.)
ACTUAL FORECASTS
McGRAW-HILL - NOVEMBER 1979
(Historical Pollution Control 1.86
Expenditures and Related Data)
DOC - BUREAU OF ECONOMIC ANALYSIS
(Capital Expenditures by Business 1.91
for Pollution Abatement) '
The 1974-1977 estimates have been adjusted from that reported in their
respective studies to include construction work in progress, pollution
abatement expenditures incurred voluntarily (e.g., for economic reasons),
and a compliance rate of 68%.
2
• This expenditure estimate assumes only the higher UWAG capital cost factors
shown in the previous table, and not the higher growth rate in electrical
capacity.
3This figure has been adjusted to 1974 dollars using the Census Bureaus' new
plant and equipment price deflator for water pollution abatement equipment.
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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 we
have chosen to examine the costs of scrubbing sulfur dioxide
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 study which summarized
capital expenditures from 21 plants that have installed flue gas
desulfurization (FGD) on 10,981 MW of generation capacity. The
expenditures cover just the sulfur dioxide portion of the emission
control system and were adjusted to 1977 dollars. The EPA cost
estimates were taken from a report prepared for EPA by Temple,
2
Barker & Sloane, Inc., in May 1976. Industry estimates were
Utility FGD Costs: Reported and Actual Costs for Operating
FGD Systems. PEDCO, 1978.
Economic and Financial Impacts of Air and Water Pollution
Controls on the Electric Utility Industry. Temple, Barker &
Sloane, Inc., 1976.
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II-2
prepared by the National Economic Research Associates. The
National Public Hearings on Powerplant Compliance with Sulfur
.Oxide Air Pollution Regulations was another source of cost
2
estimates. All cost estimates and expenditures were adjusted to
1977 dollars using the Chemical Engineering Index.
Cost Comparisons
Table 5 compares EPA and industry cost estimates with
reported capital expenditures for sulfur dioxide (SO-) scrubbers.
The reported capital expenditures are averages from the 21 plant
sample. The observed spectrum of control costs ranged from
$67-$118/KW for new units and from $56-$233/KW for retrofitting
existing units. EPA estimates are lower than industry estimates
and both are lower than average reported expenditures. The chart
below summarizes the differences 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 underestimated the costs of
scrubbers on new plants by 16 percent, while EPA underestimated
the costs by 30 percent.
RATIO OF SCRUBBING COST
ESTIMATES TO REPORTED EXPENDITURES
New Unit Cost Retrofit Cost
EPA .70 .77
National Public Hearings — .69-.89
Industry .84 .96
The Cost of Reducing SO2 Emissions from Electric Utility Plants.
NERA, June 1975.
2
Report of the Hearing Panel, National Public Hearings on Power-
plant Compliance with Sulfur Oxide Air Pollution Regulations,
October 18, 1973 to November 2, 1973.
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II-3
Since the costs are being compared on a unit basis, one
would expect the costs to be in fairly close agreement. However,
the EPA costs are substantially lower. Using the EPA cost factors
and the PEDCO 21 plant sample, EPA would have estimated the
capital expenditures to be 26 percent (or $234 million) less
than the actual figure. Using the industry cost factors they
would have estimated capital expenditures to be 9 percent (or
$81 million) less than the actual figure. Total capital expendi-
tures for the 21 plants were $1,152 million during the 1970-1978
period.
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TABLE 5
COST OF S02 SCRUBBERS1($/KW)
(1977 Dollars)
EXPENDITURE FORECASTS
EPA - MAY 1976
(Economic and Financial Impacts of
Air & Water Pollution Controls on
the Electric Utility Industry)
NEW UNIT COST RETROFIT COST
62'
79
National Public Hearings on Power
Plant Compliance with Sulfur Oxide
Air Pollution Regulations (Oct. 1973)
71-92
Industry - JUNE 1975
(The Cost of Reducing SO*;
Emissions
from Electric Utility
Plants)
74
99
ACTUAL EXPENDITURES
EPA/PEDCO - SEPTEMBER 1978 '
(Utility FGD Costs; Reported and
Adjusted Costs for Operating FGD
Systems)
88
103
All costs have been adjusted to 1977 dollars using the Chemical Engineering
Index to conform with the PEDCO reported data.
Using the inflation rate suggested in the EPA report, the estimated scruhber
costs are $65 for a new plant and $82to retrofit an existing plant.
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III. PULP AND PAPER INDUSTRY
Introduction
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
bleached kraft, groundwood, sulfite, soda, de-inked and non-
integrated paper segments of the pulp, paper and paperboard
industry.
The estimated costs of compliance with BPT regulations,
as calculated by both the EPA and the pulp and paper industry,
are presented below. These estimates are then 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 Census Bureau's new plant and equipment
price deflator for water pollution abatement equipment.
Methodology and Data Sources
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
exclusion of data lies in the fact that most of the studies
concerning this industry report the estimated expenditures in
dollars per ton by subindustry (e.g., bleached kraft; market
pulp; papergrade sulfite; soda, de-inked; etc.). In order to
compare these cost figures with actual expenditures data, a con-
version 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 production in each of these subindustries
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III-2
is needed. Unfortunately, this tonnage figure is not readily
available. Therefore, those estimates which are stated only on
.a dollar per ton basis have been excluded.
1 2
The two EPA studies and the one industry study chosen
for analysis estimate 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.
There are four data sources containing information on
water pollution abatement capital expenditures in the pulp and
paper industry. These include the Census, BEA, and McGraw-Hill
4
publications in addition to a National Council of the Paper
Industry for Air and Stream Improvement (NCASI) publication on
environmental expenditures in the pulp and paper industry.
Economic Analysis of Proposed and Interim Final Effluent
Guidelines for the Bleached Kraft, Groundwood, Sulfite, Soda,
De-inked and Non-Integrated Paper Sectors of the Pulp and
Paper Industry, 1/76, Arthur D. Little, and The Cost of Clean
Air and Water Report to Congress/ August 1979.
2
Potential National Economic Impact of Federal Water Effluent
Standards and Goals for the U.S. Paper Industry, Arthur D.
Little, 12/73, for the American Paper Institute.
Aggregated from compliance data obtained from the EPA
Enforcement Office on paper products, paper mills, and pulp
mills.
4
McGraw-Hill Publications Co., Dept. of Economics, Historical
Pollution Control Expenditures and Related Data.
NCASI, A Survey of Pulp and Paper Industry Environmental
Protection Expenditures - 1978, Special Report No. 79-03,
9/79.
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III-3
Cost Comparisons
Tables 6 and 7 depict the estimated capital costs of
compliance with BPT relative to the reported actual capital
expenditures.
The industry estimate by ADL, approximately 25 percent
below the actual 1972-1977 capital expenditures as they are
reported by NCASI and McGraw-Hill, is the only estimate of the
three which is lower than the reported actual expenditures. It
should be noted, however, that the actual data are only available
for the entire "Paper and Allied Products" industry, and there-
fore may overstate slightly the actual expenditures for the pulp
and paper segment of the industry.
Both of the EPA estimates are slightly higher than the
actual expenditures. The forecasted costs reported in the
January 1976 study by ADL averaged 38.1 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.
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TABLE 6
THE COST OF COMPLIANCE WITH THE BPT REGULATIONS:
PULP AND PAPER.INDUSTRY1
(millions of 1975 dollars)
1974-77
Actual Expenditures^
EPA Estimates
ADL - Jan. 1976
Cost of Clean - Aug. 1979
Industry Estimates
ADL - Dec. 1973
1304.8
1972-77
$ 876.0-$1028.63 $1411.2-$1411.94
1608.2
1064.1
1. All of the cost estimates below have been adjusted for a compliance
rate of 83 percent.
2. These are actual capital expenditures for water pollution abatement by
the entire paper and allied products industry.
3. The lower and upper bounds reflect the actual water pollution expenditure
data from BEA and McGraw-Hill respectively. The intermediate values are:
Census: $972.2 million and NCASI: $916.3 million.
4. The upper and lower bounds of this range reflect NCASI and McGraw-Hill
expenditures data, respectively.
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TABLE 7
RATIO OF ESTIMATED COST OF COMPLIANCE .
TO ACTUAL WATER POLLUTION ABATEMENT EXPENDITURES
1974-1977 1972-1977
EPA ESTIMATES
EPA/ADL 1.27-1.49
Cost of Clean 1.14
INDUSTRY ESTIMATE
API/ADL — .75
The range of values reflect comparisons with different expenditure surveys.
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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.
The estimates of the cost of compliance with EPA BPT
guidelines and the actual water pollution abatement expenditures
made in the petroleum refining industry are presented below. The
cost estimates include EPA estimates,^ 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 Census Bureau's new plant and
equipment price deflator for water pollution abatement equipment.
From Economic Impact of EPA's Regulations on the Petroleum
Refinery Industry, 4/76, and The Cost of Clean Air and Water
Report to Congress, August 1979.
2
From The Economic Impact of Environmental Regulations on the
Petroleum Industry, Phase II Study, Battelle Columbus Lab-
oratories,6/11/76
From Water Pollution Control Act of 1972. Economic Impacts
Pilot Studies, Five Industries, The Conference Board, 6/75.
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IV-2
Methodology and Data Sources
The capital expenditure estimates in the petroleum re-
fining 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.
There are four sources of actual water pollution abate-
ment expenditures for the petroleum refining industry. These
data sources are published by the Bureau of the Census, the
2
Department of Commerce/Bureau of Economic Analysis, McGraw-Hill,
and the American Petroleum Institute (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 of
the individual sectors of the petroleum industry, allocate
water pollution abatement capital expenditures to four industrial
activities: exploration and production; transportation; marketing;
and manufacturing. For the purposes of this study, the manu-
facturing segment has been chosen as the best approximation for
level of compliance was obtained from the EPA Enforcement
Office.
TlcGraw-Hill Publications Co., Dept. of Economics, Historical
Pollution Control Expenditures and Related Data.
Environmental Expenditures of the United States Petroleum
Industry 1969-1978. Only the data for the manufacturing por-
tion of the industry were employed.
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IV- 3
the petroleum refining industry, and it is this portion of the
API data which is reported herein.
In order to analyze the remaining two sources of actual
data at the petroleum refinery level, the ratio of the manufac-
turing segment expenditures to the total industry expenditures,
as reported by API, has been applied to the capital expenditures
reported in the BEA and the McGraw-Hill publications.
The Census, API, and McGraw-Hill expenditures data are
very similar, while the BEA shows slightly larger capital expen-
ditures for water pollution abatement. These data are shown in
Table 8.
Cost Comparisons^
As is depicted in Tables 8 and 9, both of the EPA esti-
mates 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 model in order to arrive at the minimum estimated cost
of compliance with BPT.
A second comparison of EPA and industry estimates is
shown in Table 10. This table presents a case study example
involving the water pollution abatement expenditures at one petro-
leum refinery. This example depicts a different trend from that
seen previously. Note that both the EPA and the industry esti-
mates are Tower than the actual cost of the pollution abatement
project, with EPA's estimate 43.8 percent below the actual cost
and industry's estimate 26.9 percent lower.
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TABLE 8
THE COST OF COMPLIANCE WITH BPT REGULATIONS:
PETROLEUM REFINERY INDUSTRY1
(millions of 1974 dollars)
1974-77 1972-77
O Q _
Actual Expenditures ' $ 545.5-$ 747.84 $ 786.8-791.65
EPA Estimates
Sobotka - April 1976 1397.5
Cost of Clean - Aug. 1979 - 1444.4
Industry Estimates
API/Battelle - June 1976 1426.7
National Commission on Water Quality
Conference Board - June 1975 707.3
1. All cost estimates have been adjusted for a compliance rate of 83 percent.
2. Only the API capital expenditures for the manufacturing sector of the
petroleum industry are included.
3. The BEA and the McGraw-Hill surveys report data for the entire petroleum
industry. In order to obtain an expenditures figure for only the petro-
leum refinery industry, the API ratio of petroleum manufacturing expendi-
tures to total industry expanditures has been applied to the BEA and
McGraw-Hill data.
4. The 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.
5. The lower and upper bounds of the range depict the API and the McGraw-Hill
figures respectively.
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TABLE 9
RATIO OF ESTIMATED COST OF COMPLIANCE
TO ACTUAL WATER POLLUTION ABATEMENT EXPENDITURES
1974-77 1972-77
EPA Estimates
Sobotka - April 1976 1.87-2.56
Cost of Clean -.August 1979 - 1.82-1.84
Industry Estimates
API/Battelle - June 1976 1.91-2.62
National Commission on Water Quality
Conference Board - June 1975 - .89- .90
lfrhe range of values reflects comparisons with different expenditure surveys.
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TABLE 10
CASE STUDY: A WATER POLLUTION ABATEMENT PROJECT
Expenditures by one refinery
(millions of 1972 dollars)
EPA Cost Estimate Industry Cost Estimates Actual Cost
Expenditures $3.6 $4.683 $6.404
Percent difference
from actual (43.8) (26.9)
Source: The Conference Board, Water Pollution Control Act of 1972 Economic
Impacts Pilot Studies, Five Industries, 6/75.
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V. IRON & STEEL INDUSTRY
Introduction
The BPT effluent guidelines for the integrated iron and
steel industry establishes limitations for each individual manu-
facturing 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.
The estimates of the costs of compliance with tb^ BPT
regulations and the actual water pollution abatement ext^.iditures
in the iron and steel industry are reported below. The esti-
mated costs of compliance which are shown in Table II consist of
two EPA estimates, one industry estimate, and one estimate from
the National Commission on Water Quality. All of the cost figures
presented in this section have been converted to 1975 dollars
using the Census Bureau's new plant and equipment price deflator
for water pollution.abatement equipment.
Methodology and Data Sources
In order to compare the cost estimates with actual expen-
diture data, all the estimates must be adjusted to a common,
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 in
this process is described below.
The first adjustment involved ensuring consistency between
the EPA and the industry estimates. The industry estimate, taken
from an Arthur D. Little, Inc. (ADL) study conducted for the American
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V-2
Iron and Steel Institute (AISI), had already been adjusted for
comparative purposes in the EPA steel study by Temple, Barker &
2
Sloane (TBS). In an analysis of the capital expenditures neces-
sary to meet BAT guidelines, TBS achieved comparability with the
ADL estimates by applying a .9652 factor to the ADL cost figures.
This same factor was applied to the ADL estimate used in this
analysis for the capital expenditures needed to meet the BPT
guidelines.
The second adjustment concerned accounting for Construc-
tion Work in Progress (CWIP) in the cost estimate. It was neces-
sary to adjust the cost estimates for the inclusion of CWIP since
the reported actual capital expenditures include this cost element.
While the TBS study includes a CWIP figure, the ADL report does
not. Since the TBS and ADL figures were already on a comparable
basis, the TBS reported CWIP was added to the adjusted ADL esti-
mate. This procedure yielded an industry estimate which was
inclusive of CWIP. Finally, all of the cost estimates were
weighted by a compliance factor of 54 percent.
There are four sources which report capital expenditures
for water pollution abatement in the iron and steel industry.
4
These are: the Bureau of the Census Current Industrial Reports,
(Census), the Department of Commerce/Bureau of Economic Analysis
ADL, Steel and the Environment; A Cost Impact Analysis, 5/75.
2
TBS, Economic Analysis of Proposed and Interim Final Effluent
Guidelines, Integrated Iron and Steel Industry~, 3/76.
This is the compliance rate for the Iron and Steel Industry as
reported by the EPA's Enforcement Office.
4
Pollution Abatement Cost and Expenditures, annual sin-e 1973.
Articles on pollution abatement and control expenditures are
published in the June and February issues of the Survey of
Current Business.
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V-3
(BEA), the American Iron and Steel Institute (AISI), and McGraw-
Hill.2
The iron and steel industry capital expenditures are
reported 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 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" expenditures. The resulting figures are the BEA
capital expenditures included in this analysis.
The data from the four sources differ somewhat and the
range of actual capital expenditures is depicted in Table 11.
Each cost estimate is examined relative to the reported actual
expenditures in Table 12.
Cost Comparisons
As is shown in Table 12, all of the earlier estimates of
the cost of compliance with BPT were significantly higher than
the actual expenditures reported by the four sources of actual
pollution control costs. The AISI/ADL industry estimate is
particularly high. This estimate of $1,613.5 million is 247%
higher than the AISI actual water pollution abatement expendi-
ture figure.
The best estimate of the cost of compliance with the BPT
guidelines was made by EPA in the 1979 Cost of Clean Air and
Water. This estimate of $593.7 million for the years 1972
1977 is 15.2% lower than the AISI actual expenditure figure.
AISI Statistical Highlights U.S. Iron and Steel Industry
1969-1978.
McGraw-Hill Publications Co., Department of Economics, Historical
Pollution Control Expenditures and Related Data.
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TABLE 11
COSTS OF COMPLIANCE WITH BPT REGULATIONS:
THE IRON AND STEEL INDUSTRYl
(millions of 1975 dollars)
1975-77 1973-77 1972-77
Actual Expenditures 465.1-630.O3 624.3-952.64'5 699.9-1070.65'6
EPA Estimates
TBS - March 1976 831.67
Cost of Clean - Aug. 1979 - - 593.7
Industry Estimates
AISI/ADL - May 1975 1613.5
National Council on Water
Quality Estimate, The
Conference Board 8 - June 1975 - 1173.6 :
1. These costs reflect the capital expenditures only.
2. The BEA figure represents the pollution abatement expenditures by the
primary metals industry less those expenditures made by the non-ferrous
metals industry.
3. This range is bounded on the lower end by the AISI expenditures figure
and by the McGraw-Hill cost figure in the upper end. The intermediate
Census and BEA figures are $513.4 and $479.7 million respectively.
4. The 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.
5. The Census data for 1973 are not broken out by air and water. To obtain
only the capital expenditures for water pollution abatement, the 1973
total expenditure figure was adjusted using the 1974 ratio of water con-
trol expenditures.
6. The lower bound of the range is the AISI cost figure and the upper bound
is the McGraw-Hill cost figure.
7. This is the cost estimate reported by TBS as the capital expenditure re-
quired to meet BFT. Since TBS did not feel that compliance with the BPT
guidelines could be met in 1977, this estimate differs from the TBS esti-
mate of expenditures for the years 1975-1977. The BPT estimate was
chosen since it is more comparable to the other estimates studied.
8. The Conference Board, Water Pollution Control Act of 1972 Economic Impacts
Pilot Studies, Five Industries. 1975.
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TABLE 12
RATIO OF ESTIMATED COST OF COMPLIANCE TO
ACTUAL WATER POLLUTION ABATEMENT EXPENDITURES
1
1975-1977
1973-1977 1972-1977
EPA Estimates
TBS - March 1976
Cost of Clean - Aug. 1979
1.32-1.79
.55-.85
Industry Estimate
AISI/ADL - May 1975
2.56-3.47
National Commission on Water Quality
The Conference Board - June 1975
1.23-1.88
The ranges of values reflect comparisons with different expenditure data
surveys.
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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 to require a 90 percent reduction in
hydrocarbon (HC) and carbon monoxide (CO) emissions from 1970
levels, and to proscribe standards for 1976 and later model
years to require a 90 percent reduction in nitrogen oxide (NOX)
emissions from 1971 levels. A number of controversial suspension
hearings, judicial reviews and legislative 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, the National Academy of Sciences,
automobile manufacturers as reported in EPA automobile emission
control status reports, and by the Council on Environmental
Quality. Actual price increases are taken from two sources:
the Bureau of Labor Statistics and manufacturers' reported
actual price increases submitted in letters to Senators E.S.
Muskie and P.V. Domenici.
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VI-2
Cost Comparisons
Table 13 compares actual and estimated sticker price
increases due to emission controls. Table 14 lists the ratio
of estimated price increases to actual price increases for model
years 1973-1974, 1975-1976, and 1980. For the 1973-1974 standard
the EPA and CEQ estimates appear to be the best, however, both
estimates are substantially higher than reported price increases.
For the 1975-1976 standard the EPA and NAS estimates appear to
give the closest results to the reported figures. The manufac-
turers' estimates show a considerable amount of variance. This
is not unexpected since there are significant differences in
economies of scale between large and small manufacturer Indi-
vidual manufacturer estimates were not indicated in these ranges.
In comparing EPA estimates for the 1980 model year with the B~ .
data we find that EPA has underestimated the control costs by 18
percent. This is in contrast to the 1973-1974 standard where EPA
overestimated the cost by 32-69 percent.
From analyzing the data ia. Table 13 and Table 14, it
appears that the EPA estimates are closer to the actual price
increases than the manufacturer estimates. The manufacturers'
estimates have a large degree of variance and since individual
manufacturer estimates are not given it is impossible to deter-
mine if they consistently overestimate control costs without
knowing if the higher estimates are from the larger manufacturers.
As many of the early estimates were for standards that
were never implemented, comparisons with actual data are not
possible. However, Table 15 lists various estimates for meeting
these standards. It should be noted that comparing the (.41/3.4/
2.0)1 Standard with model year 1977, provides "cost estimates'"
jFhe first number in the parentheses refers to the HC emission
standard, the second_figure refers to the CO emission standard,
and the last number refers to the NOX standard. All standards
are given in units of grams per mile.
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VI-3
of applying control equipment to reduce HC and CO emissions from
the 1977 level of 1.5 g/mi for HC and 15 g/mi for CO. Comparing
the (.41/3.4/.4) standard with model year 1977 reflects the cost
of the above reductions plus lowering NOX emissions from 2.0 g/mi
to .4 g/mi. In comparing the (.41/3.4/.4) standard with an un-
regulated vehicle all the estimates tend to group together except
the EPA estimate which is low. For the other (.41/3.4/.4) standard
there appears to be no clear-cut trend. For the (.41/3.4/2.0)
standard the DOT/EPA/FEA estimates are significantly lower than
the manufacturers' estimates.
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TABLE 13
COMPARISONS OF ESTIMATED AND ACTUAL STICKER PRICE INCREASES DUE TO EMISSION CONTROLS
(1977 Dollars)
Bureau of Labor
Standards
(HC/CO/NOx)
MY 70-71
(4.1/34/-- )
MY 72
(3.0/28/--)
MY 73-74
(3.0/28/3.1)
MY 75-76
(1.5/15/3.1)
MY 77-79
(1.5/15/2.0)
MY BO
(.41/7.0/2.0)
MY 81
(.41/3.4/1.0)
Statistics Actual
Price Increases^ .2
Incre-
mental
33
8
35
139
35
99
^^
Cumula-
tive
33
41
76
215
250
349
^ _^
Manufacturers
Reported Actual
Price Increases3
Incre-
mental
27
19
24
144
_—
__
__
Cumula-
tive
27
41
65
209
— .
_-
__
EPA Estimates4
Incre- Cumula-
mental tlve
1
V 39.00
39.00
61.00 100-1105
100-110 200-220
15 215
70 285
150 435
Manufacturer
NAS Estimates^ Estimates7 CEQ Estimates9
Incre- Cumula- Incre- Cumula- Incre- Cumula-
mental tlve mental tlve mental tive
35 35
• 28
28 - - 2 37
93 121 55-132 55-132 61 98
83 204 55-364 110-496 209 307
0-1828
__
154-3788
(over MY 75-76)
These figures are from the Bureau of Labor Statistics reports on price changes of new passenger cars. Price Increases were adjusted to 1977 dollars.
Incremental prices are the prices over the previous model year. Cumulative prices are the prices over pre-1970 cars.
These prices are sales weighted averages of GM, Ford, and Chrysler average price Increases due to emission controls as reported by Mr. E. M. Estes,
President. General Motors, to Senator E. S. Muskie, May 19, 1975; Mr. L. A. locacca, President, Ford Motor Co., to Senator P.V. Domenlcl, May 13, 1975;
and Mr. J. J. Rlcardo, President, Chrysler Corp., to Senator P.V. Domenlcl, May 21, 1975.
For the 1970-1974 model years the EPA figures reflect estimates In The Economics of Clean Air. Annual Report to Congress. March 1972 and the Cost of
Clear Air and Water Report to Congress. August 1979. Other estimates are from the EPA Fact Sheet 91, 1978 and an EPA report entitled Automobile
Emission Control - The Technical Status and Outlook as of December 1974.
The upper bound cumulative cost reflect EPA estimates taken from the December 1974 status report. It did not give Incremental costs for previous
model years.
The estimates for model years 1970-1972 were taken from the NAS 1972 report (Semiannual Report by the Committee on Motor Vehicle Emissions). The 1974
NAS report provided the estimates for the 1974 and 1975 model years.
The manufacturing estimates are reported In the December 1974 EPA status report on automobile emission controls cited above and in a similar status
report dated April 1976.
The costs were only expressed as an Increment over the prior model year in the April 1976 EPA Status Report.
9
These estimates are from the Economic Impact of Pollution Control. March 1972.
8
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TABLE 14
RATIO OF ESTIMATED TO
ACTUAL STICKER PRICE INCREASES
1, 2
Emission Standards
(HC/CO/NOx)
Actual Price Increases
BLS Data
Manufacturers' Data
MY 1973-1974
(3.0/28/3.1)
EPA Estimate
NAS Estimate
Manufacturer Estimates
CEQ Estimate
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 Estimates
CEQ Estimate
.93-1.02
.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
All comparisons are with cumulative estimates.
The range of values reflects comparisons of the various estimates of sticker
price increases with the actual reported increases.
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TABLE 15
COMPARISON OF ESTIMATED STICKER PRICE INCREASES
DUE TO PROPOSED EMISSION STANDARDS
(1977 Dollars)
Emission
Standard
(HC/CO/NOX)
Base Year
EPA'
2,3
DOT/EPA/FEA CEQ'
NAS
GM
7,8
FORD
8
Chrysler
8
Industry
Average
(.41/3.4/.4) Uncontrolled 291-496
(.41/3.4/.4) MY 77 — 250-340
(.41/3.4/2.0) MY 77 110-165 35-125
442 378-498 402-549
165-375 316-401 127-287 204-368
149 165 237 184
Costs are expressed as an increment above the base year.
2
For the (.41/3.4/.4) standard the lower estimate was given in the March 1976 status report Automobile Emission
Control - Current Status and Development Trends, the higher estimate was given in the December 1974 status report.
The Economics of Clean Air Report to Congress, 1972 gives an intermediate estimate of $418.
3
For the (.41/3.4/2.0) standard the values are reported in the hearings transcript for the Suspension of the
1977 Standards.
4
An Analysis of Alternative Motor Vehicle Emission Standards, May 19, 1977, prepared by DOT/EPA/FEA for use in
Congressional debates on the Clean Air Act Amendments of 1977. "
The Economic Impact of Pollution Control, March 1972.
The lower value is from the 1972 Semiannual Report by the Committee on Motor Vehicle Emissions and the higher value
is from the 1974 Committee report.
The estimated range for the (.41/3.4/.4) standard is from the Application for Suspension of the 1975 Standards
submitted to EPA on December 22, 1972.
0
The auto company estimates are in the Suspension transcript or Applications for Suspension of the 1977 Standards.
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