HE ECONOMICS
OF CLEAN WATER -1973
US ENVIRONMENTAL PPOTK llON 'U.F. N( v
WASHINGTON DC 20460
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THE ECONOMICS
OF CLEAN WATER-1973
\
U.S. ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
DECEMBER 1973
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON. D.C. 20460
December 28,1973
THE ADMINISTRATOR
Dear Mr. President:
Dear Mr. Speaker:
I am pleased to transmit to the Congress, as required by Section 516(b) of the
Federal Water Pollution Control Act, the sixth of a series of reports on the Economics of
Clean Water.
The scope of the report is broader than previous reports. For the first time,
economic factors—essential to a broad assessment of control programs and policies—are
examined. Particular attention is afforded those factors that may constrain implementa-
tion of control programs. Also examined for the first time are two major sources of
nonpoint pollution—agricultural soil loss and nitrogen fertilizer. The following material
briefly describes the highlights of the report.
The quality of the Nation's waters can be discussed in only approximate and
qualitative terms, since no set of truly representative water quality monitoring stations
exists. An EPA study, however, provides preliminary information on the status of and
trends in water quality for 22 major river basins. The study indicates that bacteria and
oxygen demand, the pollutants receiving the most widespread attention, showed general
improvements in the last five years. Phosphorus and nitrates, the primary pollutants
contributing to eutrophication, increased over the last five years in many of the basins.
A survey made by EPA in mid-1973 estimates that the costs of municipal treatment
and collection facilities eligible for Federal funding will be $60 billion (1973 dollars).
This is comparable to the t">tal dollar investment made in the sewerage systems of the
Nation since 1855. Of *he estimated $60 billion, $36 billion is needed for waste
treatment plants and interceptor sewers, and $24 billion for correction of infiltration/
inflow problems, new collectors, and combined sewer overflows.
Industry will be required to invest about $12 billion in treatment facilities within
the next few years to meet 1977 standards (except thermal) set by the Federal Water
Pollution Control Act Amendments of 1972. The cost estimates suggest that industry will
have to invest an average of about $3.5 billion annually in order to meet the 1977
nonthermal standards. In 1972 industry was investing at an annual rate of $1 billion.
Thermal costs, which are estimated for only utility steam-electric generating plants, are
expected to range from $2.3 to $9.5 billion, depending primarily on the number of plants
exempted from thermal standards.
The productive capacity of the agricultural sector is not expected to be impaired
while taking measures to reduce pollution from erosion and use of nitrogen fertilizers. It
is expected that environmental protection measures might be designed to control
agricultural pollution with no reduction in total farm income. It is further expected that
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such measures could be designed to control agricultural pollutants for a cost on the order
of magnitude of that incurred during the peak of the Nation's cropland restriction
program.
Estimating benefits of the water pollution control program is a difficult task.
Admittedly, if a change in water use is specified, there are several promising procedures
for assigning monetary values to the uses. But there are great difficulties in tracing the
effects of an abatement program to changes in water quality parameters, and in relating
such parameter modification to man's use of the water or the adjacent shoreline.
The economic impacts and other constraining factors examined, other things being
equal, in EPA's view should not significantly retard the accelerated program launched by
the 1972 Amendments to control pollution from municipal and industrial sources. In
particular:
• Local governments, with few exceptions, will have adequate capability to
finance their share of building sewerage systems. The combination of the State
grant/loan programs, the U.S. Environmental Financing Authority and the
Farmers Home Administration loan program should be able to assist an
individual municipality having a financial problem.
• An overview of 23 industries discharging directly into the Nation's waters
indicates that in most cases they will be able to recover the costs of wastewater
treatment through increases in prices. However, individual plants in certain
industries will experience difficulties in meeting the requirements. The
profitability of smaller and/or older plants may be so reduced that some of
them may decide to close prior to 1977.
• The results of econometric models indicate that the construction industry
should be able to build the required facilities with real price increases of less
than 1 percent attributable solely to EPA-stimulated demand, assuming
resource transferability within the construction industry. The skilled labor
needed should be available, but there will be some impact on wages. In some
localities, the construction industry may lack adequate short-term capacity,
especially in light of changes in the Nation's economy that may result from the
recent devaluations and the energy crisis.
• The potential profitability of the pollution abatement equipment industry is
attractive enough to encourage the growth and development of long-term
supply. Production capacity as estimated in 1972 is not viewed as a constraint.
However, raw material and skilled labor inputs may be constraints in some
cases.
Other things being equal, the economic factors examined are not expected to
seriously constrain efforts to meet effluent standards. (However, the other things assumed
equal may not be equal. Unforeseen events such as the energy crisis or the recent
devaluation of the dollar may lead to basic changes in the economic system, resulting in
outcomes different than those predicted.) Other factors, such as budget constraints both
in the public and private sectors and legal and administrative steps that must be taken in
controlling wastewater discharge, could result in delays.
IV
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As long as there are significant non-point sources of pollutants, control of industrial
and municipal sources does not mean that all areas of the Nation will have clean water at
the same time. A fundamental question remains: At what point do the additional costs of
controlling all sources of pollution exceed the additional benefits of improved water
quality? Clearly the current societal concern for environmental quality indicates that the
public believes there are significant benefits yet to be attained.
Honorable Gerald R. Ford
President of the Senate
Washington, D. C. 20510
Honorable Carl B. Albert
Speaker of the House of Representatives
Washington, D. C. 20515
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ACKNOWLEDGMENTS
EPA acknowledges in the text of the report parties external to the
Agency who contributed major sections of the report.
The following EPA employees made significant contributions in the
preparation of this report: Sherada Hobgood, Frank Lane, Ralph Luken,
Douglas Mackay, Hugh Maynard, Jacob Mendelssohn, Ed Pechan, Truman
Price, James Speyer, Gordon Taylor, Robert Thomas, Lisa Thorne, and
Michele Zarubica, all of EPA's Office of Planning and Evaluation, Fred
Leutner of the Office of Water Programs, and Robert Coughlin, EPA
Region X.
The quality of the report was improved by the editing of Irene Kiefer
and by the comments of Toby Clark, Council on Environmental Quality,
and Eric Herr and Allan Pulsipher, Council of Economic Advisors.
VI
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CONTENTS
Page
I. Introduction 1
Scope 1
Summary 1
Conclusions 7
II. Nature of and Trends in Water Pollutants 9
Introduction to Pollution Problems 9
Status of Water Quality 12
Nonpoint Sources 17
III. Municipal Costs 19
The Status of Public Sewerage 19
The Needs Survey 21
IV. Industrial Costs 29
Nonthermal Costs 29
Scope 29
Study Design 29
Comparison with the 1972 Report 31
Summary of Industries 34
Capital In-Place 35
Capital Costs of Industrial Waste Treatment 36
Annual Costs of Industrial Waste Treatment 37
Alternative Scenarios 38
Costs of Meeting 1977 Effluent Standards-
Existing and Future Plants 38
Qualifications 47
Impacts of Industrial Water Pollution Control . . . 48
Thermal Costs 50
Sources of Industrial Thermal Pollution 51
Electric Utility Systems (SIC 491) 52
Level of Control 53
V. Nonpoint Pollution 61
The Problem 62
Study Design 62
Soil Loss-Export Policy Models 64
Fertilizer Limitation Policy Models . 67
Implications for Farm Programs 69
VI. Benefits from Water Quality Enhancement 73
Introduction 73
Water Quality as an Input into Production 74
Water Quality when Consumed with Another Good 76
Water Quality as a Factor in Human Health 77
Bibliography 78
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CONTENTS (Continued)
Page
VII. Constraints 87
Fiscal Impact on Local Government 87
Economic Impacts on Directly Discharging Industries 93
Construction Industry 105
Equipment Supply 113
viii
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LIST OF TABLES
Page
II-l Pollution Rankings of 22 Major U.S. Rivers 13
II-2 Water Quality Trends for 22 Major Rivers 14
III-l Expansion of Public Sewerage Services 19
III-2 Degree of Sewage Treatment 20
III-3 Effect of Sanitary Sewage Treatment 21
III-4 Investment in Public Sewerage Facilities 22
III-5 Estimated Construction Costs for New Public Treatment Facilities
(from Needs Survey) 24
III-6 Per Capita Costs for Construction of New Public Treatment Facilities
(from Needs Survey) 26
III-7 Estimates of Construction Requirements for New Public Treatment
Facilities, 1962-1971 28
IV-1 Industries for Which Water Pollution Control Costs Are Estimated 30
IV-2 Water Use Scenarios 32
IV-3 Types of Water Treatment Modeled 33
IV-4 Number of Plants and Water Use In 1972 and 1973 Reports On Economics
of Clean Water 33
IV-5 Costs for Projected Feedlots To Meet 1977 Effluent Standards ....... 35
IV-6 Capital In Place for Industrial Water Pollution Control Equipment 36
IV-7 Costs for Existing Plants To Meet 1977 Effluent Standards
(Scenario No. 3) 37
IV-8 Costs for Existing Plants To Meet 1977 Effluent Standards
(Scenario No. 1) 38
IV-9 Costs for Existing Plants To Meet 1977 Effluent Standards
(Scenario No. 2) 39
IV-10 Costs for Existing Plants To Meet 1977 Effluent Standards
(Scenario No. 4) 39
IV-11 Costs for Existing Plants To Meet 1977 Effluent Standards
(Scenario No. 5) 40
IV-12 Costs for Existing Plants To Meet 1977 Effluent Standards
(Scenario No. 6) 40
IV-13 Projected Growth Rates for Selected Industries (1973-1977) 41
IV-14 Costs for Existing and Projected Plants To Meet 1977 Effluent Standards
(Scenario No. 3) 42
IV-15 Costs for Existing Plants To Meet 1977 Effluent Standards, By Regions
(Scenario No. 3) ' . 42
IV-16 Costs for Existing Plants To Meet 1977 Effluent Standards, By States
(Scenario No, 3) 43
IV-17 % Distribution (By EPA Regions) of Costs and Value Added (Scenario
No. 3) . . . 45
IV-18 % Distribution (By States) of Costs and Value Added (Scenario No. 3) . . 46
IV-19 Actual vs. Planned Water Pollution Control Expenditures for Selected
Industries (1971-1976) 48
IV-20 Cooling Water Used By Selected Industries (1968) 52
IV-21 Industries Discharging Water In Excess of 110° F (EPA Region IV) .... 53
IV-22 Cooling Systems of Utility Steam-Electric Generating Plants 54
IV-23 Proposed Effluent Guidelines for Thermal Discharges From Utility
Steam-Electric Generating Plants 54
IV-24 Unit Costs for Utility Steam-Electric Generating Plants 55
ix
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LIST OF TABLES (continued)
Page
IV-25 Impacts of Proposed Thermal Effluent Limitations On Utility Steam-
Electric Generating Plants 56
IV-26 Electric Power Costs for Selected Industries 58
IV-27 Impacts of Exemptions To Proposed Thermal Effluent Limitations .... 58
V-l Alternative Futures for U.S. Agriculture 63
V-2 Soil Loss for an Agricultural Region 64
V-3 Erosion and Acreages under Conservation Practices for Soil Loss-
Export Policy Models 65
V-4 Land and Water Use for Soil Loss-Export Policy Models 65
V-5 Farm Prices for Selected Crop and Livestock Products for Soil Loss-
Export Policy Models 66
V-6 Farm Prices for Selected Crop and Livestock Products for Soil Loss-
Export Policy Models 67
V-7 Resource Use for Selected Crop and Livestock Products for Soil Loss-
Export Policy Models 68
V-8 Land and Water Use for Nitrogen Fertilizer Policy Models 69
V-9 Farm Prices for Selected Crop and Livestock Products for Nitrogen
Fertilizer Policy Models . 70
VIM Projection of Capital Outlays On Public Sewerage Construction,
1974-80 88
VII-2 State and Local Capital Outlays, 1961-70 89
VII-3 State and Local Sewer Bond Sales, 1961-70 91
VII-4 Obligations for Sewerage Facility Construction State and Local
Funding 91
VII-5 Estimated Value of Sewerage Capital In Place 92
VII-6 Total Annual Costs of Sewerage Facilities 92
VII-7 Per Capita Cost of Sewerage Facilities, By Size of Community 93
VII-8 Fiscal Characteristics of Communities, By Size of Community 93
VII-9 Contractors for Microeconomic Studies of Selected Industries 94
VIMO Potential Impact of Effluent Standards On Industry Operations 96
VII-11 Projected EPA-Stimulated and EPA Baseline Capital Outlays for
Pollution Control Facilities 109
VII-12 On-Site Yearlong Jobs Required for Sewage Plant Construction (1971) . . Ill
VII-13 Estimated Annual Shipments, 1972-80 of Pollution Abatement Equipment
Industry 115
VII-14 Comparative Inflationary Impact, 1972-80, for Water Pollution Control
Equipment 118
VII-15 Personnel Requirements of Water Pollution Control Equipment Industry,
1972-80 120
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I. Introduction
SCOPE
This report is the sixth in the series of Clean
Water Reports to Congress and the first prepared
in accordance with Section 516(b) of the
Federal Water Pollution Control Act Amend-
ments of 1972 (P.L. 92-500). The scope of the
1973 report is broader than previous reports
because the U.S. Environmental Protection
Agency (EPA) recognizes that consideration of
the costs of controlling pollution from muni-
cipal and industrial sources is not sufficient
information upon which to evaluate a national
program. Information about the nature of the
water quality problem, the costs of controlling
all significant sources of pollution, potential
benefits, and economic and administrative fac-
tors that influence implementation must also be
considered in order to place the costs of
controlling point sources in perspective. While
this year's report addresses all these issues, it
primarily focuses on some of the economic
factors that will influence implementation of the
1972 Amendments.
The first chapter, in addition to introducing
the report, summarizes its content and conclu-
sions.
The second chapter of the report examines
the nature of and trends in water quality. While
the main body of the report focuses on the costs
of controlling only certain pollutants and pollu-
tion sources, it is important to recognize that
achievement of water quality will require more
than control of those pollutants and pollution
sources.
The third chapter describes the status of
public sewerage services and the costs of muni-
cipal facilities to meet the 1977 standards as
reported in a nationwide survey of municipal
sewer and treatment plant needs.
The fourth chapter describes the costs of
controlling industrial nonthermal pollution for
meeting the 1977 effluent standards. In addi-
tion, it reports on the costs of controlling
industrial thermal pollution to meet both the
1977 and 1983 standards.
The fifth chapter reports on the capacity of
U.S. agriculture to meet food and fiber demand
to the year 2000 under environmental restric-
tions on soil loss and use of nitrogen fertilizers.
The discussion of agricultural pollution control
is the first in this series of reports.
The sixth chapter is an introduction to
benefit analysis. The 1972 Amendments state
that formal cost/benefit analysis should be
conducted and used in the decision process,
although the law does not allow such analysis to
override legislatively mandated effluent limita-
tions.
The seventh chapter reviews potential prob-
lems in implementing the 1972 Amendments. A
national determination that water pollution con-
trol is in the public interest does not eliminate
economic and administrative problems. The
economic problems of concern in this report are
the financial burdens placed on municipalities
and industries as they meet the 1977 standards
and the capacity of the construction and equip-
ment supply industries to put in place the
required capital without adversely affecting the
levels, volume, and prices of construction and
equipment, as well as wages and employment in
those industries.
SUMMARY
Nature of and Trends in Water Pollu-
tion. Any practical description of the nature of
water quality can only be concerned with a very
limited part of all conceivable physical, chemi-
cal, and biological aspects of actual waterbodies.
Typical water quality measurements are, in fact,
oriented toward a small group of commonly
observed pollution problems—harmful sub-
stances, physical modification, eutrophication,
salinity, acidity and alkalinity, oxygen deple-
tion, ana health hazards and aesthetic
degradation.
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A stream of seemingly clean and pure water
may be polluted due to the presence of hazard-
ous substances in very low concentrations. A
few of these are well known—heavy metals,
pesticides, herbicides, and polychlorinated
biphenyls (PCB's), for example.
Aquatic habitats are sensitive to fluctuations
of many physical characteristics of water includ-
ing temperature and transparency. Temperature
fluctuations occurring naturally can be amplified
by human activities through large discharges of
industrial cooling water, such as from power
plants or steel mills, from release of warm
surface water held in reservoirs, or from destruc-
tion of shade trees along stream banks.
Relatively stagnant waters (such as lakes and
slow-moving estuaries) rich in nutrients can grow
such heavy crops of algal and other aquatic
plants that the decay of dead cell matter may
seriously deplete the water of oxygen. This
prevents the survival of oxygen-sensitive food
species and fish, and, in extreme cases, floating
algal scum, thick bottom slimes, and odors
result.
Major changes in the salt content of water can
seriously disrupt aquatic communities and de-
crease the value of water for irrigation and water
supply purposes. Acidity changes can be equally
damaging by eliminating many desirable fish
species. Alkalinity creates disruptions ranging
from reduced agricultural production to the
fouling of water pipes.
The dissolved oxygen level is widely con-
sidered to be the single most important indicator
of pollution; actually, there is no reason to
consider it more or less important than indica-
tors such as toxicity, salinity, and algal popula-
tion. Oxygen-consuming or oxygen-demanding
substances come from many sources^forested
and agricultural areas, industrial and municipal
direct dischargers, storm sewers and sanitary
sewer overflows.
An assessment of health hazards from pol-
luted water involves considerable uncertainty
because there are unresolved questions about
the die-off rates of pathogens in natural waters
as well as their infectiousness for swimmers or
other recreational water users. The evidence for
waterborne toxicity via fish and shellfish is
stronger, at least in the case of relatively high
concentrations of mercury and cadmium.
Waterbodies can be degraded aesthetically by
increases in murkiness, color, algae, scums,
floating solids and oils, and odors. Floating
solids and oils generally originate in combined
sewer overflows, storm sewer discharges, and un-
sewered runoff. Unpleasant odors can stem from
many sources, including decaying organic matter
and numerous industrial chemicals.
Status of 22 Major Rivers. During 1973, EPA
studied 22 major rivers to define the kinds of
pollution requiring control and to measure any
improvement in water quality. The rivers,
selected on the basis of length, flow, and
proximity to large cities, were ranked in three
groups from "cleanest" to "dirtiest." Rivers in
the cleanest group are the Upper Missouri,
Columbia, Snake, Willamette, Upper Mississippi,
Yukon, Tennessee, Susquehanna, and Lower
Colorado. Rivers in the dirtiest group are the
Lower Red, Hudson, Lower Ohio, Lower Missis-
sippi, Mississippi near Minneapolis, Upper Ar-
kansas, and Middle Missouri.
Detailed analysis of 1963-73 data for the 22
rivers as a whole indicates that:
• The worst results relate to nutrients: Up to
54 percent of the reaches exceeded EPA
phosphorus guidelines set to protect against
eutrophication in flowing streams. Further-
more, in up to 84 percent of the reaches,
phosphorus levels increased in 1968-73
over the previous 5 years. Nitrogen nutri-
ents, while generally not exceeding refer-
ence levels, increased in up to 74 percent of
the reaches measured.
• Other pollutants found in high concen-
trations are phenols (industrial compounds
that can taint fish flesh) and suspended
solids. These results are not as disturbing as
the nutrient data, because in up to 80
percent of the reaches for which adequate
data are available, concentrations of
phenols and suspended solid levels fell in
the last 5 years.
• The pollutants most widely controlled,
bacteria and oxygen-demanding matter,
generally declined in the last 5 years.
Dissolved oxygen and oxygen-demand
levels improved in up to 72 percent of
reaches, bacteria in up to 75 percent.
In addition, the analysis examined nonpoint
source pollution, which comes from runoff from
areas such as farmlands, city streets, and mining
areas, and from subsurface seepage from polluted
areas. If nonpoint sources are present, runoff
pollutants will generally be more prevalent in
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winter than in summer. The seasonal analysis
indicated that most rivers have higher levels of
nutrients (ammonia, nitrates, and phosphorus)
and organic loads in winter, when runoff is
heavy from rain and melting spring snow, than
in summer. High flows in winter can also
resuspend pollutants scoured from bottom
sediments.
Municipal Costs. The sewerage systems of the
U.S. have been growing for more than a century.
The first sanitary sewer was begun in Chicago in
1855, but it was not until the 1870's that
collecting sewers were complemented by treat-
ment plants. Today, about 170 million Ameri-
cans are served by sewers; more than 95 percent
of them are also served by sewage treatment
plants.
While the population served by sewers has
more than doubled since 1937, the population
discharging untreated wastes into our waterways
is little more than one-seventh of what it was
then. The number of persons whose wastes
receive primary treatment [35 percent biological
oxygen demand (BOD6) removal] has almost
tripled over the period. The number whose
wastes receive secondary treatment (70 to 90
percent BOD5 removal) has increased almost
sevenfold; such treatment is now provided for
the wastes of more than 63 percent of popula-
tion served by sewerage systems. As a result, the
amount of BOD6 removed in 1971 exceeded the
total collected by sanitary sewers in 1957.
However, the growth in sewerage facilities has
brought disappointingly marginal results. While
one portion of the public sewerage system-
treatment facilities—increased by 130 percent
the amount of BOD5 diverted from our water-
ways, another portion—sanitary sewers—offset
this improvement by collecting more BOD5.
Thus there has been a surprisingly small net
reduction since 1957 in the oxygen demand
introduced into our waterways by the public
sanitary sewerage system.
Between 1855 and 1971, the Nation invested
an estimated $58 billion (1972 dollars) in its
public sewerage facilities. The bulk of this
investment has occurred recently: almost 80
percent since 1929, 60 percent since World War
II, and more than 30 percent since 1961. The
net investment or replacement value in 1971 was
estimated to be $32 billion. Replacing or mod-
ernizing this capital stock has absorbed 50
percent of all capital expenditures of sewerage
agencies since 1961. Current replacement costs
are close to $1 billion annually.
Needs Survey. The estimated total cost of
constructing municipal treatment and collection
facilities that are eligible for Federal funding
under the 1972 Amendments is $60.1 billion
(1973 dollars) according to the national survey
conducted by the States and EPA in the summer
of 1973. About $35.9 billion is for treatment
plants and new interceptor sewers ($16.6 billion
for secondary treatment required by the 1972
Amendments, $5.7 billion for treatment "more
stringent" than secondary to attain water
quality standards, and $13.6 billion for new
interceptor sewers), $0.7 billion for rehabilita-
tion of sewers to correct infiltration and inflow,
$13.6 billion for new interceptor sewers, $10.8
billion for new collector sewers, and $12.7
billion for correction of overflows from
combined sewers.
The $35.9 billion estimate for treatment
plants and new interceptor sewers is consider-
ably higher than the 1971 Needs Survey esti-
mate of $18.1 billion for a variety of reasons,
including:
• All municipal plants must now provide
secondary treatment.
• Changing water quality standards require
higher levels of secondary treatment
(higher removal of organic waste) and
special processes for removing phosphorus
and nitrates.
• Construction costs rose by almost 20 per-
cent between 1971 and 1973.
• The 1973 Survey's coverage of munici-
palities and their needs was far more
comprehensive than those on which pre-
vious estimates of needs were based.
• More municipalities have completed en-
gineering studies upon which to base their
estimate of needs.
• States provided better data to the survey
than previously because they realized that
it would be the basis for allocating con-
struction grant funds.
Industrial Costs.
Nonthermal Costs. The 1972 Amendments
require industries to use "best practicable"
water pollution control technology by mid-1977
and "best available" technology by mid-1983.
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The emphasis in this report is on the costs
industry will incur in meeting the 1977
standards.
The highest estimate of treatment costs
indicates industry (except power plants) will
have to invest an additional $11.9 billion (1972
dollars) by 1977 to achieve pollution abatement
standards set for that year. Total investment,
including capital now in place, will amount to
$18.7 billion. At this level of investment, total
annual costs, including operation and mainte-
nance, will be $4.5 billion.
The total investment may not be as great as
$11.9 billion, however, because this estimate
assumes that there will only be moderate reduc-
tion of wastewater flows and that all abatement
will be achieved by end-of-the-line treatment.
Requiring treatment of wastewater may lead
industry to switch to processes that use much
less water, resulting in lower control costs.
Equally important, industry can change its raw
materials, manufacturing processes, or products,
and, as a result, achieve the same degree of
abatement at less cost than end-of-the-line treat-
ment.
The $11.9 billion estimate is greater than the
$8.1 billion in the 1972 Economics of Clean
Water because:
• Costs are based on the 1977 standards
rather than the earlier industrial wastewater
guidelines.
• The industry sample is larger—148,000
plants using in excess of 1 million gallons
per year rather than 14,500 plants using in
excess of 10 million gallons per year.
• The costs of controlling pollution from
animal feedlots is included.
• Growth rates are projected for each in-
dustry, rather than using the average
growth rate for all industry.
• The costs are in 1972 rather than 1971
dollars.
In 1972, industry (excluding animal feedlots,
lumber, and leather) invested about $1.0 billion
in water pollution control facilities, which is
much less than appears to be needed to meet the
$11.9 billion estimate of needed investment. If
industry adopts less costly control options, of
course, the current level of investment may be
closer to what is adequate.
Thermal Costs. Utility steam-electric power
plants account for almost 80 percent of the
water used for cooling and condensing purposes
in the United States. The capital expenditures
required to meet the 1977 standard for this
source of pollution are estimated at $2.3 to $9.5
billion: the 1983 standard will require $4.4 to
$15.3 billion, depending upon water quality
exemptions provided by Section 316 of the
1972 Amendments.
The estimated increase in the price of elec-
tricity will be 0.8 to 3.2 percent for meeting the
1977 water quality standards and an additional
0.9 to 2.9 percent for meeting the 1983 water
quality standard depending upon the number of
exemptions.
Costs of thermal pollution control were not
developed for other industrial segments pri-
marily because of the difficulties of estimating
the costs of controlling thermal discharges from
in-house electric power generation and a myriad
of industrial processes.
Nonpoint Source Pollution. The agricultural
sector is estimated to have the productive
capacity to meet food and fiber demands to the
year 2000 while taking measures to reduce
pollution by soil loss from erosion and by
nitrogen fertilizers. To maintain agricultural
production under a program limiting soil loss,
conservation practices such as contouring, strip
cropping, and terracing would have to be
adopted. Crop production would also have to be
shifted to more productive soils and regions. The
impacts would be minor on the use of the
Nation's land and water resources and on farm
prices, but soil erosion would be reduced con-
siderably. Similarly, a nitrogen fertilizer limita-
tion program could be implemented by substi-
tuting land and water for fertilizer. There would,
however, be some increase in farm prices.
The environmental protection measures re-
quired might be the basis of a new supply
restriction program. The lower productivity re-
sulting from environmental restrictions may
have the same effect on total supply as the
recently reduced Federal cropland restriction
program, and may cost approximately the same
as payments under the recently reduced pro-
gram.
Setting limits on soil loss and nitrogen appli-
cation would not reduce total national farmer
receipts if two conditions were met. First,
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the level of production must not be lower than
under the land retirement programs. Second, the
farm community must receive payments equal
to what it formerly received for removing land
from production. However, the environmental
limits would have greatly varying effects on
farmer receipts in different farm regions.
Types of Benefits From Water Quality En-
hancement. Several sections of the 1972
Amendments require the use of formal cost/
benefit analysis. Among them is the requirement
for cost/benefit analysis in cases where effluent
limits are more stringent than those provided for
by best available technology.
The objective of benefit analysis is to indicate
the economic value of the cleaner environment
resulting from projects that abate water pollu-
tion. Unlike the value of most goods and
services, the value of activities resulting from
improvements in water quality are, for the most
part, not indicated by market prices. Instead,
the value must be imputed indirectly by ana-
lyzing the effect of improved water quality on
the costs of producing or consuming goods, on
the enjoyment of water-related activities, or on
human health.
Water quality is important in industrial uses,
municipal (domestic) water supplies, agriculture,
and commercial fisheries. When the quality of
water is improved, water treatment costs of
industrial and municipal users is lower. In
agriculture and commercial fisheries improved
water quality means increased net income result-
ing from the increased production.
Water quality is important in enhancing the
enjoyment of recreation. The value of water is
the increased willingness to pay for the water-
related recreation experience.
Water quality is important as a factor in
human health. At this time there has been little
research on the economic valuation of reduced
health hazards or the willingness to pay to avoid
the risks associated with water pollution.
While the report concentrated on the problem
of assigning a value to changes in water quality,
valuation is only the last step in estimating a
particular benefit. The procedure requires four
sequential steps:
• The abatement plan must be specified in
terms of amounts and types of pollutants
to be reduced.
• The impact of the controlled pollutants on
water quality parameters must be esti-
mated.
• The impact of changes in the parameters on
water uses must be estimated.
• The economic value of induced changes in
the level of uses, the increased value of
existing uses, and the cost savings resulting
from improved water quality must be
identified.
The greatest difficulties lie in the second step,
of tracing the effects of pollutants on
water quality parameters, and in the third step,
relating parameter changes to man's use of the
water or adjacent shoreline. To a large extent,
improved benefit analysis depends on better
knowledge of how to measure these two rela-
tionships.
Constraints
Fiscal Impact on Local Government. The
construction of municipal sewerage systems re-
quired by the 1972 Amendments will result in
capital expenditures by all levels of government.
A projection has been prepared of possible
outlays during 1974-1980. It relies heavily on
two assumptions: State and local governments
will not invest independently of Federal fund-
ing, and the $18 billion authorized in the 1972
Amendments will be alloted for use in FYs
1973-76. (The actual rate of allotment may be
different depending on fiscal policy.)
The total Federal, State and local cash outlay
resulting from these assumptions, and from
previous outstanding obligations, would total
$33.8 billion between 1973 and 1980. Of this
total $12.9 billion would be provided by State
and local governments. The projected annual
cash outlay of approximately $2 billion is
almost twice the amount State and local sources
supplied in 1970 to build sewerage facilities.
Local governments will probably finance their
portion of the projected capital expenditures
through a variety of sources, including current
general revenues and -the issuance of municipal
bonds. Several recent reports have indicated that
State and local governments may run surpluses
in their current general accounts over the next
several years. Such surpluses would give States
and localities greater flexibility in financing
construction projects.
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Should localities continue to sell bonds, to
finance approximately two-thirds of their invest-
ment in sewerage construction, sewer bonds will
continue to represent just over 5 percent of the
overall municipal bond sales. Municipalities
should encounter no difficulties in selling such
bonds. The market for bonds has improved since
the late 1969 credit gap in spite of a generally
tight credit market. If another major credit gap
occurs, municipalities should be able to tem-
porarily substitute short-term for long-term
bonds as they did in 1969-70. Nor do credit
limitations seem to offer a serious constraint.
Municipalities have demonstrated that, in most
cases, they can avoid these restrictions by such
measures as issuing revenue bonds, shifting
financial responsibility to independent authori-
ties, and using lease purchase arrangements.
Despite this generally optimistic picture, in-
dividual localities may find financing a major
problem, perhaps because of unacceptable credit
ratings. Some should be able to obtain financial
assistance from State construction grant pro-
grams; others should be able to sell their bonds
to the newly created Federal Environmental
Financing Authority or obtain loans, if they
have a population under 10,000, from the
Farmers Home Administration.
As a direct result of the projected increase in
capital expenditures, the annual cost for locali-
ties to provide sewerage services may increase by
66 percent in the next 4 years. This should be
viewed against an expenditure on sewerage
operations amounting to 1 percent of all current
local expenditures in 1970. The increase due to
capital expenditures on sewerage would increase
the cost of sewerage operation to 1.7 percent of
the 1970 level of expenditures.
Economic Impact of Industry. An overview of
23 industries discharging directly into the
Nation's waters indicates that in most cases they
will be able to recover the costs of best
practicable wastewater treatment by increases in
prices. However, individual plants in certain
industries will experience difficulties in meeting
the requirements. Generally, the profitability of
smaller and/or older plants may be so reduced
by pollution control that many of them may
decide to close prior to 1977. Secondly, plants
located in heavily urbanized areas, especially
small older ones, will experience difficulties
because they lack the necessary land to use the
most cost-effective treatments. In the absence of
adequate municipal treatment faculties the 1977
requirements may force many of these plants to
close, relocate elsewhere, or be absorbed by
more viable firms.
Most of the industries studied are expected to
raise prices (regardless of potential closures)
with the size of the increase varying among
segments of an industry (Table VII-10). The
industries expected to experience prices in-
creases of less than 1.5 percent are asbestos,
dairies, feedlots, flat glass, leather, meatpacking,
nonferrous metals, softwood plywood, and wood
preserving. Price increases of 1.5 to 5 percent are
expected to occur in cement, fertilizer, fiber-
glass, fruits and vegetables, and hardwood
plywood. Price increases higher than 5 percent
are expected in electroplating, hardboard, in-
organic chemicals, organic chemicals, paper,
plastics, and synthetics. (The industries italicized
also face significant air pollution control costs.)
Pollution control costs that cannot -be passed
on in the form of price increases will result in
decreasing profit margins and, in some cases,
plant closings. Plant closings are expected in all
of the industries with the exception of cement,
flat glass, ferroalloys, fiberglass, grain milling,
and rubber.
In most of the industries studied, closings will
be due primarily to factors unrelated to water
pollution control costs, but they will be acceler-
ated by these costs. Dairies, feedlots, fruits and
vegetables, and leather are examples of indus-
tries in which plant closings will occur unrelated
to pollution control expenditures. The maxi-
mum direct unemployment would be about
50,000 or 1.5 percent of the estimated total
employment in the industries studied of 3.3
million.
Construction Industry Capacity. The in-
creased construction called for by the 1972
Amendments—$8.9 billion in 1976 compared
to $3.0 billion in 1971—will place additional
demands on the capacity of the construction
industry. EPA initiated several studies to assess
the impact of these incremental expenditures on
the price and quantity of all construction and on
each of five sectors of the construction industry.
In addition, several of the studies examined the
possible existence of specific bottlenecks, such
as the supply of skilled labor or entrepreneurs,
that would limit the construction industry's
capacity to meet these demands.
Assuming a generally homogeneous construc-
tion industry, these studies suggest that the
industry can meet the demands. However,
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specific localities may have insufficient capacity
to carry out large scale projects. The $4.9 billion
incremental increase (1976 peak year) over the
baseline estimate in wastewater treatment
construction would raise overall construction
prices by only 0.6 percent.
According to the models of EPA and others,
factors such as the level of economic activity,
government expenditures, and the rate of in-
terest are more important than prices in influ-
encing demand. In the case of interest rates EPA
found no evidence to suggest that an increase,
induced by pollution-related construction
activity, will be as much as 1 percent of the
current level.
The studies indicate that the level of
activity in other sectors of the construction
industry will be reduced by an increase in
pollution-related construction. A $4.9 billion
increase in EPA-stimulated demand over the
baseline estimate for sewer construction is pro-
jected to decrease other construction by less than
$0.3 billion. The private residential sector will
likely absorb approximately one-third of the
reduction. The public non-building sector is
likely to absorb a significant portion as well.
However, these results may be affected by past
policies of using public works projects to
smooth the overall level of construction activity.
The analysis did not examine the deter-
minants of price increases that are unrelated to
changes in construction demand. EPA recog-
nizes, for example, that the recent devaluation
has increased the demand for exports (e.g. a
larger European demand for U.S. steel rein-
forcing rods) and that this change will increase
the domestic price of construction and result in
some shortages. Similarly, EPA recognizes that
uncertainty about future prices and deliveries of
inputs in the construction process can result in
significant increases in the price of construction
as supported by recent evidence.
Equipment Supply Capacity. Industries sup-
plying water pollution control specialty equip-
ment and instrumentation appear to have the
long-term production capacity to meet the
projected demand. A 1972 analysis of capacity,
based on statements of equipment suppliers and
secondary statistics, found that:
• The profit margins enjoyed by pollution
control companies on their pollution busi-
ness have generally exceeded the margins
on their other business in the same indus-
trial categories.
• Companies in which pollution control is a
significant activity (greater than 5 percent
of sales) have a slightly higher return on
assets than companies in which pollution
control is a minor activity.
• Comparing the returns on assets, companies
"in" the pollution control business have
out-performed those in closely-related in-
dustries.
In recent years, the municipal sector's
demand for pollution abatement equipment has
grown only 0.6 percent per year. This plateau of
demand developed primarily because munici-
palities waited for promised Federal assistance.
The demand is expected to accelerate because of
expenditures in 1974-1976, and to taper off
through 1980. The specialty equipment segment
of the industry is expected to grow at a higher
rate—14.1 percent per year in 1973-1975 and
9.5 percent per year in 1975-1980. Similarly,
the growth of the instrumentation segment is
expected to be high—17.9 percent for the first
period and 15.9 percent for the second.
Demand from the industrial sector is expected
to increase modestly through 1977 and then
drop substantially through 1980. Again,
specialty equipment expenditures will grow at a
faster rate than total expenditures, because of a
trend toward advanced treatment.
The above analysis assumed that the raw
material and skilled labor inputs would be
available to complement the productive
capacity. Recent evidence suggests that they
might be in short supply in some localities.
CONCLUSIONS
The economic factors examined, other things
being equal, will not in EPA's view significantly
constrain the accelerated program launched by
the 1972 Amendments to control pollution
from municipal and industrial sources. In partic-
ular:
• Local governments will have adequate gen-
eral revenue or municipal bonding capa-
bility to finance their share of building
sewerage systems. The combination of the
State grant/loan programs, the U.S. En-
vironmental Financing Authority and the
Farmers Home Administration loan pro-
gram should be able to deal with an
individual municipality with a financial
problem.
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1 An overview of 23 industries discharging
directly into the Nation's waters indicates
that in most cases they will be able to
recover the costs of best practicable waste-
water treatment by increases in prices.
However, individual plants in certain
industries will experience difficulties in
meeting the requirements. Generally, the
profitability of smaller and/or older plants
may be so reduced by pollution control
that some of them may decide to close
prior to 1977.
The results of econometric models indicate
that the construction industry should be
able to build the required facilities with
real price increases of less than 1 percent
attributable solely to EPA-stimulated
demand, assuming resource transferability
within the construction industry. The
skilled labor needed should be available to
meet peak-year requirements with some
impact on wages. In some localities, the
construction industry may lack adequate
short-term capacity, especially in light of
the changing nature of the economy.
The pollution abatement equipment indus-
try is attractive enough to encourage the
growth and development of long-term
supply. Production capacity as estimated in
1972 is not viewed as a constraint. How-
ever, raw material and skilled labor inputs
may be a constraint in some cases.
Other things being equal, the economic fac-
tors examined will not be serious constraints in
meeting effluent standards. (However, the other
things assumed equal may not be equal. Unfore-
seen events such as the energy crisis or devalu-
ation of the dollar may lead to basic changes in
the system, and, therefore outcomes may differ
from those predicted.) Other factors, such as
budget constraints both in the public and private
sectors and legal and administrative steps that
must be taken in controlling wastewater dis-
charge could account for delays.
As long as there are significant non-point
sources of pollutants, control of industrial and
municipal sources does not mean that all areas
of the Nation will have clean water at the same
time. A fundamental question remains: At what
point do the additional costs of controlling all
sources of pollutants exceed the additional
benefits of improved water quality? Clearly, the
current societal concern for environmental
quality indicates that the public believes there
are significant benefits yet to be attained.
8
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II. Nature of and Trends in Water Pollutants
INTRODUCTION TO POLLUTION
PROBLEMS*
No one has described completely the quality of
a body of water. To do so would entail chemical
analyses of a near-infinite number of solid,
liquid, and gaseous compounds, as well as a
complete identification of all biota present in
the water from viruses to vertebrates. Thus, any
practical description of water quality can only
be concerned with a very limited subset of all
conceivable physical, chemical, and biological
aspects of actual waterbodies. Typical water
quality measurements are, in fact, oriented
toward a small group of commonly observed
pollution problems.
Harmful Substances. A stream of seemingly
clean and pure water may be highly polluted due
to the presence of toxic substances in very low
concentrations. For example, certain chemicals
in concentrations of only several parts per
billion may be deadly to the mayfly, an impor-
tant link in the aquatic food chain. Certain
harmful substances may be natural such as acids
from bogs. Most, however, are man-made such as
industrial and agricultural chemicals. A few of
these are well known—heavy metals, pesticides,
herbicides, and polychlorinated biphenyls
(PCB's), for example.
Toxicity effects can be dramatic, as in the
case of large fishkills, or they can be subtle, as in
the case of minute concentrations causing de-
creasing fertility or changing reproductive or
predation habits over a long period of time.
Detecting any chemical and tracing it back to its
sources can be difficult, particularly in the case
of widely used and highly persistent substances
such as mercury, dieldrin, or PCB's. Sources can
be diverse, ranging from industrial or municipal
sewage discharges to urban stormwater, agricul-
tural runoff, or atmospheric particle "fallout".
•Most of the information presented in this introductory
section was prepared by Enviro Control, Inc.
It is therefore not safe to assume that the only
major sources of harmful substances are
industrial discharges.
Analysis of these harmful substances is com-
plicated because they do not usually remain
dissolved or suspended in water but are taken up
by sediments, plants, and animals. In the case of
DDT, concentrations in fish will be at least one
order of magnitude greater than in sediments,
which in turn have concentrations at least one
order of magnitude greater than the overlying
waters. Since most other important pesticides
are insoluble (and many toxic metals form
insoluble salts), water concentrations by them-
selves do not form reliable indicators. For the
same reasons, water concentrations will tend to
be very low—on the order of parts per billion-
making results extremely sensitive to the specific
chemical analysis methods used. For instance,
older gas chromatographic methods for DDT
were unable to distinguish DDT clearly from
PCB's. Since PCB's are often found in substan-
tially higher concentrations than DDT, these
older results are quite unreliable.
Physical Modification. Aquatic habitats are
sensitive to fluctuations of many physical char-
acteristics of water including temperature and
transparency. Temperature fluctuations occur-
ring naturally can be amplified by human
activities through large discharges of industrial
cooling water, such as from power plants or steel
mills, from release of warm surface water held in
reservoirs, or from destruction of shade trees
along stream banks. Warm discharges do not
automatically cause ecological damage—some
increase desirable biological activity. Large
thermal discharges into small or relatively stag-
nant bodies of water, however, can cause large
temperature increases. If such increases occur in
critical "zones of passage" or spawning grounds,
they can disrupt important biological
communities.
Natural waters lose transparency due to sedi-
ment loads. Aside from natural sources of
-------
sediment there are human sources including
construction activities, strip mining, and farming
practices. Transparency can also be lost by
excess microorganism growth stimulated by
nutrient-rich agricultural runoff, urban storm-
water or sewer overflows, and sewage treatment
plant discharges. Reduced transparency has a
serious effect other than aesthetic degradation:
It reduces the amount of light available to
underwater plants and thus decreases a primary
food source for certain fish and birds.
Another significant alteration of key aquatic
habitats results from physical modification of
shores, banks, and channels. Artificial draining
of marshland to create waterfront property
destroys the highly productive environment
necessary for spawning of certain fish species
and feeding of migratory birds. Construction of
breakwaters can reduce "flushing" of bays to
the point where the effect of pollutant dis-
charges to these bays is greatly magnified by
stagnant water conditions. Channel and water-
shed "improvement" destroys biological com-
munities on stream banks and, in some cases,
can accelerate erosion and sediment.
Finally, dams and their impoundments can
produce profound changes in the physical and
biological characteristics of a stream. These
changes include beneficial as well as negative
effects.
Not all aspects of physical modifications of
streams and estuaries are quantifiable. In fact,
only a few simple measures of the extent of
harmful physical modifications (including sus-
pended solids, turbidity, color, and temperature)
are known. Some other physical measures that
would be useful are often not routinely made;
among these are sediment cores to analyze the
nature of bottom deposit buildup, and settleable
solids to measure the materials deposited on the
bottom.
Eutrophication. An adequate crop of algae is
the beginning of the food chain for most aquatic
communities. However, relatively stagnant
waters (such as lakes and slow-moving estuaries)
rich in nutrients can grow such heavy crops of
algal and other aquatic plants that the decay of
dead cell matter may seriously deplete the
bottom waters of oxygen. This prevents the
survival of oxygen-sensitive food species and
fish. In extreme cases floating algal mats, thick
bottom slimes, and odors result.
There are many waters in the nation that are
or were naturally eutrophic. On the other hand,
artificial addition of any one of the 100 or so
nutrients necessary to plant growth may stimu-
late algal blooms (heavy growths) in stagnant
waters where that nutrient is normally under-
supplied. In addition to the well-known nutri-
ents, phosphorus and nitrogen, there are others
equally essential to plants, including carbon
dioxide, potassium, magnesium, and vitamin
B-12. Man adds nutrients to water by many
means. Perhaps one of the most important
sources is runoff of agricultural fertilizers, which
yield large loads of phosphorus, nitrogen, and
potassium; other sources include treated muni-
cipal sewage, industrial discharges, and sewer
overflows.
The only direct measure of eutrophication is a
complete biological study of the waters in
question. Indirect measures of eutrophication
are biomass, standing algal crops, chlorophyll,
nutrient uptake and benthic (that is, stream or
lake bottom) oxygen demand. Unfortunately,
most of these are almost never monitored
routinely. Nutrient levels can be useful, although
not necessarily conclusive measures of the
potential for eutrophication. Of the 100 or so
nutrients essential for plant growth, only com-
pounds of nitrogen and phosphorus are rou-
tinely measured, making it difficult to use
normal monitoring evidence to specify either
nitrogen or phosphorus as the direct cause of a
bloom.
Salinity, Acidity, and Alkalinity. Major
changes in the salt content of water can seri-
ously disrupt aquatic communities and decrease
the value of water for irrigation and water
supply purposes. Where the fresh water inflow
of estuaries is reduced through upstream con-
sumption or diversion of freshwater, the saline
front advances upstream. This advance decreases
the low salinity area of the estuary necessary for
spawning or growth of important species such as
striped bass. Many inland streams are naturally
saline, due to the salt content of solids and
minerals in their drainage basins. In certain
areas, this natural salinity has been substantially
increased by man's activities. Irrigation in saline
soil areas increases stream salinity, because of
increased evaporation (both on land and in
reservoirs) and leaching of salt from the soil into
the irrigation return flow. In certain basins, mine
10
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and quarry drainage can also add substantial salt
loads to rivers.
Acidity changes can be equally damaging to
aquatic life. The most important acid sources are
drainage from mines and acid rain downwind
from major sulfur-polluted air regions. The
importance of sulfur air pollution has only
recently been recognized; several small lakes
have suffered such serious increases in acidity
within only one decade as to almost eliminate
many desirable fish species. Highly acidic indus-
trial and municipal discharges that are large
relative to the receiving stream can also cause
damage.
Alkalinity presents problems in many areas,
particularly west of the Mississippi River. The
problems range from reduced agricultural pro-
duction to the fouling of water pipes. Most
alkaline pollutants are from natural sources such
as sodium carbonate deposits. However, certain
industries such as the gypsum board industry
may also contribute to an alkaline condition.
Quantitative analysis of salinity normally uses
total dissolved solids as an indicator of total
salts; common individual salts such as sulfates
and chlorides are also sometimes measured. To
some extent, specific ecological damage due to
salinity depends on the composition of the salts
present. Acidity/alkalinity measures are consid-
erably more complex. pH, the measure of free
hydrogen ions present, measures the stream's
capacity to neutralize or "inactivate" bases.
Alkalinity measures the stream's capacity to
buffer acids. Thus, if a given stream shows little
pH trend over the last 10 years, but alkalinity
has decreased markedly, one can predict that the
stream will be considerably more vulnerable to
relatively small acid discharges.
Oxygen Depletion. Oxygen dissolved in water
is one of many substances essential to sustaining
aquatic animal life. The dissolved oxygen (DO)
level is widely considered to be the single most
important indicator of pollution; actually, there
is no reason to consider it more or less
important than indicators such as toxicity,
salinity, and algal population.
Dissolved oxygen is consumed whenever any
substance is oxidized in water. This oxidation
can be a direct chemical process or it can be a
biological process. All aquatic animals, from
bacteria to fish, consume dissolved oxygen in
metabolizing food substances. Such food sub-
stances range from sugars and starches, which
are consumed by microorganisms in days, to
paper pulp or oils, which are consumed by
microorganisms only after months. Rapidly con-
sumable substances create oxygen deficits within
a few days of stream travel from their sources,
while slowly consumable substances create
deficits weeks or months of stream travel away
from their source.
Thus, slowly consumable substances may not
cause significant oxygen loss in the stream at all;
instead, they may be consumed in a downstream
lake, reservoir, estuary, or ocean where they
may or may not pose a problem. Naturally, the
rate of consumption for a specific food sub-
stance or waste is highly sensitive to tempera-
ture; higher water temperatures greatly accel-
erate the growth and metabolism of the
microorganisms that feed on the waste. On the
other hand, many toxic substances slow this
growth and can give a misleading picture of
oxygen sufficiency.
Oxygen-consuming or oxygen-demanding
substances can be attributed to many sources.
There are large natural sources, including leaves,
soil organic matter, and wildlife droppings
washed into rivers by storm runoff. Agricultural
areas contribute additional runoff-carried
oxygen demand from lifestock manure and
topsoil erosion. There are also the classical
"point" sources: municipal sewage treatment
plant discharges and a wide variety of industrial
waste discharges. However, some urbanized areas
contribute oxygen-demanding loads by other
routes including storm sewers, sewer overflows,
intentional treatment plant bypasses, sewer
leaks, and unsewered runoff.
The direct quantitative measures of oxygen
content of water are the absolute concentration
of DO present, and the percent of saturation for
DO corrected for temperature and pressure
(since warm or low pressure water can dissolve
less oxygen than cold or high pressure water).
The latter measure is based on theoretical tables
of saturation valuer for dissolved oxygen in
distilled water, but many substances found in
impure water can either raise or lower saturation
levels of DO. Supersaturated values of up to 140
percent are seen, particularly in waters where
algae contribute substantial oxygen.
In describing the oxygen-depleting character-
istics of wastes, 5-day biochemical oxygen
11
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demand (BODg) and chemical oxygen demand
(COD) are the most common measures. In
BOD6, the waste or stream sample is incubated
in a bottle (sometimes inoculated with stream
microorganisms) at 20°C. for 5 days, and the
weight of oxygen metabolically consumed by
the microoganisms is measured. Among the
many deficiencies of the BOD6 measurement
are: It has very poor repeatability; bottle condi-
tions are far from stream conditions; trace
toxicants can seriously inhibit microorganism
growth and reduce apparent oxygen demand;
and the 5-day reading gives no indication of
depletion rate over shorter or longer peiods. In
measurement of COD, a sample of water is
chemically oxidized to give an approximate
upper bound on the amount of biologically
oxidizable material present; COD cannot be
measured in salty water, however, and it also
fails to capture volatile oxidizable substances
such as organic acids, alcohols, and ammonia.
Health Hazards and Aesthetic Degradation.
An assessment of health hazards from polluted
water involves considerable uncertainty. There is
little doubt that human feces carry infectious
pathogens for a number of intestinal diseases,
typhoid fever, hepatitis, brucellosis, encephalitis,
poliomyelitis, psittacosis, and tuberculosis. How-
ever, there are grave uncertainties about the
die-off rates of pathogens in natural waters as
well as their infectiousness for swimmers or
other recreational water users. Note that the
issue of drinking water is not at stake, since its
safety depends on disinfection treatment by the
water supply system. The evidence that water
polluted with fecal matter can transmit diseases
to swimmers is sparse and uncertain, particularly
since it has been discovered that swimmers in
unpolluted water also have higher incidences of
common ear, eye, and nose infections. There is
some evidence that hepatitis can be transmitted
via shellfish from polluted waters; unfortu-
nately, the usual antibacterial measure—
chlorination of sewage effluents—may not abate
this problem for viral forms of hepatitis.
The evidence for waterborne toxicity hazards
via fish, shellfish, and perhaps drinking water is
somewhat stronger, at least in the case of
relatively high concentrations of mercury and
cadmium. On the other hand, considerably less
effort has been expended on the chronic health
hazards of low-level, long-term toxicants in
drinking water (and fish) than on the infectious
disease problem. Consequently, little can be said
in this area, since even monitoring data are
sparse.
Despite the paucity of evidence regarding
waterborne transmission of diseases to recrea-
tional users, public health agencies since the turn
of the century have assumed that the problem
exists. Because of the expense of direct identifi-
cation of specific pathogens in water, these
agencies traditionally have used several indirect
and nonspecific measures of bacterial popula-
tions in water: total coliforms, fecal coliforms,
and fecal streptococci. These bacteria are not
pathogenic, nor do they simulate the die-off
rates of pathogens. Fecal bacterial counts are
good indicators of the presence of undisinfected
municipal sewage, when runoff sources are
either low or insignificant. Unfortunately, fecal
coliforms are also found in runoff from agricul-
tural and wilderness lands and from urban areas.
In fact, it is possible that fecal coliforms can
multiply significantly in streams under certain
conditions.
Water bodies can be degraded aesthetically by
increases in murkiness, color, algal scums, float-
ing solids and oils, and odors. Murkiness is
approximately measured by turbidity, which has
been discussed, together with color, under Physi-
cal Modifications. Algal growth has been dis-
cussed under Eutrophication. Floating solids and
oils, in areas with properly functioning treat-
ment plants and oil separators, generally come
from combined sewer overflows, storm sewer
discharges, and unsewered runoff, as evidenced
by the major increases in these measures directly
after rainstorms. Unaesthetic odors can stem
from many sources, including decaying organic
matter in water or on the bottom and a myriad
of industrial chemicals. Among chemicals,
phenols are traditionally singled out for special
attention by pollution control agencies.
In the broad area of health hazards and
aesthetic degradation, only a few measures are
routinely monitored. The ones available for
analysis are total coliform, fecal coliform, fecal
streptococci, phenols, and odors.
STATUS OF WATER QUALITY
EPA's analysis of 22 major rivers, contained in
the 1973 National Water Quality Inventory
Report, sheds some light on the kinds of
pollution requiring control and on recent trends.
12
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The 22 rivers, ranked from "cleanest" to "dirti-
est" in Table II-l, were selected for study
because of their length, flow, and proximity to
large cities. This ranking of reaches on the 22
rivers is not necessarily complete or fully accu-
rate for all purposes. For example, ranking is
based only on physical modification, nutrients,
eutrophication, acidity, salinity, oxygen, and
health parameters. Effects of metals and pesti-
cides are not included, because data were not
complete at the time this report was prepared.
The analysis does not incorporate biological or
other measures because data are less readily
available and reference levels are not clearly
defined.
Detailed analyses of the 22 rivers as a whole
show that the worst readings and trends were for
nutrients (Table II-2). The pollutants receiving
the most widespread controls (bacteria and
oxygen demand), however, were improving. The
analyses indicated that:
• For nutrients, up to 54 percent of the
reaches exceeded EPA's phosphorus guide-
lines set to protect against potential eutro-
phication in flowing streams. Up to 84
percent of the reaches showed increased
phosphorus levels in 1968-1972 over the
previous 5 years. Nitrogen nutrients, while
generally not exceeding reference levels,
increased in up to 74 percent of the reaches
measured.
• Other pollutants with high levels were
phenols (industrial compounds which can
taint fish flesh and cause taste and odor
problems in drinking water) and suspended
solids (which interfere with some aquatic
life processes). These results are not as
disturbing as the nutrient data, because in
up to 80 percent of the reaches with data,
phenols and suspended solids improved in
the last 5 years.
• The pollutants receiving the most wide-
spread controls, bacteria and oxygen
demand, showed general improvements in
the last 5 years. Dissolved oxygen and
oxygen-demand levels improved in up to 72
percent of reaches; bacteria up to 75
percent.
Five of the rivers were studied in greater
detail: the Mississippi, Missouri, Ohio, Tennes-
see, and Columbia Rivers.
Mississippi River. Based on routine monitor-
ing data available to EPA for the years 1963-72,
the most significant types of pollution for the
Mississippi River are the presence of undesirable
bacteria throughout the river (noticeably around
urban centers). Special studies confirmed the
TABLE 11-1
POLLUTION RANKINGS OF 22 MAJOR U.S. RIVERS*
(Preliminary]
Best Third
Middle Third
Worst Third
Upper Missouri
Columbia
Snake
Willamette
Upper Mississippi
Yukon
Tennessee
Susquehanna
Lower Colorado
Rio Grande
Alabama
Upper Ohio
Upper Red
Brazos
Potomac
Upper Colorado
Middle Mississippi
Sacramento
Lower Red
Hudson
Lower Ohio
Lower Mississippi
Lower Arkansas
Middle Ohio
Mississippi near
Minneapolis
Lower Missouri
Upper Arkansas
Middle Missouri
*From 1968-72 STORET data; rankings based on the number of pollutants register-
ing median values higher than uniform national reference levels.
Source: 1973 Water Quality Inventory Report to Congress. EPA.
13
-------
TABLE 11-2
WATER QUALITY TRENDS FOR 22 MAJOR RIVERS
(1963-72)
[Preliminary]
Parameter
Suspended solids
Turbidity
Temperature
Color
Ammonia
Nitrite
Nitrate (as N)
Nitrate (as NOg )
Nitrite plus nitrate
Organic nitrogen
Total phosphorus
Dissolved phosphate
Total phosphate
Dissolved solids (105°C)
Dissolved solids (180°C)
Sulfates
Chlorides
Alkalinity
pH
Dissolved oxygen
BOD5
COD
Total coliforms (MFDj*"
Total coliforms (MFIV
Total coliforms (MPN)t
Fecal coliforms (MF)t
Fecal coliforms (MPN)t
Phenols
Odor
Readers
analyzed
24
27
29
27
21
5
13
19
24
8
25
16
13
24
23
30
30
29
30
27
27
18
21
9
9
5
4
7
4
Trends of reaches from
1963-67 to 1968-72
Improved
20
21
20
7
16
2
0
5
8
4
4
8
6
16
14
16
18
12
16*
17
19
13
14
4
6
3
3
5
2
Worse
4
6
9
20
5
3
13
14
16
4
21
8
7
8
9
14
12
17
14*
10
8
5
7
5
3
2
1
2
2
% Improved
83
78
69
26
76
40
0
26
33
50
16
50
46
67
61
53
60
41
53
63
70
72
67
44
67
60
75
71
50
% of reaches exceeding
reference levels
1963-67 1968-72 Change
30% 16% -14%
30 32 +2
000
No reference level used
14 4 -10
No reference level used
000
No reference level used
0 0.0
No reference level used
35 54 +19
8 25 +17
30 37 +7
29 21 -8
28 12 -16
13 13 0
13 10 -3
No reference level used
000
000
000
No reference level used
26 14 -12
56 30 -26
25 21 -4
60 21 -39
17 43 +26
82 69 -13
No reference level used
*For pH, read "less acidic" for "improved"; read "more acidic" for "worse."
'''Membrane filter delayed, membrane filter immediate, most probable number, membrane filter.
presence of phenols downstream from cities and
industrial complexes. Phenols cause taste and
odor problems in drinking water and prevent
commercial fishing in several large river seg-
ments.
• Harmful Substances. Phenol levels below
St. Louis and Baton Rouge are probably
major reasons that commercial fishing has
been eliminated in these two areas.
• Physical Modification. The upper river
below Minneapolis-St. Paul shows increased
levels of BOD6, ammonia, and nitrates;
turbidity and solids are increased down-
stream from the Missouri River.
• Eutrophication Potential. Limited data are
available to assess eutrophication directly.
However, phosphorus levels have increased
in the lower river (below Ohio River) in the
recent 5 years while the upper river remains
unchanged. Below Minneapolis-St. Paul,
there are significant increases of ammo-
nia and nitrates. Enough phosphorus and
14
-------
nitrogen are present to support nuisance
algae growths in this area, and levels are
generally getting worse.
• Salinity, Acidity, and Alkalinity. The only
noticeable changes occurred below the in-
flows of the major tributaries. For exam-
ple, increases in dissolved salts, particularly
sulfates, were detected below the Missouri
River. Alkalinity dropped below Cairo
because of the acidic inflow from the Ohio
River.
• Oxygen Depletion. Dissolved oxygen levels
are satisfactory throughout the river except
below Minneapolis-St. Paul. BOD5 and
other parameters associated with sewage
and industrial wastes indicate that urban
areas are the primary sources of pollutants.
Most of the river has improved in the last 5
years, with a significant improvement
below Minneapolis-St. Paul due to second-
ary treatment of municipal wastes.
• Health Hazards and Aesthetic Degradation.
Fecal coliform counts are exceeding recom-
mended standards throughout the Missis-
sippi River, with peaks below urban
centers, especially below Minneapolis-St.
Paul. These levels are considered excessive
for primary contact recreation use.
Missouri River. According to the 1963-72
data, the most significant types of pollution in
the Missouri appear to be physical degradation
(primarily related to erosion), and potential
health hazards. Special studies confirm the
presence of undesirable bacteria and viruses and
tainting of fish flesh downstream from several
large cities. These problems appear to come
from sewage treatment facilities, but they are
overshadowed up to 16 percent of the time by
pollutants that are associated with runoff during
heavy rains.
• Physical Modification. The middle and
lower portions of the Missouri experience
some of the heaviest sediment erosion in
the United States, producing high sus-
pended solids and turbidity. While much of
the erosion is natural, pollutants washed
from farms and cities are carried with the
soil, and add to the organic matter (BOD5,
COD, and ammonia), nutrients (phosphates
and nitrates), and salts (sulfates) in the
river, particularly after rainfalls.
• Eutrophication Potential. Limited data are
available to measure the potential of eu-
trophication directly. However, enough
phosphates and nitrogen are present in the
middle and lower Missouri to support
nuisance algae growths, and levels were
generally worsening over the 1963-72
period.
• Salinity, Acidity, and Alkalinity. Dissolved
salts, particularly sulfates, reach and often
exceed national guidelines for water supply
intakes in the middle and lower Missouri.
• Oxygen Depletion. Organic loadings in the
Missouri are high, in part due to heavy
animal feedlot runoff from Kansas,
Nebraska, and Iowa. At times these
loadings have been sufficient to deplete
dissolved oxygen below recommended
levels for fish. BOD5 and COD improved
near large cities in the last 5 years
compared to the preceding 5 years.
• Health Hazards and Aesthetic Degradation.
Fecal coliform levels peak well in excess of
water quality standards for swimming and
drinking downstream from urban areas in
both wet and dry periods, as do other
measures of fecal contamination and
viruses. Point sources are probably respon-
sible for most of the pollution, but condi-
tions also generally worsen after rainfalls,
reflecting nonpoint sources of pollution.
Ohio River. Based on 1963-72 data, the most
serious problems in the Ohio River are: elevated
bacteria levels near cities; acidity from mines
and industries; the potential for eutrophication;
and suspended solids. Field studies indicate that
if industries and municipalities adhere to efflu-
ent limitations, the Ohio can meet standards for
fish and, in some areas, for swimming by 1977.
However, potential eutrophication and sediment
runoff may continue to be problems.
• Harmful Substances. Monitoring data
show high levels of iron, in all four
sections of the river, with trends toward
higher levels in the last 5 years. Special
studies show industrial oil, scum, foam,
phenols, and other chemicals affecting
areas near Pittsburgh, Huntington, Mari-
etta, and Parkersburg. Biological studies
confirm the presence of toxic materials
near Pittsburgh. Downstream, the river
15
-------
shows recovery, and some improvements
have been noted since 1970.
• Physical Modification. High levels of sus-
pended solids occur in the lower Ohio,
primarily during high flows. In some por-
tions of the river, the levels are markedly
improved compared to 5 to 10 years ago.
• Eutrophication Potential. Indirect evidence
suggests that biological activity is being
heightened in the presence of enough
nitrates and phosphates to support nui-
sance algae growths, although such growth
has not been observed. Nutrients have not
changed significantly in the last 10 years.
• Salinity, Acidity, and Alkalinity. At 11 of
40 stations, the river is occasionally more
acidic than permitted by standards. Most of
this may be attributed to acid mine drain-
age from upstream tributaries.
• Oxygen Depletion. Two stations report
dissolved oxygen problems. Pittsburgh's
and Cincinnati's municipal discharges are
known to be producing low dissolved oxy-
gen at times.
• Health Hazards and Aesthetic Degradation.
In summer, total and fecal coliforms ex-
ceed permissible levels at Cincinnati and
Louisville. Special studies show bacterial
levels improving in the past 5 years near
other cities.
Tennessee River. Data from 1963-72 indicate
that the most serious potential problem on the
Tennessee River is the increase in nutrient levels
in the nine mainstream reservoirs. Other prob-
lems are the presence of high bacteria levels in
the reservoirs near cities and low dissolved
oxygen levels in dam releases. Nitrogen and
phosphorus concentrations in the reservoirs are
high enough to encourage some undesirable
algae growth; nitrates, in particular, are high in
all reservoirs and increased significantly during
the last decade. In general, however, the Ten-
nessee River and its reservoirs do not show
widespread pollution and are among the cleaner
waters studied in the 22 rivers.
• Eutrophication Potential. Nitrogen and
phosphorus concentrations in the nine
mainstem reservoirs are no longer limiting
aquatic growth. The seasonal pattern of
nutrients suggests tnat biological activity is
increasing, although nuisance algae has not
been noted. Nitrate levels are quite high in
all nine reservoirs, with significant increases
over the 10-year period. Maximum concen-
trations occur primarily during periods of
high flows. Organic nitrogen and ammonia
are also increasing.
• Oxygen Depletion. The water released from
some reservoirs during the summer months
is low in dissolved oxygen due to thermal
stratification.
• Health Hazards and Aesthetic Degradation.
During several months each year, fecal
coliforms exceed permissible levels for con-
tact recreation and drinking water.
Columbia River. During 1967-72, the most
serious problem on the Columbia River was
supersaturation of atmospheric gases (toxic to
most fish) induced by turbulence at spillways.
Radioactivity levels originate at AEC Hanford
Works. Temperature levels reach or exceed
desired levels in the summer months. Nutrient
levels (phosphorus and nitrate) exceed desirable
thresholds primarily during the first spring
flood.
• Harmful Substances. Supersaturation of
dissolved gases induced by turbulence by
spillways present toxic conditions below 13
dams along the river. The toxicity resulting
in gas bubbles in the bloodstream is similar
to the "bends" experienced by divers. The
problem is not limited to any particular
species or age groups of fish. Specific
radionuclides that concentrate in the food
chain (zinc-65 and phosphorus-32) con-
tinue to be detected at the mouth of the
Columbia River and in oysters taken on the
Washington Coast.
• Physical Modification. The general physical
quality of the Columbia is good, but
temperatures reach or exceed the estab-
lished upper limit in August and occasion-
ally in July and September. Temperature
levels are influenced by the many dams and
reservoirs, and also by heat sources such as
the Hanford Works. Temperature levels
have shown no observable overall change
during the past 6 years. Other water quality
measurements such as solids pose no
problem.
• Eutrophication Potential. With the excep-
tion of slime growth, sphaerotilus natens,
16
-------
in the lower river, the biological popula-
tions of the river are diverse and bal-
anced—the opposite of eutrophic condi-
tions. Although nitrate and phosphorus
exceed desirable levels, particularly during
high runoff periods, there are no trends
suggesting increased eutrophication.
• Oxygen Depletion. The flow and surface
characteristics of the river seem to be
sufficient to provide dissolved oxygen con-
centrations that are very close to theoret-
ical saturation limits.
• Health Hazards and Aesthetic Degradation.
From limited data, total and fecal coli-
forms levels are very low and indicate no
threat to water contact and drinking water
uses.
the EPA report analyzed pollution that comes,
not from specific points such as sewage treat-
ment outfalls or industrial plants, but from
runoff from areas such as farmlands, city streets,
and mining areas, and from subsurface seepage
from polluted areas. While reliable national
estimates exist for point-source pollution, no
similar estimates exist for nonpoint-source pollu-
tion. In 1971, EPA estimated that agriculture,
mining, and water resource development
accounted for 31 percent of the total pollution
measured. This estimate is not particularly use-
ful, however, because it did not delineate the
kinds of pollutants involved, the quantity of
nonpoint source pollutants compared to point
source pollutants, and the percent of time that
nonpoint sources are active (usually only during
rainy periods).
NONPOINT SOURCES
In addition to studying overall levels and trends,
17
-------
III. Municipal Costs
THE STATUS OF PUBLIC SEWERAGE
The Nation's system of public sewerage facilities
has been growing for more than a century. The
first U.S. sanitary sewer was begun in Chicago in
1855, only 12 years after the world's first
sanitary sewer system was installed in Hamburg,
Germany. By the end of that decade an esti-
mated 1 million persons were being served by
U.S. sewers (Table III-l). The growth of sewer-
age services occurred at a rate well in excess of
the rate of population growth, and by 1932
approximately half of the Nation's population
was served by sanitary sewers. Today the
sewered population is somewhat in excess of our
total urban population.
While the technology of sewerage treatment
was developed in England during the 1840's and
1850's, it was not until the 1870's that collect-
ing sewers in the United States began to be com-
plemented by an occasional sewerage treatment
plants. The number of persons being served by
treatment plants apparently reached 1 million in
1904, at a time when the sewered population
was approximately 28 million. A great number
of sewage treatment plants must have been
installed between 1910 and 1932, for in 1932
the number of persons served by sewage treat-
ment was about five times the number served in
1910. By 1940, under the stimulus of "New
Deal" construction programs, the population
TABLE 111-1
EXPANSION OF PUBLIC SEWERAGE SERVICES
Year
U.S. Unsewered Sewered Sewage Sewage
population population population untreated treated
Relationships
Sewered population
Total population
Treated population
Sewered population
(millions of persons)
(expressed as percent)
1860
1870
1880
1890
1900
1904
1910
1915
1920
1930
1932
1940
1945
1948
1957
1962
1968
1973
31
39
50
63
76
82
92
99
106
123
125
133
140
145
171
186
198
210
30
34
40
47
51
5.4
57
57
58
62
63
66
70
72
73
68
58
47
1
5
10
16
25
28
35
42
48
61
62
67
70
73
98
118
140
163
1
5
n.a.
n.a.
n.a.
27
31
n.a.
n.a.
n.a.
41
30
28
28
24
17
11
4
0
0
n.a.
n.a.
n.a.
1
4
n.a.
n.a.
n.a.
21
37
42
45
74
101
129
159
3%
13
20
25
33
34
38
42
45
50
50
50
50
60
57
73
71
76
0%
0
n.a.
n.a.
n.a.
4
11
n.a.
n.a.
n.a.
34
55
60
62
76
86
92
97
Source: Based on data published by EPA (and predecessor agencies) in the Municipal Waste Inventories.
19
-------
served by treatment facilities was almost double
that of 1932, and by about 1957 it doubled
again to 74 million. By 1973 approximately 159
million persons were being served, or more than
97 percent of the total sewered population.
Improvements in Waste Treatment. The
treatment of liquid wastes may involve complex
chemical and biological processes. Enormous
volumes of water must be handled—30 to 600
gallons per capita per day, depending on the
industrial and commercial development in a
community. These volumes must be handled
under circumstances of radical daily flow
variation. Furthermore, the materials to be
removed are present in minute quantities: The
"normal" concentration of BOD5 and of
suspended solids in sewage is about 200
milligram per liter, or 0.0002 pounds per pound
of water.
Given such difficulties, waste treatment tech-
nology developed early in directions that fea-
tured the acceleration of natural processes in
very long-lived reactors that could function
under a range of operating conditions. These
basic principles have remained largely un-
changed, although designs have been improved
and there has been a progressive increase in the
application of mechanical energy and chemical
processes to supplement and accelerate natural
processes.
Our historical knowledge of improvements
and efficiencies of waste treatment methods is
incomplete in that no data on the national
distribution of waste treatment processes were
gathered prior to Engineering News Record's
1937 survey of municipalities. Since that time,
the Federal Government has issued intermittent
Municipal Waste Inventories, which provide data
on the distribution of waste treatment methods
and their removal efficiency.
A review of these sources indicates that the
population discharging untreated wastes into our
waterways is only one-tenth of what it was in
1937 (Table III-2). During the 1937-73 period,
the number of persons whose wastes receive
primary treatment (physical processes that
remove roughly 90 percent of solids and about
35 percent of BOD5) has almost tripled. The
population employing secondary treatment (bio-
logical processes that produce only a slight
incremental reduction in solids concentrations
but raise removal of BODB to the 70 to 95
TABLE II1-2
DEGREE OF SEWAGE TREATMENT
Year
No
treatment
Primary
treatment
Intermediate
treatment
Secondary
treatment
Tertiary
treatment
(millions of persons served by sanitary sewerage facilities)
1937
1940
1945
1948
1957
1962
1968
1973
Annual rate
of change,
1937-1973
35.8
29.9
27.9
28.0
23.8
17.0
10.9
3.9
-8%
16.7
15.1
17.2
18.4
25.7
32.7
36.9
46.3
+4%
2.8
3.3
3.8
3.6
5.6
7.4
5.9
5.9
+3%
16.3
18.9
21.7
22.7
43.3
61.2
85.6
103.9
+7%
0.3
2.8
Sources: 1937, Engineering News Record's survey of municipalities 1940-73, EPA and predecessor agencies in
Municipal Waste Inventories.
20
-------
Year
TABLE 111-3
EFFECT OF SANITARY SEWAGE TREATMENT
Collected by
sanitary
sewers*
Reduced by
treatment**
Discharged by
treatment
plants
(millions of pounds of BOD5 per day)
1957
1962
1968
1973
16.4
19.8
23.3
27.1
7.7
10.8
15.0
18.5
8.7
9.0
8.3
8.6
*Based on 0.167 pounds of BOD6 per sewered person per day.
**Based on the distribution of treatment facilities shown in Table III-2 and on estimates of removal efficiency from
a variety of sources.
percent level) increased more than sixfold and
now includes about 63 percent of the sewered
population.
Not only have more persons been connected
to more advanced types of sewerage treatment
facilities, but technological modifications have
improved the removal efficiencies of each type.
One result is that the amount of BOD5 removed
by treatment facilities in 1973 exceeded the
total BODB produced by sanitary sewers in 1957
(Table III-3).
The end result of the growth in sewerage
facilities appears to be disappointingly marginal,
however. While one portion of the system, the
treatment facilities, increased by 140 percent
the amount of BOD5 diverted from our water-
ways, another portion, sanitary sewers, offset
that improvement by delivering more BOD5 for
treatment. These figures may be overly pessi-
mistic as they pertain to sanitary sewerage only;
they do not reflect the net result of initiating
public treatment for a large (but unknown)
number of industrial facilities that previously
discharged directly into our waterways. On the
other hand, they do not take into account the
increased concentration of wastes in sanitary
sewerage resulting from such innovations as
kitchen garbage disposals.
Investment in Treatment Facilities. Between
1855 and 1971, the Nation invested an esti-
mated $58 billion (1972 dollars) in its public
sewerage facilities (Table III-4). This represents
about 5 percent of total State and local govern-
ment capital expenditures for all purposes since
1915 and resulted in approximately $32 billion
worth of facilities in place as of 1971.
Two aspects of this series of investments
stand out. First, the bulk of sewerage capital has
been installed very recently—almost 80 percent
since 1929, 60 percent since World War II, and
more than 30 percent since 1961. Second, the
stock of capital in place is so large compared to
annual investments that replacement of existing
facilities has absorbed approximately 50 percent
of all capital expenditures since 1961. The
current level of replacement costs is close to $1
billion a year and rising in proportion to the
growth of the capital stock.
THE NEEDS SURVEY
The estimated cost of constructing needed
public sewerage facilities is $60.1 billion, accord-
ing to a survey EPA conducted in mid-1973.1
The "Needs" Survey, which was required by
Section 516(b)(2) of the 1972 Amendments,
covered only those treatment and collection
facilities that are eligible for Federal assistance
and meet the criteria of the survey. Nevertheless,
1Costs of Construction of Publicly-Owned Wastewater
Treatment Works-1973 Needs Survey. EPA report to
Congress, November 1973.
21
-------
Period
TABLE 111-4
INVESTMENT IN PUBLIC SEWERAGE FACILITIES
Gross
investment*
Replacement1"
Net
investment
End-of-period
capitalization
1856-69
1870-79
1880-89
1890-99
1900-09
1910-19
1920-29
1930-34
1935-39
1940-45
1946-56
1957-61
1962-67
1968-71
Totals
$
0.5
0.6
0.8
1.2
1.5
2.7
5.7
2.5
4.8
2.1
10.8
7.5
9.1
8.6
$58.4
(billions of 1972 dollars)
$ 0.1
0.1
0.2
0.4
0.6
0.9
1.6
1.3
1.6
2.3
5.1
3.2
4.8
3.9
$26.1
$
0.4
0.5
0.6
0.8
0.9
1.8
4.1
1.2
3.2
(.2)
5.7
4.3
4.3
4.7
$32.3
$
0.4
0.9
1.5
2.3
3.2
5.0
9.1
10.3
13.5
13.3
19.0
23.3
27.6
32.3
*Based on data published by the Department of Commerce and by EPA; all values converted to 1972 dollars
through use of EPA's sewerage construction cost indices and the discontinued Associated General Contractor's
Index of Construction Costs.
^Estimated funds required to "replace" existing facilities, rather than add new capacity. Computed at a rate of 2
percent for sewers and 4 percent for plants, based on estimates of the relative weight of each in each period.
these costs are approximately equal to the
Nation's total investment in public sewerage
facilities since the first sanitary sewer was built
in 1855.
Conduct of the Survey. In mid-1973, the
States were asked to distribute survey question-
naires to all municipal treatment authorities that
could be identified within Standard Metro-
politan Statistical Areas (SMSA's), and also to
all authorities outside SMSA's serving commu-
nities of 10,000 or more. Thirty-five States
chose to sample communities of less than
10,000 outside SMSA's, in which case the costs
reported in the sample were increased in propor-
tion to the sample coverage. The remaining 15
States surveyed all communities. Municipal
treatment authorities sent their completed ques-
tionnaires to the States for review and approval.
After further review and editing by EPA
Regional Offices, the survey data were compiled
by State and for the Nation as a whole.
Costs were reported for facilities in five
categories, as follows:
• Category I—Secondary Treatment Required
by 1972 Act. This category includes costs
for facilities that would provide a legally
required level of "secondary" treatment.
As a minimum under the 1972 Amend-
ments, all municipal treatment facilities are
required to reduce BOD5, suspended solids,
and fecal coliforms by July 1, 1977 to at
least the level established by EPA in its
definition of "secondary" treatment. This
level of treatment meets or exceeds the
requirements of water quality standards for
many waterways. Facilities along some
waterways are required, however, to re-
duce these types of pollutants still further
to meet water quality standards. The costs
for this additional "secondary" treatment
are also included in Category I.
22
-------
• Category II—Treatment "More Stringent"
than Secondary Required by Water Quality
Standards. This category includes costs for
facilities that would remove pollutants such
as phosphorus, ammonia, nitrate, and
organic substances to the extent required
by legally binding Federal, State, or local
actions. Such actions include an EPA-
approved water quality plan, an administra-
tive or court order, a license, and water
quality standards that are binding on the
treatment facility. These costs are in addi-
tion to those for secondary treatment
reported in Category I.
• Category III—Rehabilitation of Sewers to
Correct Infiltration and Inflow. Costs could
be reported in this category for a prelim-
inary analysis to determine if excessive
infiltration and inflow exist. If such an
analysis had been completed by the time of
the survey and showed that infiltration/
inflow did exist, the expense of a detailed
evaluation of the cost of rehabilitation of
the sewer system could be reported. If such
an evaluation was already completed at the
time of the survey, the costs of facilities
could be reported.
• Category IV—New Sewers. This category
consists of the costs of new collector and
interceptor sewers designed to correct vio-
lations caused by raw discharges, seepage to
waters from septic tanks, and the like, or to
comply with legally binding Federal, State,
or local actions. As provided in the 1972
Amendments, costs could be reported only
if the community had sufficient existing or
planned capacity to treat adequately the
collected sewage, and only for communities
existing prior to enactment of the 1972
Amendments. (Collectors for new commu-
nities, new subdivisions, and newly devel-
oped urban areas are excluded.)
• Category V—Correction of Overflows from
Combined Sewers. Costs could be reported,
when required by legally binding Federal,
State, or local action, for correcting peri-
odic bypassing of untreated wastes from
combined sanitary and storm sewers. The
alternative methods for correction must
have been evaluated, however, and the
reported costs based on the most eco-
nomical or efficient alternative.
The costs for
category were
constraints:
facilities reported in each
subject to three overall
• Costs are in June 1973 dollars.
• Costs are estimated for facilities designed
to serve no more than the 1990 population
projected for each State by the Bureau of
the Census in its "series E" projection
published in December 1972.
• Only those costs and facilities that could be
clearly defined and documented are
reported. As a result, some types of facil-
ities eligible for Federal assistance under
the 1972 Amendments are excluded—
primarily treatment facilities that would
achieve "best practicable treatment tech-
nology" and the 1985 goal of "zero dis-
charge," and facilities for prevention, con-
trol, and treatment of pollution from storm
waters that do not flow through combined
sewers.
Survey Results. The costs reported in the
survey and meeting EPA review criteria totaled
$60.1 billion (Table III-5), broken down as
follows:
Billions of
1973 dollars
Category I
Category II
Category III
Category IV
Category V
Total
$16.6
5.6
.7
24.4
12.7
$60.1
As shown in Table III-6, the costs reported
amount to $286 per capita on a nationwide
basis.
For a number of reasons, the reported costs
are considered to underestimate the actual ex-
penditures necessary to provide even the kinds
of facilities that meet the survey guidelines. The
major factors involved are:
• Costs reported in Category I and II do not
reflect the additional treatment that will
have to be provided in response to the
revisions in water quality standards now
underway in many States.
• Costs reported in Category V reflect only a
fraction of the total expenditures that
23
-------
TABLE 111-5
ESTIMATED CONSTRUCTION COSTS FOR NEW PUBLIC TREATMENT FACILITIES (FROM NEEDS SURVEY)*
I— Improvement
Total of treatment
costs plants to achieve
secondary level
II— Improvement
of treatment
plants to achieve
more stringent
treatment levels
Ill— Correction
of infiltration
/inflow
conditions
IVa-Eligible
new interceptors
force mains,
pumping stations
IVb-Eligible
new
collectors
V— Reduction
of combined
sewer
overflows
(millions of 1973 dollars)
Region I
Connecticut
Maine
Massachusetts
New Hampshire
Rhode Island
Vermont
Region II
New Jersey
New York
Puerto Rico
Virgin Islands
Region III
Delaware
Maryland
Virginia
West Virginia
Pennsylvania
District of Columbia
Region IV
Alabama
Florida
Georgia
Kentucky
Mississippi
North Carolina
South Carolina
Tennessee
Region V
Illinois
Indiana
Michigan
Minnesota
Ohio
Wisconsin
Region VI
Arkansas
Louisiana
New Mexico
Texas
Oklahoma
Region VII
Iowa
Kansas
Missouri
Nebraska
Region VIII
Colorado
Montana
North Dakota
South Dakota
Utah
Wyoming
$ 1,409
364
1,485
508
367
168
3,382
8,032
590
44
329
681
1,345
614
4,210
1,081
444
2,371
1,031
1,032
268
900
757
695
4,089
1,040
3,325
1,065
2,833
787
355
451
115
889
624
502
671
972
404
426
74
46
43
225
40
$ 179
124
459
174
61
65
1,458
1,556
169
13
84
217
516
96
884
2
130
747
338
165
88
353
326
234
1,009
243
525
310
691
212
97
94
54
297
208
236
141
442
121
175
34
17
31
148
20
$ 46
1
51
13
7
16
321
731
—
—
7
139
137
3
133
48
19
144
136
84
60
152
6
10
805
107
115
41
482
45
1
—
—
4
21
44
24
9
—
20
—
—
3
—
—
$ 18
1
11
2
1
1
18
11
2
—
4
2
12
14
40
1
4
32
7
9
5
3
5
5
41
3
14
9
342
13
—
3
—
7
2
7
2
3
3
20
1
—
1
1
-
S 205
136
251
152
94
34
851
1,878
225
19
110
227
345
224
538
2
161
699
303
324
75
244
237
223
353
192
820
187
668
229
126
157
12
355
256
141
167
329
20
115
25
13
6
22
10
$ 225
87
77
102
169
32
532
876
194
12
62
95
208
268
1,026
1
130
746
200
293
40
148
183
211
422
91
992
163
409
121
130
197
49
225
137
50
316
189
25
74
13
8
2
53
•10
$ 736
16
636
65
35
20
202
2,980
—
—
62
1
127
9
1,589
1,027
—
3
47
157
—
—
—
12
1,459
404
859
355
241
167
1
—
24
21
235
22
1
8
1
24
-------
TABLE 111-5 (Continued)
I— Improvement
Total of treatment
costs plants to achieve
secondary level
II— Improvement
of treatment
plants to achieve
more stringent
treatment levels
III— Correction IVa— Eligible
of infiltration new interceptors
/inflow force mains,
conditions pumping stations
IVb-Eligible
new
collectors
V — Reduction
of combined
sewer
overflows
(millions of 1973 dollars)
Region IX
Arizona
California
Hawaii
Nevada
American Samoa
Guam
Trust Territories
Wake Island
Region X
Alaska
Idaho
Oregon
Washington
Total
237
6,050
523
227
8
22
8
—
205
112
568
1,080
$60,123
76
2,190
222
39
4
17
4
—
80
40
140
284
$16,639
3
1,531
4
119
—
—
—
—
—
3
—
5
$5,650
73
6 1,022
- 213
- 47
- 3
- 3
- 2
— —
73
1 33
2 146
2 247
$691 $13,621
86
527
84
22
1
2
2
—
44
35
130
299
$10,825
—
774
—
—
—
—
—
—
8
—
150
243
$12,697
'Costs ineligible under the survey guidelines are excluded. Costs are affected by limitations of survey design, inconsistency in reporting, variations
in planning status among States, and other variables explained in the report. Therefore, the costs should not be considered indicative of
equitable shares for individual States or of total funds required to meet "needs" without careful review of the report's limitations.
could have been justified under the survey
guidelines if more localities had completed
the required studies. By crudely extrapo-
lating the results of the few studies avail-
able, EPA estimates that facilities required
to reduce the major pollution concentra-
tions in combined sewer overflows by 50 to
85 percent would cost from $40 to $80
billion, rather than the $12.7 billion
indicated by the survey.
It is possible that, had all the required studies
been completed, the total costs in all five
categories would have been roughly double the
amount actually reported.
Comparisons to Previous Surveys. Local esti-
mates of the cost of needed municipal treatment
facilities have been consolidated into overall
national totals almost every year since 1959.
The Conference of State Sanitary Engineers
made estimates from 1959 to 1966 in its annual
report. The Federal Water Pollution Control
Administration and EPA have made annual
estimates since 1969. The Federal estimates are
based on information about existing facilities
and pending needs, much of it assembled by
State water pollution control agencies. EPA
supplemented this information in 1970 and in
1971 with surveys of cities with the largest
anticipated needs. These various estimates show
an incessant growth in estimated "needs" (Table
III-7). Unfortunately, it is difficult to compare
these individual estimates, for several reasons:
• Most surveys have focused on only those
projects eligible for Federal financial assist-
ance. The 1972 Amendments expanded the
categories of eligible projects to include
collection sewers, infiltration/inflow, and
separation of combined sewers. In addition,
previous surveys focused on the "backlog
of unmet needs," while the costs included
in the 1973 survey presumably provide for
future growth in service and replacement of
existing facilities as well.
• The characteristics of water quality to be
measured and the level of treatment inten-
sity to be attained have continued to
increase.
• Inflation—as measured by the EPA indices
of sewerage construction costs—has con-
tinued, amounting to 22 percent between
1970 and 1972, and averaging approxi-
mately 8 percent a year between 1967 and
1972.
• As more Federal funds have become avail-
able, local officials have been encouraged
25
-------
TABLE 111-6
PER CAPITA COSTS FOR CONSTRUCTION OF NEW PUBLIC TREATMENT FACILITIES
(FROM NEEDS SURVEY}*
Region I
Connecticut
Maine
Massachusetts
New Hampshire
Rhode Island
Vermont
Region II
New Jersey
New York
Puerto Rico
Virgin Islands
Region III
Delaware
Maryland
Virginia
West Virginia
Pennsylvania
District of Columbia
Region IV
Alabama
Florida
Georgia
Kentucky
Mississippi
North Carolina
South Carolina
Tennessee
Region V
Illinois
Indiana
Michigan
Minnesota
Ohio
Wisconsin
Total costs
(millions of
1973 dollars)
$ 1,409
364
1,485
508
367
168
3,382
8,032
590
44
329
681
1,345
614
4,210
1,081
444
2,371
1,031
1,032
268
900
757
695
4,089
1,040
3,325
1,065
2,833
787
1972
Population
(OOO's)
3,082
1,029
5,787
771
968
462
7,367
18,366
—
—
565
4,056
4,764
1,781
11,926
748
3,510
7,259
4,720
3,299
2,263
5,214
2,665
4,031
11,251
5,291
9,082
3,896
10,783
4,520
Costs per
capita
$457
354
257
659
379
364
459
437
—
—
582
168
282
345
353
1,445
126
327
218
313
118
173
284
172
363
197
366
273
263
174
1990
Projected
population
(OOO's)
3,946
1,142
7,052
907
1,134
536
8,822
21,799
—
—
732
5,001
5,958
1,811
13,332
764
3,850
9,159
5,667
3,741
2,359
5,880
3,023
4,800
13,177
6,433
10,961
4,577
13,202
5,218
Costs per
capita
$357
319
211
560
324
313
383
368
—
—
449
136
226
339
316
1,415
115
259
182
276
114
153
250
145
310
162
303
233
215
151
26
-------
TABLE 111-6 (Continued)
Region VI
Arkansas
Louisiana
New Mexico
Texas
Oklahoma
Region VII
Iowa
Kansas
Missouri
Nebraska
Region VIII
Colorado
Montana
North Dakota
South Dakota
Utah
Wyoming
Region IX
Arizona
California
Hawaii
Nevada
American Samoa
Guam
Trust Territories
Wake Island
Region X
Alaska
Idaho
Oregon
Washington
Total
Total costs
(millions of
1973 dollars)
355
451
115
889
624
502
671
972
404
426
74
46
43
225
40
237
6,050
523
227
8
22
8
0
205
112
568
1,080
$60,123
1972
Population
(OOO's)
1,978
3,720
1,063
11,649
2,634
2,883
2,258
4,753
1,525
2,357
719
632
679
1,126
345
1,945
20,468
809
527
—
—
—
—
325
756
2,182
3,443
208,232
Costs per
capita
179
121
108
76
236
174
297
205
265
181
103
73
63
200
116
122
296
646
431
—
—
—
—
631
148
260
314
$286
1990
Projected
population
(OOO's)
2,068
4,159
1,232
13,666
2,942
3,053
2,509
5,488
1,562
2,848
714
606
643
1,293
348
2,500
26,601
962
829
—
—
—
—
408
758
2,493
4,194
246,859
Costs per
capita
172
108
93
65
212
164
267
177
257
150
104
76
67
174
115
95
227
544
274
—
—
—
—
502
148
228
258
$241t
•"Costs ineligible under the survey guidelines are excluded. Costs are affected by limitations of survey design,
inconsistency in reporting, variations in planning status among States, and other variables explained in the report.
Therefore, the costs should not be considered indicative of equitable shares for individual States or of total funds
required to meet "needs" without careful review of report's limitations.
tfixcluding Puerto Rico and Territories.
27
-------
TABLE 111-7
ESTIMATES OF CONSTRUCTION REQUIREMENTS FOR NEW PUBLIC TREATMENT
FACILITIES, 1962-1971
Source
Year
Estimate
(billions of dollars)
Conference of State Sanitary Engineers
Conference of State Sanitary Engineers
Federal Water Pollution Control Administration
Environmental Protection Agency
Environmental Protection Agency
1962
1966
1969
1970
1971
& 2.0
2.6
10.0
12.6
18.1
to refine and update their estimates. The
1973 survey, in particular, was intended to
serve as the sole basis for allocating Federal
funds among the States.
• The 1973 survey covered far more localities
than did the previous estimates. Also, more
engineering studies, which have generally
proven higher than rule-of-thumb esti-
mates, were available as a basis for detailed
cost estimates.
• EPA's 1970 survey covered a 43-month
future investment period, the 1971 survey
a 60-month period. The 1973 survey did
not specify a period, but localities are faced
with the requirement of meeting effluent
limitations based on secondary treatment
by mid-1977, thereby accelerating desired
construction schedules.
Validity of the Survey Approach. The pri-
mary advantage of surveys such as the ones
discussed is that they can provide a means for
acquiring cost data from the local level, where
specific costs can best be identified and calcu-
lated. However, there are a number of limita-
tions to this approach, in addition to the lack of
comparability. A recent study pointed out that
individual estimates of needs may be based upon
varying rules-of-thumb or upon engineering
studies, and that costs may be expressed in
current or constant dollars.2 Surveys may reflect
the summation of individual estimates of desired
construction activity, rather than the activities
that are actually anticipated to occur. For
reasons such as these, EPA has generally con-
structed alternative cost estimates based upon
overall statistical functions for unit costs,
growth, and capital replacement. Such alter-
native cost estimates are currently under
development.
2Frumkin, Norman. Capital Investment for Water Pollu-
tion Control at the State and Local Level. EPA
contract no. 68-01-0164. August 1972.
28
-------
IV. Industrial Costs
The emphasis of this chapter is on the costs
industry will incur in meeting 1977 effluent
standards set by the 1972 Amendments. The
Amendments require industries to use "best
practicable" water pollution control technology
by mid-1977 and the "best available" by
mid-1983.
The examination of industrial costs is divided
into two parts. The first is a very broad analysis
and discussion of the costs associated with
meeting the 1977 standards, excluding those
related to utility steam-electric generating
plants. The costs are developed for 15 industrial
groupings that encompass virtually all industrial
water-polluting activity. The second section
examines the costs and impacts associated with
utility steam-electric generating plants. This con-
trol problem is discussed separately, primarily
because of its distinct nature.
NONTHERMAL COSTS
While municipal sources are generally the largest
contributors of water pollutants, industrial
wastes frequently present the most difficult
control problems. Municipal wastewater does
not, as a rule, vary greatly in pollutant content
and concentration. In contrast, content and
concentration vary widely in the industrial
sector, depending on the type of industry and
the specific manufacturing process used. The
wide variations present problems of data collec-
tion and analysis, making a definitive assessment
of costs virtually impossible at this time. The
results, therefore, should be viewed only as
improvements over earlier assessments of indus-
trial pollution costs.
SCOPE
The cost estimates presented are based upon
best practicable technology, which industry
must be using by 1977. Estimates based on best
available technology and zero discharge were not
made for this report. In certain cases, however,
best practicable technology will require zero
discharge.
Estimates are developed for a total of 15
major industrial groups defined by Standard
Industrial Classifications (SIC) (Table IV-1).
Animal feedlot operations, while not involving
manufacturing, are included because their dis-
charges may be controlled on a point-source
basis.
While a number of alternatives are available to
industries to control wastewater, the report
assumes that industries will treat the wastes it
produces on-site. Other alternatives, such as
increased recycling and modification of the
manufacturing process to use less water, would
probably not be as costly as on-site treatment.
Joint industrial-municipal treatment is another
alternative. However, data are not available to
cost out these options.
The type of cost information developed on
the 15 industries includes: the dollar value of
capital investment in water pollution control
facilities currently in place, the additional
capital investment required, and the distribution
of these investments by industries, States, and
regions.
STUDY DESIGN
In developing the industrial cost model, the
following ground rules were established for data
collection and use:
• The most recent data on water use, indus-
trial plants, and costs of control alterna-
tives were to be used.
• Existing data would be used, rather than
developing independent data.
• Compatibility would be maintained where
possible with the data developed for prior
reports on the economics of clean water.
29
-------
TABLE IV-1
INDUSTRIES FOR WHICH WATER POLLUTION CONTROL COSTS ARE ESTIMATED
SIC code no.
Definition
02
20
22
24
26
28
29
30
31
32
33
34
35
36
37
Animal feedlots
Food and kindred products
Textile mill products
Lumber and wood products
Paper and allied products
Chemicals and allied products
Petroleum refining and related industries
Rubber and miscellaneous plastics products
Leather and leather products
Stone, clay, glass, and concrete products
Primary metals
Fabricated metals products
Nonelectrical machinery
Electrical and electronic machinery
Transportation equipment
The actual industrial cost model was devel-
oped in the 1972 Economics of Clean Water.1 It
is best summarized by an informational flow
chart (Figure IV-1):
• Aggregate data from Water Use in Manufac-
turing were converted to indicate total
water use for each manufacturing employee
by SIC code and 17 water use regions.2 For
this analysis, the following regions are
combined: Cumberland and Tennessee,
Alaska and Pacific Northwest, and Hawaii
and California. Six water use scenarios were
developed based upon different assump-
tions about water use efficiencies (Table
IV-2). The 1968 data indicate a large
difference in industrial water use per
employee based on geographical location.
Additionally, the geographic areas with low
water use per employee were areas with
little available water or with low quality
water. This use pattern indicates either that
different specific processes are used in
different areas or that water is used more
economically in certain areas. Since econo-
mizing on water is an alternative to treat-
ment and may be less costly, this report
identifies and simulates a series of possible
water-use scenarios that might more realis-
tically represent water use today than the
1968 water-use data.
• Model computations were made to deter-
mine the total annual water use for each
manufacturing sector listed in an extract of
the Dun's Market Identifiers (DMI) file of
nearly 250,000 plants.3 Totals were com-
puted taking into consideration employ-
ment, SIC, and water-use region. A plant
was eliminated from further consideration
if its annual water use was less than 1
million gallons. For plants using more,
capital and operation and maintenance
(O&M) costs were computed for each of
the required treatment types. The costs,
along with descriptive data, were saved for
use in the various summaries.
• Cost data were converted to equations that
relate the daily water use or flow requiring
treatment to each of the 12 treatment
lEconomics of Clean Water, 1972. EPA. Vol. 2.
21967 Census of Manufactures: Water Use in Manufac-
turing. Bureau of the Census. Report No. MC67(l)-7.
1971. Data are for 1968.
3Dun's Market Identifiers (DMI), Computer file main-
tained by Dun & Bradstreet, Inc., and available to EPA
under contract (extract of June 1973 file used).
30
-------
FIGURE IV-1
COMPUTATION OF INDUSTRIAL COSTS OF WATER POLLUTION CONTROL
Dun's
Market
Identifiers
Data from
Water Use in
Manufacturing
(Water Use
Scenarios)
Cost
Requirements
Model
Control
Costs and
Other Cost Factors
Output by
SIC, State.
Region
Output
Information
types listed in Table IV-3. For each SIC,
one or more of the treatment processes was
assumed to be required for a certain per-
centage of plant flow.
An output program was developed that
aggregated the individual plant data by SIC
(2-, 3-, or 4-digit), EPA Region, State, and
water-use region. Summaries of this infor-
mation constituted the outputs of the
modelling process.
COMPARISON WITH THE 1972 REPORT
The methods used to compute the industrial
costs of water pollution control were modified
somewhat from those used in the 1972 report.
The most significant modifications were made in
the computational procedures and the input
data files:
• Efficiency of water use scenarios. Water
Use Scenario 3, (the eight least efficient
regions move closer to the median regional
efficiency in 1968) was added. It appears
the most likely scenario for 1972-77
because it represents a realistic adjustment
in water use by older plants.
• Dun's Market Identifier. The most recent
(1973) DMI file was used, and the method
of plant selection was changed from the
1972 analysis. In the 1972 report, the
largest 14,499 plants were selected from
the file on the basis of employment. This
subset, generally corresponding to water
use greater than 10 million gallons per year,
was then used for all scenarios. In this
31
-------
TABLE IV-2
WATER USE SCENARIOS
Scenario
number
Description
1972
Report
1973
Report
3t
Water-use efficiencies not changed from
1968 efficiencies.*
Efficiency of the least efficient water-
use region increased to that of the
next to the least efficient.
Efficiencies of the eight least efficient
regions (nearly half of the regions)
increased to half way between their 1968
efficiency and the median regional
efficiency in 1968.
Efficiencies of the eight least efficient
regions increased to the efficiency of
the 1968 median region.
Efficiencies of the 10 least efficient
regions increased to the efficiency of
the least efficient of the remaining
regions.
Efficiencies of all 17 regions increased
to that of the most efficient region in
1968.
Used
Used
Used
Used
Not used
Used
Used
Used
Used
Used
Used
Used
* Efficiencies pertain to water use per employee within an industrial classification.
'''Considered in this report to be the most likely to occur.
year's assessment, water use was calculated
for all plants, and those plants that used
water in excess of 1 million gallons per year
were retained. This produced a total of
148,074 plants for Scenario 1. Somewhat
fewer plants were modeled for the other
five scenarios, since fewer plants passed the
1 million gallons per year criterion. (A use
of 1 million gallons per year corresponds to
the average annual use of only 30 people.
Plants using less than this amount are most
likely using municipal treatment facilities,
or applying their discharges to land.) Table
IV-4 compares the number of plants in-
cluded in the two reports and the corre-
sponding water used.
• Cost curves. The cost curves were prepared
especially for this study by Associated
Water and Air Resource Engineers, Inc.4
The costs were adjusted to 1972 dollars.
The cost curves in the 1972 reports were
distilled from industrial wastewater guide-
lines prepared for EPA and its predecessor
agencies.
• Industry coverage. Animal feedlots, SIC 02,
were included in this series of reports for
the first time.
4Analysis of National Industrial Water Pollution Control
Costs. Associated Water and Air Resource Engineers,
Inc., Nashville, Tenn, EPA Contract No. 67-01-1536.
May 1973.
32
-------
TABLE IV-3
TYPES OF WATER TREATMENT MODELED
Treatment code Treatment process
1
2
3
4
5
6
7
8
9
10
11
12
Oil separation
Equalization
Coagulation
Neutralization
Air flotation
Sedimentation
Aeration
Natural stabilization
Chlorination
Evaporation
Incineration
Activated sludge
TABLE IV-4
NUMBER OF PLANTS AND WATER USE IN 1972 AND 1973 REPORTS ON ECONOMICS OF CLEAN WATER*
Number of plants
Water use (ragy)t
siu code i
20
22
24
26
28
29
30
31
32
33
34
35
36
37
10, Industry
Food and kindred products
Textile mill products
Lumber and wood products
Paper and allied products
Chemicals and allied products
Petroleum refining and
related industries
Rubber and miscellaneous
plastics products
Leather and leather products
Stone, clay, glass, and
concrete products
Primary metals
Fabricated metal products
Nonelectrical machinery
Electrical and electronic
machinery
Transportation equipment
Total
1972 report
4,494
1,021
405
862
1,421
334
459
215
945
1,137
1,037
790
817
562
14,499
1973 report
23,034
7,439
18,439
5,451
12,426
1,825
6,234
3,345
14,865
6,251
17,487
14,479
8,304
4,976
144,555
1972 report
743,829
193,383
89,627
2,111,424
1,235,840
313,161
48,037
51,027
190,163
1,358,716
79,555
70,995
109,859
82,337
6,677,953
1973 report
973,741
323,727
408,493
3,059,948
2,125,533
337,377
90,481
127,090
619,374
1,251,163
213,376
146,502
161,153
169,379
10,007,337
•Excluding feedloU.
^Million gallon* per year.
33
-------
• Costs incurred by new plants. The costs
incurred by new plants were based on
national projected growth rates for each
industry. The rates were obtained from the
National Planning Association's National
Economic Projections Series.5 The 1972
report assumed that all industries expanded
at 7.8 percent over the period 1972-1977.
SUMMARY OF INDUSTRIES
The final cost figures are presented in terms of
broad industry groups. In many cases, however,
the treatment procedure within a group had to
be modified to accommodate internal industry
variations. Not only were the water use ratios
varied, but the actual treatment process had to
be changed for different types of plants within
the same basic industry.
Animal Feedlots, SIC 02. The primary reason
for including animal feedlots is the specific
language of the 1972 Amendments, which re-
quire feedlots—along with the more conven-
tional categories of industry—to conform to
effluent standards and to be subject to waste
discharge permits.
A feedlot can generally be defined as a high
concentration of animals held in a small area for
extended periods of time for agricultural pro-
duction purposes and fed specially transported
foods. The following are the major subcategories
requiring effluent controls:
SIC Code
0211
0213
0214
0241
0251,0252
0253
0259
0272
Subcategories
Beef cattle
Hogs
Sheep
Dairy farms
Chickens and eggs
Turkeys
Ducks
Horses
Of these eight categories, beef cattle, hogs,
and dairy farms were selected for detailed
analysis. Chickens, turkeys, sheep, and horses
were not studied in detail because their current
production does not present as great a pollution
5Scott, Graham C. U.S. Economic and Demographic
Projections: 1972-1981. National Economic Projec-
tions (Report No. 72-N-2). National Planning Asso-
ciation, Washington, D.C. January 1973.
potential. Data were not available to support
analysis of duck feedlots.
The results of the analysis are shown in Table
IV-5. The values were derived from data cover-
ing lots of various capacities. The incidence of
rain was used in the analysis rather than water
use, since the pollution controlled is runoff as
opposed to process water. Thus, the method-
ology for cost calculation is different from that
previously described and applied to the other
industries.
Food and Kindred Products, SIC 20. While
wastes from food industries generally require
biological treatment, differences in raw waste
BOD5 concentrations and other treatment re-
quirements specific to each segment of the
industry required that several of the segments be
separately analyzed.
Textile Mill Products, SIC 22. Segments of
the textile industry engaged in dyeing and
finishing of textile products were analyzed
together. Separate designs were made for cotton
and synthetics plants, and for wood processing.
Plants engaged in scouring and topping of wool
were not included primarily because of data
deficiencies.
Lumber and Wood Products, SIC 24. The
major categories in the industry are involved in
the manufacture of assorted wood products such
as plywood and flooring. One treatment con-
figuration was used based on representative
requirements.
Paper and Allied Products, SIC 26. Several
different designs were necessary for adequate
treatment of the paper industry. Because water
use information was available for only the entire
category of pulp mills, a single waste treatment
sequence was developed based on average raw
waste characteristics. In addition, because pulp
mills are frequently integrated into complexes
manufacturing both pulp and paper, one design
was done for these two segments of the
industry. Additional designs were included for
paperboard mills and for building board mills.
Chemicals and Allied Products, SIC
28. Because of the industry's great diversity, no
standard treatment procedure could be assigned
to all 4-digit SIC codes involved in the chemical
industry. The industry was divided into 15
subclasses that encompass the major sections of
the industry.
Petroleum Refining and Related Industries,
SIC 29. The greatest waste volumes in the
34
-------
TABLE IV-5
COSTS FOR PROJECTED FEEDLOTS TO MEET 1977 EFFLUENT STANDARDS
Number of lots
Beef cattle
100,000
Hogs*
330,000
Dairy cattle
240,000
Total
670,000
(millions of 1972 dollars)
Capital costs required, 1972 plants
O&M costs, 1972 plants
Total annual cost, 1972 plants
Capital in place, 1972
Additional capital required, 1972 plants
Gapilfil costs required, 1977 plaits
O&M costs, 1977 plants
Additional capital required, 1977 plants
Total annual cost, 1977 plants
286
38
71
146
140
300
39
154
74
" i- .— -
423
36
92
183
240
545
46
362
118
416
27
52
130
286
429
28
299
55
1125
101
215
459
666
1274
113
815
247
*1969 Department of Agriculture data include feedlots with a gross income greater than $2,500.
Source: Economic Analysis of Proposed Effluent Guidelines, Feedlots Industry. Development Planning and
Research Associates, Inc. Manhattan, Kansas. EPA-230/1-73-008. August 1973.
NOTE: Costs are based on all feedlots meeting 1977 effluent standards.
petroleum industry stem from the refining of
petroleum, SIC 2911. A separate treatment
procedure was used for the remainder of the
industry.
Rubber and Miscellaneous Plastics Products,
SIC 30. One treatment configuration was used
to handle wastewater from the rubber and
plastics classification.
Leather and Leather Products, SIC 31. All
significant wastewater volumes from this in-
dustry result from the tanning and finishing of
leather, SIC 3111. Treatment provided this
category was based on plants that process skins
of cattle, pigs, and sheep.
Stone, Clay, Glass, and Concrete Products,
SIC 32. The most significant quantities of
wastes in stone, clay, glass, and concrete pro-
ducts stem from the production of cement, SIC
3241. A total containment treatment scheme
was developed for this segment of the industry.
Wastes produced in other parts of the industry
are generally amenable to the same type of
treatment, so that only one treatment design
was used.
Primary Metals, SIC 33. The major source of
wastewater for the primary metals industry is
the production of steel, SIC 3311. Treatment of
wastewaters arising from seven different steel
production processes were included. Treatment
schemes were prepared for the primary alumi-
num industry, SIC 3334, as well as the smelting
and refining of several other metals.
Fabricated Metal Products, SIC 34; Nonelec-
trical Machinery, SIC 35; and Electrical and
Electronic Machinery, SIC 36. Wastes origi-
nating from fabricated metals and the machinery
industry can generally be handled by one of two
treatment schemes. Four-digit SIC categories
producing significant waste volumes were iden-
tified and assigned to one of the two schemes.
Transportation Equipment, SIC 37. Treat-
ment of wastes in the transportation equipment
industry poses a difficult problem because of the
integration of many manufacturing facilities.
Treatment of wastes from the motor vehicle
industry was developed based on average waste
flows identified in recent EPA reports.
CAPITAL IIM-PLACE
The amount of water pollution abatement
equipment in use was determined in order to
compute the amount of additional investment
required to meet the 1977 effluent standards.
35
-------
TABLE IV-6
CAPITAL IN PLACE FOR INDUSTRIAL WATER POLLUTION CONTROL EQUIPMENT
SIC code no.
Industry
Total
initial 1969* 1970* 1971* 1972*
1968
Total
(millions of 1972 dollars)
02 Animal feedlotst
20 Food and kindred products
22 Textile mill products
24 Lumber and wood products^
26 Paper and allied products
28 Chemical and allied products
29 Petroleum refining and
related industries
30 Rubber and miscellaneous
plastics products
31 Leather and leather productst
32 Stone, clay, glass, and
concrete products
33 Primary metals
34 Fabricated metal products
35 Nonelectrical machinery
36 Electrical and electronic
machinery
37 Transportation equipment
Total
155
42
11
219
733
291
5
11
21
260
290
20
44
29
28
6
79
37
133
4
31
138
24
25
19
45
40
7
73
84
155
22
28
148
27
44
30
60
459
50 52
13 6
113
151
190
25
26
124
17
33
34
34
114
189
123
29
39
93
35
49
32
43
459
325
74
• 11
598
1,194
892
85
11
145
763
393
171
159
211
2,131 569 718 810 1,263 5,491
*Based on Annual McGraw-Hill Survey of Pollution Control Expenditures, 4th, 5th and 6th editions.
'Not covered by the McGraw-Hill Survey.
The determination of capital in-place was made
by modifying the method used in the 1972
Economics of Clean Water. Data on water use
per employee and the number of plants in each
industry group using a specific treatment process
were obtained from Water Use in Manufacturing.
This information was combined with new capital
cost curves for each treatment process to yield
cost estimates of the capital in place. These
costs, based on 1968 values, were then updated
with figures from McGraw Hill's annual surveys
of pollution control expenditures.6 The result-
6McGraw Hill Publications. 4th, 5th and 6th Annual
McGraw-Hill Survey of Pollution Control Expenditures.
New York.
ing estimates of pollution control capital in-
place are presented in Table IV-6. The total for
all industrial groups is $5.5 billion.
CAPITAL COSTS OF INDUSTRIAL WASTE
TREATMENT
The total capital investment required of the
existing industrial structure to provide waste
treatment consistent with 1977 effluent guide-
lines is estimated to be $13.5 billion (Table
IV-7). Thus the net capital requirement is the
difference between the $13.5 billion and the
capital in-place, $5.5 billion, or $8.0 billion.
The estimate is based upon Scenario 3 in
which plant efficiencies are moderately increased
36
-------
TABLE IV-7
COSTS FOR EXISTING PLANTS TO MEET 1977 EFFLUENT STANDARDS
(Scenario No. 3)
SIC code no.
Industry
Total
capital costs
Total
O&M costs
Total
annual costs
02
20
22
24
26
28
29
30
31
32
33
34
35
36
37
Animal feedlots
Food and kindred products
Textile mill products
Lumber and wood products
Paper and allied products
Chemicals and allied products
Petroleum refining and
related industries
Rubber and miscellaneous
plastics products
Leather and leather products
Stone, clay, glass, and
concrete products
Primary metals
Fabricated metal products
Nonelectrical machinery
Electrical and electronic
machinery
Transportation equipment
(millions of 1972 dollars)
1,125 101 215
1,210 354 508
581 122 196
780 277 376
1,399 165 343
1,943 165 412
1,422 149 207
311 118 157
192 39 63
945 19 139
1,590 67 269
705 40 129
524 34 101
427 19 73
346 12 56
Total
13,500
1,681
3,244
over 1968 levels. The estimate includes the
value of waste treatment facilities already in-
place. It does not include allowances for in-
plant modifications that may provide equiva-
lent control for less cost, nor does it impose the
conditions that require any theoretical or arbi-
trary modification of existing practice. Instead,
it represents a reasonable extension of practices
currently employed in substantial segments of
each industry.
Capital requirements are distributed through
the various manufacturing sectors in a manner
that strongly reflects the sector's water use
characteristics (Table IV-4). The requirements
have a loose correlation with output values.
ANNUAL COSTS OF INDUSTRIAL WASTE
TREATMENT
The total annual cost associated with Scenario 3
is $3.2 billion (Table IV-7). The annual costs
consist of O&M, debt service, and replacement.
The usual preoccupation with initial capitaliza-
tion of waste treatment works tends to over-
shadow the importance of continuing annual
costs. Once installed, facilities incur annual costs
that over a 20-year period may amount to five
times the cost of the initial facilities. At current
rates, interest accounts for a large, if not the
largest, share of the annual charges. Nearly 40
percent of the annual costs of the waste treat-
ment system modelled can be attributed to
interest payments on the outstanding debt.
O&M costs account for 35 percent of the annual
cost. Major and minor replacements account for
the remaining 25 percent.
Unfortunately, there is little evidence avail-
able upon which to gauge the rate at which
industrial waste treatment works are actually
37
-------
replaced. A 5 percent figure was assumed, the
same rate as used in the analysis for the 1972
Economics of Clean Water. It is considered
reasonable in that it takes into account the rated
operating life of components and the demon-
strated industrial preference for short-term
application of capital. An interest rate of 7.7
percent was assumed, the same rate used in the
1972 analysis.
ALTERNATIVE SCENARIOS
Although the cost analysis and most of the
discussion presented here pertain to Scenario 3,
which is believed to be most likely to occur, it is
important to review results of the other five
water use scenarios (Tables IV-8 through
IV-12).
The tables reveal that industrial costs in the
six scenarios vary considerably. For example,
the cost difference between Scenarios 1 and 6
for transportation equipment is 290 percent; for
nonelectrical machinery, it is 270 percent. Con-
versely, textiles show little difference—only 12
percent. The variations may be attributed pri-
marily to the regional distribution of subindus-
trial categories and to differences in industrial
processes within these categories.
COSTS OF MEETING 1977 EFFLUENT
STANDARDS-EXISTING AND FUTURE
PLANTS
The discussion to this point has been confined
to existing plants. Of major concern, however,
are the total costs of meeting the 1977
standards, including the costs for plants to be
constructed between now and 1977.
An initial step in the development of the costs
was to expand the capital requirements of
TABLE IV-8
COSTS FOR EXISTING PLANTS TO MEET 1977 EFFLUENT STANDARDS
(Scenario No. 1)
SIC code no.
Industry
Total
capital costs
Total
O&M costs
Total
annual costs
02
20
22
24
26
28
29
30
31
32
33
34
35
36
37
(millions of 1972 dollars)
Animal feedlots 1,125
Food and kindred products 1,273
Textile mill products 597
Lumber and wood products 916
Paper and allied products 1,530
Chemicals and allied products 2,291
Petroleum refining and
related industries 1,683
Rubber and miscellaneous
plastics products 353
Leather and leather products 192
Stone, clay, glass, and
concrete products 1,031
Primary metals 1,773
Fabricated metal products 779
Nonelectrical machinery 583
Electrical and electronic
machinery 452
Transportation equipment 417
Total 14,995
101
359
125
287
175
175
164
123
39
19
70
42
37
19
13
1,748
215
521
201
403
369
466
234
168
63
150
295
140
111
77
66
3,479
38
-------
TABLE IV-9
COSTS FOR EXISTING PLANTS TO MEET 1977 EFFLUENT STANDARDS
(Scenario No. 2)
SIC code no.
Industry
Total
capital costs
Total Total
O&M costs annual costs
(millions of 1972 dollars)
02
20
22
24
26
28
29
30
31
32
33
34
35
36
37
Animal feedlots
Food and kindred products
Textile mill products
Lumber and wood products
Paper and allied products
Chemicals and allied products
Petroleum refining and
related industries
Rubber and miscellaneous
plastics products
Leather and leather products
Stone, clay, glass, and
concrete products
Primary metals
Fabricated metal products
Nonelectrical machinery
Electrical and electronic
machinery
Transportation equipment
Total
1,125
1,271
595
840
1,495
1,916
1,612
341
192
1,013
1,753
776
581
444
405
14,359
101
359
125
284
172
164
160
122
39
20
70
41
37
19
13
1,726
215
520
201
390
362
407
226
165
63
148
293
140
110
76
64
3,380
TABLE IV-10
COSTS FOR EXISTING PLANTS TO MEET 1977 EFFLUENT STANDARDS
(Scenario No. 4)
SIC code no.
02
20
22
24
26
28
29
30
31
32
33
34
35
36
37
Industry
Animal feedlots
Food and kindred products
Textile mill products
Lumber and wood products
Paper and allied products
Chemicals and allied products
Petroleum refining and
related industries
Rubber and miscellaneous
plastics products
Leather and leather products
Stone, clay, glass, and
concrete products
Primary metals
Fabricated metal products
Nonelectrical machinery
Electrical and electronic
machinery
Transportation equipment
Total
Total Total Total
capital costs O&M costs annual costs
(millions
1,125
1,142
560
619
1,255
1,549
1,157
262
191
855
1,403
627
460
400
• 271
11,876
of 1972 dollars)
101
347
120
259
154
154
133
108
39
19
64
37
31
18
11
1,595
215
492
191
337
314
351
180
141
63
128
242
117
89
69
45
2,974
39
-------
TABLE IV-11
COSTS FOR EXISTING PLANTS TO MEET 1977 EFFLUENT STANDARDS
(Scenario No. 5)
r,T~ ., r j *_ Total Total Total
SIC code no. Industry capital costs O&M costs annual costs
(millions of 1972 dollars)
02 Animal feedlots 1,125 101 215
20 Food and kindred products 922 320 437
22 Textile mill products 520 114 180
24 Lumber and wood products 509 240 305
26 Paper and allied products 1,046 140 273
28 Chemicals and allied products 1,146 140 285
29 Petroleum refining and
related industries 966 120 160
30 Rubber and miscellaneous
plastics products 197 92 117
31 Leather and leather products 165 37 58
32 Stone, clay, glass, and
concrete products 637 19 100
33 Primary metals 958 55 177
34 Fabricated metal products 515 34 99
35 Nonelectrical machinery 273 20 55
36 Electrical and electronic
machinery 321 16 57
37 Transportation equipment 168 8 30
Total 9,468 1,456 2,548
TABLE IV-12
COSTS FOR EXISTING PLANTS TO MEET 1977 EFFLUENT STANDARDS
(Scenario No. 6)
„_, . T . . Total Total Total
SIC code no. Industry capital costs O&M costs annual costs
(millions of 1972 dollars)
02 Animal feedlots 1,125 101 215
20 Food and kindred products 782 298 397
22 Textile mill products 487 109 171
24 Lumber and wood products 447 227 284
26 Paper and allied products 721 116 207
28 Chemicals and allied products 902 127 242
29 Petroleum refining and
related industries 515 93 117
30 Rubber and miscellaneous
products 117 65 79
31 Leather and leather plastics
products 115 34 48
32 Stone, clay, glass, and
concrete products 370 17 64
33 Primary metals 481 42 103
34 Fabricated metal products 471 31 91
36 Nonelectrical machinery 217 16 44
36 Electrical and electronic
machinery 238 14 44
37 Transportation equipment 143 8 26
Total 7,131 1,298 2,132
40
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existing plants by industry growth and equip-
ment replacement rates. In making the expan-
sion, that water use and industrial growth are
assumed to be proportional. In the long run, this
linear relationship might not be true, but it
should hold for the fairly short 1973-77 period.
The national projected growth rates for each
industry were obtained from the National Plan-
ning Association's National Economic Projec-
tions Series (Table IV-13). Replacement expen-
ditures are based on an assumed 20-year life
with straight equipment renewal.
The capital investment that must be made by
1977 to meet the effluent standards totals $18.7
billion (Table IV-14). The capital to be added
(the difference between the total and the capital
in-place) is $11.8 billion, of which about 40
percent is expected to be in new plants. The
total annual costs, including interest and replace-
ment, is estimated to be $4.5 billion.
The capital requirements were assumed to be
invested evenly over the 1973-77 period. While
some industries invested in 1972 a greater
percentage of the capital needed, none is spend-
ing the average amount needed to achieve 1977
standards (Table IV-14).
State and Regional Distribution of Treatment
Cost. Costs to industry of meeting the 1977
effluent standards for existing plants are sum-
marized by EPA Regions and States in Tables
IV-15 and IV-16. Feedlots are not included in
the tables because geographical breakdown is
not available. The Regional summary shows
considerable variation. For instance, the costs
for Region V (see Figure IV-2) are more than 11
times those of Region VIII. These variations are
understandable, given the uneven distribution of
industrial activity throughout the Nation.
Similarly, there is great variation in costs among
the States—New York has projected annual costs
75 times those of Nevada or South Dakota.
The percentage breakdowns of the national
totals for industrial wastewater treatment capital
costs, total industrial capital costs, industrial
wastewater treatment annual costs and value
added by manufacturer are shown in Table
IV-17 by EPA Regions and in Table IV-18 by
States.
While no direct relationship necessarily exists,
those areas with a larger share of capital require-
ments for pollution control than of capital
expenses in general might encounter a greater
TABLE IV-13
PROJECTED GROWTH RATES FOR SELECTED INDUSTRIES (1973-1977)*
SIC code no.
02
20
22
24
26
28
29
30
31
32
33
34
35
36
37
Industry
Animal feedlots
Food and kindred products
Textile mill products
Lumber and wood products
Paper and allied products
Chemicals and allied products
Petroleum refining and related industries
Rubber and miscellaneous plastics products
Leather and leather products
Stone, clay, glass, and concrete products
Primary metals
Fabricated metals
Nonelectrical machinery
Electrical and electronic machinery
Transportation equipment
% increase,
1973-1977
10.0
18.3
23.3
20.3
19.5
18.4
16.7
18.1
11.2
11.9
11.8
17.5
23.1
23.1
18.3
*Scott, Graham C. U.S. Economic and Demographic Projections: 1972-1981. National Economic Projections
(Report No. 72-N-2). National Planning Association, Washington, D.C. January 1973.
41
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TABLE IV-14
COSTS FOR EXISTING AND PROJECTED PLANTS TO MEET 1977 EFFLUENT STANDARDS (Scenario No. 3)*
SIC code no. Industry
Total
capital
needed
by 1977
Total
O&M
costs
Total
annual
costs
Capital
in place
1972
Total
capital to
be added
by 1977
Average
capital
expenditures
needed
oer year
Capital
expenditures
1972*
1972
expenditures
as% of
average
annual needs
(millions of 1972 jollars)
02 Animal feedlots
20 Food and kindred products
22 Textile mill products
24 Lumber and wood products
26 Paper and allied products
28 Chemicals and allied products
29 Petroleum refining and
related industries
30 Rubber and miscellaneous
plastic products
31 Leather and leather products
32 Stone, clay, glass, and
concrete products
33 Primary metals
34 Fabricated metal products
35 Nonelectrical machinery
36 Electrical and electronic
machinery
37 Transportation equipment
Total
1,274
1,718
860
1,123
2,006
2,761
113
503
181
399
237
234
247
721
290
541
492
585
1,991 209 290
441
259
1,269
2,133
994
774
631
491
167
53
26
90
56
50
28
17
223
85
187
361
182
149
108
79
459
325
74
n.a.
597
1,194
892
86
n.a.
146
763
392
171
159
211
18,725 2,363 4,540 5,469
815
1,393
786
n.a.
1,409
1,567
1,099
355
n.a.
1,123
1,370
602
603
472
280
11,874
204
348
196
n.a.
352
392
275
89
n.a.
281
342
105
151
118
70
2,923
n.a.
68
10
n.a.
149
214
189
31
n.a.
43
119
42
53
36
62
1,016
n.a.
20
5
n.a.
42
55
69
35
n.a.
15
35
40
35
31
89
33
'Including capital needed for treatment facilities at new plants as well as at existing plants.
t Based on Annual McGraw-Hill Survey of Pollution Control Expenditures, 5th and 6th editions.
TABLE IV-15
COSTS FOR EXISTING PLANTS TO MEET 1977 EFFLUENT STANDARDS, BY REGIONS
(Scenario No. 3)*
EPA Region
Total
capital costs
Total
O&M costs
Total
annual costs
(millions of 1972 dollars)
I
II
III
IV
V
VI
VII
VIII
IX
X
665
1,271
1,391
1,722
3,095
1,730
442
261
1,041
754
99
192
150
211
352
169
69
41
174
122
188
356
319
438
768
343
124
68
196
218
Total
12,372
1,579
3,018
^Excluding feedlots.
42
-------
TABLE IV-16
COSTS FOR EXISTING PLANTS TO MEET 1977 EFFLUENT STANDARDS, BY STATES
(Scenario No. 3)*
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Total
capital costs
217
29
50
102
936
87
136
47
4
270
290
40
66
800
351
116
77
138
402
118
123
269
604
162
127
204
60
45
15
60
519
33
755
305
13
856
81
300
968
59
168
Total
O&M costs
(millions of 1972 dollars)
24
8
7
13
160
13
19
5
1
32
36
4
10
91
38
16
12
18
39
14
18
44
71
27
15
32
11
9
2
8
67
4
126
41
3
80
13
48
96
10
18
Total
annual costs
53
12
7
28
172
24
36
10
1
68
74
9
18
187
80
32
22
34
86
29
33
79
148
48
31
59
18
16
3
16
130
9
223
80
6
189
24
88
216
18
40
43
-------
TABLE IV-16 (Continued)
State
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Totalt
Total
capital costs
9
207
1,113
62
24
172
359
86
324
30
12,388
Total
O&M costs
(millions of 1972 dollars)
2
25
98
8
3
22
58
10
47
i
1,580
Total
annual costs
3
52
207
16
7
44
103
23
90
8
3,009
*Excluding feedlots.
T Totals differ slightly from those in Table IV-15 due to rounding.
FIGURE IV-2
REGIONAL OFFICES OF U.S. ENVIRONMENTAL PROTECTION AGENCY
r\
44
-------
TABLE IV-17
% DISTRIBUTION (BY EPA REGIONS) OF COSTS AND VALUE ADDED
(Scenario No. 3)
EPA
Region
I
II
III
IV
V
VI
VII
VIII
IX
X
Industrial waste-
water treatment
capital costs*
5.5%
10.3
11.3
14.0
24.9
13.9
3.5
2.1
8.4
6.0
Total industrial
capital costsf
5.4%
11.4
11.2
15.1
30.5
10.3
3.4
1.1
8.4
2.8
Industrial waste-
water treatment
annual costs*
6.1%
11.7
11.0
14.1
24.6
11.7
4.3
2.5
6.3
7.3
Value added by
manufacturer^
6.9%
14.0
11.6
12*5
30.1
6.6
4.7
1.3
9.5
2.r
•Derived from Table IV-15.
^Statistical Abstract of the United States, Department of Commerce. 1972.
burden in diverting capital to the construction
of pollution control facilities. Examples of areas
with this characteristic are Regions VIII and X,
as well as the following States:
Alaska
Hawaii
Idaho
Maine
Montana
New Mexico
Oregon
South Dakota
Vermont
Washington
Other areas might encounter less of a burden
of diverting capital to construction of pollution
control facilities, given the capital cost and
overall level of investment. Regions II, IV, and V
fall into this category, as well as the following
States:
Arizona
Connecticut
Indiana
Iowa
Kentucky
Maryland
Michigan
New York
North Carolina
Ohio
Tennessee
Virginia
A similar comparison can be made between
annual costs of pollution control and value
added by industry. In those areas with relatively
higher annual pollution control costs than value
added, there may be greater changes in wages,
prices, and dividends than in other areas. Areas
with relatively high annual pollution control in
comparison with value added are Regions VI,
VIII, and X, as well as the following States:
Alaska
Hawaii
Idaho
Louisiana
Maine
Montana
New Mexico
Oregon
Washington
Wyoming
Those with relatively high value added in com-
parison with annual costs are Regions II, V, and
IX, as well as the following States:
Arizona
California
Connecticut
Delaware
Indiana
Kentucky
Maryland
Massachusetts
Michigan
New York
Ohio
Tennessee
While no detailed set of effects by Region or
State can be developed from the data presented
in Tables IV-17 and 18, it is clear that significant
differences exist. These differences strengthen
the hypothesis that there will be a differential
burden among States and regions.
45
-------
TABLE IV-18
DISTRIBUTION (BY STATES) OF COSTS AND VALUE ADDED
(Scenario No. 3)
Industrial waste-
State water treatment
capital costs*
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
1.8%
.2
.4
.8
7.6
.7
1.1
.4
.0
2.2
2.3
.3
.5
6.4
2.8
.9
.6
1.1
3.2
1.0
1.0
2.2
4.9
1.3
1.0
1.6
.5
.4
.1
.5
4.2
.3
6.1
2.5
.1
6.9
.6
7.8
.5
1.4
.1%
1.7
9.0
Total
industrial capital
costsf
1.7%
.1
.5
.8
7.7
.7
1.7
.3
.0
1.4
2.3
.1
.2
6.7
5.2
1.2
.5
1.5
2.5
.5
1.4
2.2
6.2
1.4
.8
1.3
.1
.4
.1
.4
4.2
.1
7.2
3.4
.1
8.9
.6
6.9
.4
1.6
.0%
2.4
6.3
Industrial waste-
water treatment
annual costs*
1.8%
.4
.2
.9
5.7
.8
1.2
.3
.1
2.2
2.4
.3
.6
6.2
2.6
1.1
.7
1.1
2.8
1.0
1.1
2.6
4.9
1.6
1.0
2.0
.6
.5
.1
.5
4.3
.3
7.4
2.6
.2
6.3
.8
7.2
.6
1.3
.1%
1.7
6.9
Value
added by
manufacturer-}-
1.4%
.0
.4
.7
8.9
.6
2.4
.4
.1
1.4
1.8
.1
.2
7.4
3.9
1.2
.8
1.4
1.1
.4
1.4
3.1
6.6
1.6
.6
2.2
.1
.5
.1
.3
4.7
.1
9.3
2.7
.1
7.9
.5
7.3
.5
1.2
.1%
2.0
4.2
46
-------
State
TABLE IV-18 (Continued)
Industrial waste-
water treatment
capital costs*
Total
industrial capital
costsf
Industrial waste-
water treatment
annual costs*
Value
added by
manufacturer}-
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
.5
.2
1.4
2.9
.7
2.6
.2
.2
.2
1.7
1.4
.9
2.1
.0
.5
.2
1.5
3.4
.8
3.0
.3
.3
.2
1.6
1.7
.8
2.7
.1
*Derived from Table IV-16.
•\StatiaticalAbstractofthe United States, Department of Commerce, 1972.
QUALIFICATIONS
While this assessment is primarily concerned
with capital investments, it recognizes that each
industry may choose treatment types with
higher O&M costs in order to reduce its capital
costs. Highly mechanized systems tend to have
low annual operational costs, but high initial
capital costs. Conversely, less sophisticated
systems might be built at lower initial costs, but
at the expense of higher operational costs. No
effort was made to estimate the optimum
balance between these two factors—cost curves
depicting average expenditures were used.
Many industries tend to favor waste treatment
solutions that minimize capital requirements.
Since there are a number of treatment configura-
tions and treatment process combinations that
provide equivalent waste control in any given
situation, management enjoys considerable
latitude in the selection of treatment alterna-
tives. In approaching a possible trade-off
between the capital intensive and operationally
intensive alternatives, there is reason to favor the
latter alternative in those cases that promise
capital savings up to—and perhaps even
beyond—the point of equal total cost. In such
cases, the capital saved may not have to be
raised or, if on hand, may be applied to other
purposes. Money saved through operating econ-
omies, on the other hand, must be accumulated
over time to provide the same utility. Available
savings, then, are inherently more valuable than
potential ones, with the measure of value gener-
ally tied to prevailing interest rates. Over the
last 3 to 4 years, interest rates have reached
high levels not generally seen in the United
States since the middle of the nineteenth cen-
tury. Given the consequent penalty on capitali-
zation and the uncertainty of continued high
interest charges, management has a strong incen-
tive to seek out treatment solutions with low
capital requirements—even at the expense of
otherwise avoidable operational penalties.
In a number of industries, the composition of
outputs and the nature of processes may shift
rapidly. The operationally intensive alternative
may also permit management flexibility. Least-
cost solutions that are tied too closely to a
particular product or process may carry a high
degree of risk. In such circumstances, manage-
ment may prefer to accept operating cost
disadvantages to ensure flexibility. This is
probably most evident in segments of the
chemical industry where batch processing per-
sists in order to reduce the impact of process
change, even though capital intensive, con-
tinuous flow production processes may be more
efficient.
Tax structures may provide further reason for
selection of the operationally intensive alterna-
tive. Taxes are frequently designed to make it
more advantageous to accept incremental oper-
ating costs, all other things being equal. Mate-
rials and labor utilized in operations may be
offset in the year of the expenditure, while
capital must be amortized over time.
Another qualification is that the capital esti-
mates are based on two simplifying assumptions
47
-------
that may not be valid. One assumption is that
new capital equipment can be simply annexed to
existing equipment as standards become more
stringent. This is not always valid, and it is
certain that a portion of the presently available
equipment is incompatible with what is required
to achieve the 1977 standards. A second assump-
tion is that only 12 of the most efficient and
commonly used treatment types (Table IV-3)
are used to meet standards. There are other
widely used treatment processes, but they were
not used in the analysis.
The last qualification is the noticeable differ-
ence between actual and planned estimates for
water pollution control expenditures (Table
IV-19). After adjustment for inflation and
capital replacement, the actual expenditures for
all industries in 1972 was $1.0 billion. In 1973,
industry expects to spend an additional $1.7
billion. This increase in investment—70 per-
cent—will probably not be realized, primarily
because some industries are inclined to overstate
planned expenditures. For example, the paper
and pulp industry spent $135 million in 1971. It
predicted that it would spend $252 million in
1972. The actual expenditures for 1972, how-
ever, amounted to only $149 million, a small
increase over the previous year.
IMPACTS OF INDUSTRIAL WATER
POLLUTION CONTROL
The installation of wastewater control measures
by industry will have a number of broad effects
on the economy over and above the improve-
ment of water quality. These effects are difficult
to define in detail and next to impossible to
quantify accurately. They involve complex
TABLE IV-19
ACTUAL VS. PLANNED WATER POLLUTION CONTROL EXPENDITURES FOR SELECTED INDUSTRIES
(1971-1976)*
SIC code no.
Industry
Actual Actual Planned Planned Planned
1971 1972 1972 1973 1976
(millions of 1972 dollars)
20 Food and kindred products
22 Textile mill products
24 Lumber and wood products
26 Paper and allied products
28 Chemicals and allied products
29 Petroleum refining and
related industries
30 Rubber and miscellaneous
plastics products
31 Leather and leather products
32 Stone, clay, glass, and
concrete products
33 Primary metals
34 Fabricated metal products
35 Nonelectrical machinery
36 Electrical and electronic
machinery
37 Transportation equipment
Total
58
15
n.a.
135
158
246
24
n.a.
27
1-34
21
33
34
47
68
10
n.a.
149
214
189
31
n.a.
43
119
42
53
36
62
84
12
n.a.
252
219
297
30
n.a.
55
114
55
97
35
123
37
n.a.
444
322
222
46
n.a.
44
193
75
81
48
83
145
38
n.a.
172
345
486
59
n.a.
34
278
96
119
49
69
932 1,016 1,338 1,708 1,890
*Excluding feedlots. Based on Annual McGraw-Hill Survey of Pollution Control Expenditures, 4th, 5th and 6th
editions.
48
-------
factors that frequently interact with each other
in ways not yet well understood. However, it is
important to attempt to identify significant
impact areas as accurately as possible. The major
areas discussed here are:
• Municipal treatment of industrial waste-
water.
• Impact on energy use.
• Broad environmental effects.
Another area, the economic impact on industry,
will be discussed in a later chapter.
Municipal Treatment of Industrial Waste-
water. One of the alternatives available to
industry for control of water pollution dis-
charges is the use of public (municipal) treat-
ment facilities. According to Water Use in
Manufacturing, manufacturing operations using
more than 20 million gallons per year discharged
slightly more than 7 percent of their water to
municipal treatment facilities in 1968. This
small portion, however, represented more than
20 percent of the total amount of industrial
waste water treated.
Industry's use of municipal facilities varies
greatly depending upon the type of industry and
its geographic location. Further, there appears
considerable variability in the extent of the
treatment provided (primary or secondary, for
example) by the public authority. Because of
these imponderables, it is difficult to determine
whether the level of treatment given industry
wastes is adequate for 1977 standards.
The use of municipal facilities by industry
requires larger public investment in treatment
plants and interceptors, as well as higher O&M
costs. Conversely, such use permits industries to
avoid making capital investments in wastewater
treatment facilities and to take advantage of
possible economies of scale associated with
larger public treatment facilities.
The 1972 Amendments identify some specific
requirements for public treatment of industrial
wastes:
• Industrial plants discharging pollutants not
susceptible to treatment by the municipal
plants will be required to pretreat their
discharges.
• The costs of providing additional plant
capacity for treating industrial wastes are
not eligible for Federal grant funding.
• Industries must pay fairly for treatment
services rendered, including the costs of
interceptor and collector services.
Because of the many factors involved, it is
difficult to forecast to what extent industries
will use municipal facilities in meeting the 1977
standards. Presuming the decisions will be influ-
enced greatly by economics, the following
factors will probably be most significant:
• Economy of scale. Larger plants, both
municipal and industrial, are generally
more efficient in terms of capital and O&M
costs.
• Integrated treatment. It may be economical
to provide full treatment within an inte-
grated industrial plant in those cases where
municipalities require industry to pretreat
its wastes.
• Interest rates. Interest rates on public
indebtedness are lower than for the private
sector.
• Interest charges. There is no interest
charged on that portion of the 75 percent
Federal grant covering facilities used by
industry.
• Reliability. A combined industrial-
municipal plant should have less variable
inflow and may therefore be more reliable.
• Cost recovery period. The cost recovery
periods used by industry are generally
shorter than those of municipalities.
• Linkage costs. The costs of connecting an
industrial system to a municipal plant-
through private facilities or public sewers-
may be substantial.
Taking the above factors into consideration, it
is reasonable to assume that smaller industrial
plants will tend to utilize municipal treatment
while larger ones—particularly those discharging
toxic wastes—will use private facilities. The
figures on industrial capital requirements in this
report are based on the assumption that indus-
tries using less than 1 million gallons of water
per year will use public treatment plants and
those using more than this amount will use
private treatment facilities. While there will be
exceptions to both assumptions, there should be
compensating trade-offs.
49
-------
Impact On Energy Use. Control techniques
..currently being applied to treatment systems
tend to consume large amounts of energy. When
pollution control is installed as an after-
thought—as with most existing plants—rather
than being designed into an operation as a
component activity, the energy efficiency may
be relatively low. The greatest impact of indus-
trial wastewater control on energy consumption,
therefore, will stem from control of existing
plants. The impact will increase with the number
of plants controlled and the higher levels of
control required.
Generally, the relationship between energy
consumption and level of treatment is exponen-
tial rather than linear. No attempt is made here
to specifically quantify this relationship, pri-
marily because data are not available to support
an accurate quantitative analysis. Such an anal-
ysis would require detailed information on
energy requirements by process for each major
industry. EPA is currently attempting to collect
such information and it should be available to
support future analysis.
To determine the total energy cost of water
pollution, one must include the energy inputs
required to make the pipes, pumps, and tanks
used in the treatment facility. Similarly, one
must consider the energy requirements of pro-
ducing the chemical additives such as chlorine
and coagulants.
Despite the problems involved, a recent report
estimated that the electrical energy used in
providing primary and secondary treatment for
all wastewater in the United States would be 25
billion kilowatt hours per year, or 1.8 percent of
total 1970 electricity use.7 (About one-third of
this energy is for treating residential sewage. The
remainder is for treating commercial and
industrial wastewater.)
Broad Environmental Effects. Environmental
effects of wastewater control include those
resulting from the production of energy used in
the treatment process and those resulting from
ultimate disposal of the residuals removed from
the effluent stream.
Industry receives most of its electrical power
from plants using fossil fuels or nuclear energy.
The major environmental residuals produced by
plants using fossil fuels are: (1) particulate
matter and sulfur oxides in the exhaust gas
stream and (2) waste heat that must be removed
by transfer to either water bodies or to the
atmosphere. Because of inherently lower effi-
ciency, existing nuclear-fueled plants produce
more heat than fossil fuel plants of equivalent
size. Nuclear plants also pose radiation hazards.
The major environmental problems of waste-
water treatment, however, are concerned with
disposal of the materials removed from the
effluent stream. These materials are broadly
classified as sludge and range from thick liquids
to semisolid and solid masses. Sludge is primarily
disposed of as solid waste, but in certain cases it
can be used for other purposes. For example,
the residual materials from brewing are used in
animal feeds. Sludge can be used as fertilizer,
but the hazardous materials such as heavy metals
often present in industrial sludges may prevent
their use as fertilizer.
Incineration of sludge reduces the quantity of
material requiring disposal and also sterilizes the
material by killing pathogens. However, im-
properly controlled incineration can be a signifi-
cant source of air pollution, primarily particu-
late matter. Incineration may be inappropriate if
the sludge contains heavy metals or other
hazardous materials.
Residuals from wastewater treatment that
cannot be incinerated are frequently disposed of
on land. Unless proper procedures are followed,
such disposal can damage the environment. As
the quantities of sludge increase and as land
disposal becomes more costly, it will become
more economic for industry to attempt to
recycle the material in some way.
It appears that imposition of stringent efflu-
ent standards on waterborne residuals without
consideration of airborne and solid waste resid-
uals would merely change the character of
environmental problems rather than solve them.
Consequently, control of industrial pollution
must focus on an integrated scheme that con-
siders the total cost imposed on the industry and
the environmental gains.
THERMAL COSTS
Waste heat in the form of thermal water
discharges is now recognized by Federal law as a
pollutant.8 As such, it is subject to control along
7 Hirst, Eric. Energy Implications of Several Environ-
mental Quality Strategies. Oak Ridge National Labora-
tory. ORNL-NSF-EP-53. Oak Ridge, Tenn. July 1973.
"Section 502(6), Federal Water Pollution Control Act
Amendments of 1972 (P.L. 92-500).
50
-------
with BOD, suspended solids, and other types of
pollutants. The more important provisions of
the 1972 Amendments concerning thermal
discharges are:
• Studies of effects and methods of control
of thermal are required, Section 104(t).
• Best practicable treatment effluent limita-
tions are required by mid-1977, Section
• Best available treatment effluent limita-
tions are required by mid-1983. Section
301(b)(2)(A).
• Effluent limitations to attain and maintain
water quality are required, Section 302(a).
• Thermal water quality criteria must be
established or revised for all navigable
waters, Section 303(a).
• Water quality limited segments must be
identified for thermal discharges, and ther-
mal load allocations must be established
where effluent limitations are not stringent
enough, Section 303(d).
• Thermal water quality guidelines are re-
quired, Section 304(a).
• Thermal effluent limitation guidelines are
required, Section 304(b).
• Applications for waiver of too stringent
thermal effluent limitations must be re-
viewed and acted upon, Section 316(a).
• Thermal discharge standards of perform-
ance for new sources must be promulgated,
Section 306(b)(l)(B).
• State certification for a thermal discharge is
required, Section 401.
• Thermal discharge permit is required,
Section 402(a).
• Thermal discharge pretreatment standards
must be promulgated, Section 307(b).
These provisions, while applying to all types
of thermal pollution, place major emphasis upon
pollution resulting from industrial activity. This
section of the report analyzes industrial thermal
impacts, especially the costs of controlling
thermal pollution from utility steam-electric
generating plants. Thermal pollution from other
plants is not included primarily because thermal
guidelines for their operations have not been
drafted, and adequate costs data are not
available. The omission does not negate the
value of the analysis, however, since electric
utilities account for 80 percent of all cooling
water used in the Nation.
SOURCES OF INDUSTRIAL THERMAL
POLLUTION
Approximately 50 trillion gallons of water were
used for cooling and condensing purposes in the
United States in 1968. That was roughly 12
percent of the total flow in the Nation's streams
and rivers and accounted for nearly 80 percent
of the total water used by American industries.
The 50 trillion gallons are broken down as
follows:2-9
Steam-electric power plants
(utilities) 80%
Electric power generation—
in-house (industrial) 6%
Industrial processes 14%
100%
Six large industrial users of cooling water-
other than utilities with steam-electric gener-
ating plants—are listed in Table IV-20. The six
used 52 percent of the industrial water used for
air conditioning, 79 percent of the water used
for steam-electric power generation, and 84
percent of the water used for other cooling
purposes. Although the amount of water used is
a valuable indicator of thermal pollution, a
complete evaluation must examine other factors
such as total heat outputs and discharge temper-
atures. Also, the characteristics of the receiving
bodies of water must be taken into
consideration.
None of the Federal/State water quality
criteria on temperature allows receiving waters
to be raised above 100° F. Since high tempera-
ture discharges could result in temperature
increases exceeding this limit (or a lower
required limit), the Refuse Act Permit Program
applications for EPA Region IV were searched
for high temperature discharges. Those exceed-
ing 110°F are displayed in Table IV-21. The list
suggests that a number of industries, other than
those using large volumes of cooling water, may
present thermal pollution problems.
Assessment of the cost of abating industrial
thermal pollution (other than that associated
with public utility power plants) is not presently
9Parker, F.L. and P.A. Krenkel. Thermal Pollution:
Status of the Art. Nashville, Tenn. 1969. p. 1-2.
51
-------
TABLE IV-20
COOLING WATER USED BY SELECTED INDUSTRIES (1968)*
SIC
code
TJX Air
Industry ....
conditioning
Steam-electric
power
generation
Other
cooling
Total
use
Use for
cooling as
percent of
total
2621 Paper mills, except
building paper 8
2631 Paperboard mills 8
281 Industrial chemicals 30
282 Plastics materials
and synthetics 56
2911 Petroleum refining 3
331 Blast furnace, basic
steel products 25
Six industry total 130
Total all industries 249
Six industries as a
percentage of
all industries 52%
(billions of gallons)
248
141
613
61
167
1,147
2,377
3,009
79%
97
107
2,075
372
1,056
2,046
5,753
6,877
84%
1,194
722
3,368
635
1,427
4,392
11,738
15,466
76%
30%
15
65
59
74
47
49
*Water use measured by intake. Reuse or recirculation not included.
Source: ^967 Census of Manufactures: Water Use in Manufacturing. Bureau of the Census. 1971. Table 2A, pp.
7:23 to 7:28.
possible, since effluent limitations have not been
established. In addition, identification of the
magnitude of the problem is complicated by a
number of factors, including the wide variation
in industrial processes, the possibility of process
changes that could reduce thermal outputs, and
the degree of thermal pollution abatement
resulting during treatment of other pollutants.
A partial cost could be estimated by com-
puting the costs of abating industry's in-house
generation of electric power. Such computations
would be difficult to make, however, because of
the wide variability of plant size and type of
generation (condensing or noncondensing). Also,
since 70 percent of the industrial water used for
cooling is used for nonpower purposes, only a
small part of the total costs would be obtained.
Because of the difficulties in estimating indus-
trial thermal abatement costs and because such
costs are relatively small, the remainder of this
discussion is confined to utility steam-electric
generating plants.
ELECTRIC UTILITY SYSTEMS
(SIC 491)
Only about one-third of the energy input to
steam-electric power plants is converted to
electrical energy. The remaining two-thirds is
transferred to the environment, usually by dis-
charging cooling water to receiving waters such
as rivers and lakes or to the atmosphere with the
aid of a heat rejection device such as a cooling
tower.
In a wet cooling tower, water vapor is released
to the atmosphere, while in a dry tower it is not.
There are very few dry cooling towers associated
with power plants in the United States at
present because of their relatively high costs.
Other heat rejection devices include cooling
ponds and canals. Diffusers are sometimes used
when heat is discharged directly to the receiving
water body. These devices are used to disperse
the heat in the receiving water and are not
considered a means of heat rejection.
52
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SIC code
TABLE IV-21
INDUSTRIES DISCHARGING WATER IN EXCESS OF 110 F (EPA REGION IV)1
Manufacturing
Number of
establishments
20
22
24
25
26
28
29
30
32
33
34
35
36
37
Food and kindred products
Textile mill products
Lumber and wood products
Furniture and fixtures
Paper and allied products
Chemicals and allied products
Petroleum refining and related industries
Rubber and miscellaneous plastic products
Stone, clay, glass and concrete products
Primary metals
Fabricated metal products
Nonelectrical machinery
Electrical and electronic machinery
Transportation equipment
25
41
18
13
30
28
7
4
7
9
6
7
2
3
Miscellaneous
144x
491x
7211
7542
9711
Sand
Electrical services
Hospitals
Car washes
Military bases
2
21
2
2
9
"The number and mix of industries exceeding a 110°F discharge temperature may vary considerably among Regions.
Source: EPA's Refuse Act Permit Application computer file 4-12-73.
LEVEL OF CONTROL
About 74 percent of the generating capacity in
1970 used once-through cooling systems, while
13 percent had cooling towers and 13 percent
had either cooling ponds or combination
systems (Table IV-22).1 °
However, a much larger percentage of the
post-1974 capacity is expected to use either
cooling towers or combination systems; cooling
towers are already planned for 42 percent of
those fossil plants and 33 percent of the nuclear
plants.11
Economic Analysis. The following economic
analysis is adapted from a recent EPA report12
and is based on a preliminary draft of the water
effluent limitation guidelines, which are sum-
marized in Table IV-23. The first section of the
analysis estimates the maximum impact of the
guidelines, based on the cost of installing
mechanical draft cooling towers on all plants
included in the 1977 and 1983 standards. The
second section predicts the reduction in impact
based on the expected number of power
plants that will not be required to install cooling
towers, due to lack of adverse environmental
1 "Federal Power Commission. Form 67.
115/72 FPC Printout of Utility Responses to FPC Order
383-2.
iaSpeyer, James M. Economic Impact of Proposed
Effluent Guidelines—Steam Electric Power Plants.
EPA. November 1973.
53
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TABLE IV-22
COOLING SYSTEMS OF UTILITY STEAM-ELECTRIC
GENERATING PLANTS10
Type of cooling system
of 1970 capacity
Once-through (fresh
water)
Once-through (saline)
Cooling pond
Wet cooling tower
Combination
51
23
7
13
6
impact on the receiving waters, lack of land for
construction of a tower, potential adverse
impact of salt water drift, or ability to comply
with guidelines using less expensive abatement
measures.
The maximum impact analysis is based on
these major assumptions:
• Demand for electricity will increase by 7.2
percent per year between 1970 and 1980,
by 6.7 percent per year between 1981 and
1985, and by 6.6 percent between 1986
and 1990.
• Thermal discharges will be abated by instal-
lation of closed cycle cooling systems
according to the schedule shown in Table
IV-23.
• The cost of closed cycle cooling systems
will be equal to the cost of mechanical
draft cooling towers.
• Existing plants with cooling towers will
incur no additional expense to meet the
thermal guidelines.
• Previously planned (before October 1973)
expenditures for new plant cooling towers
will be considered part of the cost of
meeting the thermal guidelines.
Impact on Utilities. The unit cost estimates
used in the impact analysis are summarized in
TABLE IV-23
PROPOSED EFFLUENT GUIDELINES FOR THERMAL DISCHARGES FROM UTILITY
STEAM-ELECTRIC GENERATING PLANTS*
Type of unit
Existing units
Units to be built
1977
1983
Large base-load1"
Small base-load*
Cyclic**
Peaking1"1"
No discharge
No limitation
No limitation
No limitation
No discharge
No discharge
No limitation
No discharge
No discharge
No discharge
No discharge
* EPA is currently considering several alternative sets of effluent guidelines that would change the date by which
various categories of existing power plants would have to comply with the no discharge limitation.
f Units with average boiler capacity factors greater than 0.6 that won't be retired before July 1983; all nuclear
units; all units placed under construction after October 1973.
t Units in plants less than 25 megawatts or in systems with a capacity of less than 150 megawatts.
**Units with capacity factors between 0.2 and 0.6 that won't be retired before July 1989.
''"''Units with capacity factors less than 0.2
54
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TABLE IV-24
UNIT COSTS FOR UTILITY STEAM-ELECTRIC GENERATING PLANTS13
Item
Costs ($/kilowatt of plant capacity)
Fossil fuel
Nuclear
Capital costs of cooling towers*
Existing units
New units
Capital costs for replacement capacity
1977 peaking units
1983 baseload units
Annual operating costs for replacement
capacity
1977 peaking units
1983 baseload units
(1970 prices)
15
7
90
170
42
30
18
10
90
260
42
12
*Costs of constructing and connecting cooling towers.
Table IV-24.13 The table shows that the cost of
installing cooling towers in existing plants is
about double that for new plants. Table IV-25
shows that the total capitalized expenditures
required to implement the guidelines are $9.5
billion for the 1977 standards and an additional
$5.8 billion ($15.3 billion total) for the 1983
standards. The guidelines will increase the total
capital expenditures of the electric utility
industry by 10.0 percent between 1973 and
1977; by 1983 an additional 4.2 percent
increase in total capital expenditures will be
required.
The utilities will finance the expenditures for
pollution control equipment through internal
sources (for example, depreciation, retained
earnings, tax deferrals), as well as external
sources (for example, long-term debt, preferred
stock, common stock). The utilities could
finance an estimated 36 percent of the
(1973-83) capital expenditures through internal
financing, while the remainder would have to
13 Development Document for Proposed Effluent
Limitation Guidelines and New Source Performance
Standards for the Steam Electric Power Generating
Point Source Category, Burns and Roe, Inc. EPA
contract No. 68-01-1512. September 1973.
come from external sources.14 If the investor-
owned utilities were to maintain their current
capital structure (typically, 55 percent long term
debt, 10 percent preferred stock, and 35 percent
common equity), the external financing would
be obtained in the following way:
Long term debt
Preferred stock
Common equity
Total
Financial requirements
1973-83 (billion dollars)
5.4
1.0
2.6
The key assumption of this analysis is that the
utilities will be able to obtain the required
external financing. While it is difficult to conclu-
sively prove that the capital will be available,
there is no evidence to disprove this assumption.
The utilities were able to increase the level of
capital investment by 11 percent per year in the
1960's even though the industry's coverage ratio
14Economic and Financial Implications of the Federal
Water Pollution Control Act of 1972 for the Electric
Utility Industry. Temple, Barker & Sloane, Inc.
Boston, Mass. EPA contract No. 68-01-1582. Sep-
tember 1973.
55
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TABLE IV-25
IMPACTS OF PROPOSED THERMAL EFFLUENT LIMITATIONS ON UTILITY STEAM-ELECTRIC
GENERATING PLANTS
Impact
1977 Standards
1983 Standards*
Financial effects
Added capital investment (billions of 1973 dollars)
Percent increase (%)
Price effects
Increased revenues per year (billions of 1973 dollars)
Price increase (mills/kilowatt-hour)
Price increase (% production costs)
Price increase (% cost to final user)
Capacity penalty
Total capacity penalty (megawatts electrical)1"
% of national capacity
Fuel penalty
Total fuel penalty (million tons coal equivalent)*
% of national demand for energy
9.5
10.0
2.0
0.8
6.4
3.2
8,200
1.5
18
0.5
15.3
4.2
3.0
0.9
5.8
2.9
14,900
1.9
33
0.7
"•Cumulative effect of 1977 and 1983 standards.
"*"Total replacement capacity needed to run the cooling towers and to compensate for capacity lost due to increased
turbine back pressure.
•f Total increase in demand for nuclear and fossil fuel expressed in million Btu, based on coal having a heat value of
24 million Btu/ton,
(income before Federal income taxes and
interest charges divided by total interest charges)
fell from 5.11 in 1961 to 3.03 in 1971. The
investment required to meet the effluent guide-
lines will have an insignificant effect on the
industry's coverage ratios in 1977 and 1983:
Coverage ratios
Without pollution control
expenditures
With pollution control
expenditures
1977
3.06
3.00
1983
2.93
2.92
In the past, the electric utility industry has
been regulated to ensure an adequate rate of
return on its common equity. This analysis
assumes that the regulatory agencies will allow
the utilities to raise prices to recover the
increased operating and fixed charges associated
with the standards. Therefore, the profitability
of the electric utility industry in terms of rate of
return on common equity should not be
reduced by implementation of the standards.
Actually, by realizing a rate of return on the
increased investment in pollution control equip-
ment, the total after-tax profits in pollution
control will increase:
Net income
after taxes
(billion dollars)
Without pollution control
expenditures
With pollution control
expenditures
1977
6.7
7.1
1983
14.2
14.9
National Impact. To finance the operating
costs and fixed charges associated with the
capital investment, the utilities will have to raise
the price of electricity. Based on the previously
stated assumptions, the total cost to the con-
sumers of electricity will be $2.0 billion per year
by 1977 and $3.0 billion by 1983. The price
increase needed to generate the additional
revenues will be 0.9 mills/kilowatt-hour by
1983. The importance of this price increase
should be evaluated both in terms of its effect
on cost of power at the generating plants and on
56
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the cost of power to the ultimate consumer.
Thus, while the utility industry's production
costs will increase 6.4 percent by 1977 and an
additional 5.8 percent by 1983, the cost of
power to the final user will increase by only 3.2
percent by 1977 and 2.9 percent by 1983.
The increase in the price of electricity will
have an effect on the price of other goods and
services. The average price increase is expected
to be small, however, since purchases of electric
power account for only about 0.8 percent of the
total value of industrial shipments.15 While the
impact will be larger on the price of products
that are power intensive, there are only six
industrial classifications in which electric power
costs amounted to 5 percent or more of the
total value of shipments (Table IV-26). Even if
the increased power costs are completely passed
on to the final consumer, the final price of the
most power-intensive products will increase by
less than 0.5 percent.
The water effluent guidelines will impact the
community directly through increased prices for
electricity and indirectly through price increases
for final goods and services. The guidelines
would increase the average residents' monthly
electricity bill $0.78 by 1977 and $1.25 by
1983.
Installation of cooling towers will require the
construction of new capacity to generate power
to run the cooling towers and to compensate for
vthe loss of efficiency due to the increase in
turbine back-pressure. This analysis assumes that
in 1977 the utilities will provide this increased
capacity through the construction of gas-turbine
units or the postponement of scheduled retire-
ments. However, by 1983 the utilities will be
able to construct large fossil and nuclear plants
to replace the lost capacity.
The total capacity penalty will be 8,200
megawatts electrical by 1977 and 14,900 by
1983, This projected capacity loss will increase
the national demand for generating capacity by
1.5 percent by 1977 and 1.9 percent by 1983.
A fuel penalty is associated with the increased
capacity. This penalty results primarily from
l5Possible Impact of Costs of Selected Pollution Control
Equipment on the Electric Utility Industry and
Certain Power Intensive Consumer Industries.
National Economic Research Associates, Inc. New
York. 1972.
additional fuel required to operate the closed
cycle cooling systems and to compensate for loss
of efficiency. The fuel penalty will be approxi-
mately the equivalent of 18 million tons of coal
by 1977 and 33 million tons by 1983 (total
increase in demand for nuclear and fossil fuel
expressed in million Btu, divided by a heat value
of 24 million Btu/ton). This penalty amounts to
an increase in the national demand for energy of
only 0.5 percent by 1977 and 0.7 percent by
1983. Thus, the thermal effluent guidelines
should not significantly increase the imbalance
between national energy demand and domestic
supply.
Impact of Legal Exemptions. The above
estimates are based on the cost of installing
mechanical draft cooling towers on all plants
included in the 1977 and 1983 standards (Table
IV-23). However, the number of plants that will
actually be required to install mechanical draft
cooling towers will be considerably less due to
the following factors:
• Exemptions under 316(a) where alternative
cooling systems are capable of assuring the
propagation of a balanced biotic com-
munity.
• Exemptions due to lack of land or adverse
environmental impact from salt water drift.
• Ability of some power plants to comply
with the guidelines by installing less expen-
sive closed cycle cooling systems such as
cooling ponds and spray canals.
In order to estimate the number of plants that
would fall into each of these categories, it would
be necessary to have at least the following
information for each plant:
• Feasibility of assuring a balanced biotic
community with alternative cooling
system.
• Maximum acreage the utility owns that
could be made available for closed cycle
cooling system.
• Projected concentration of salt water drift.
While at the present time information has not
been compiled for the last two factors, an
analysis was made of the impact of exemptions
under section 316(a) of the 1972 Amendments.
57
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TABLE IV-26
ELECTRIC POWER COSTS FOR SELECTED INDUSTRIES
Electric power Total electric
„,„ , T , , costs as a power purchased
SIC code Industry , , , , ^ ,.
percent of plus net generation
value of shipments* (million kw/hrs)
2819
3334
3313
2812
2813
3241
Atomic Energy Commission plants1"
Primary aluminum
Electrometallurgical products
Alkalies and chlorine
Industrial gases
Cement, hydraulic
Six -industry total
Other industries
Total, all industries
16.26%
11.40
11.01
9.35
9.10
5.94
10.34
0.69
0.79
29,827.7
53,604.9
11,205.7
12,319.0
7,050.4
8,418.2
122,425.9
383,395.0
505,820.9
*SeIf-generated power is evaluated for each industry at the same cost per kilowatt-hour as it pays to buy electric
power.
"''Only a part of SIC 2819 (industrial inorganic chemicals). Value of shipments by these plants cannot be isolated.
Source: 7967 Census of Manufactures. Bureau of the Census. Volume II, Industry Statistics, Part 1, pp. 28-42;
Volume II, Industry Statistics, Part 2, p. 28A-9; Fuels and Energy Consumed, Special Series MC (67) S-4, p.
18-SR4.
Electric Energy Purchased, Generated and Used, and Maximum Demands at Major Atomic Energy Commission
Installations by Months for 1967 (unpublished table). Federal Power Commission. July 1968.
TABLE IV-27
IMPACTS OF EXEMPTIONS TO PROPOSED THERMAL EFFLUENT LIMITATIONS
1977 Standards 1983 Standards*
Impact Without With Without With
exemptions exemptions exemptions exemptions
Financial effects
Added capital investment
(billions of 1973 dollars)
Percent increase
Price effects
Increased revenues per year
(billions of 1973 dollars)
Price increase
( mills/kilo watt-h our)
Price increase
(% production costs)
Price increase
(% cost to final user)
9.5
10.0
2.0
0.8
6.4
3.2
2.3
2.5
0.5
0.2
1.6
0.8
15.3
4.2
3.0
0.9
5.8
2.9
4.4
1.2
0.8
0.3
1.8
0.9
*Cumulative effect of the 1977 and 1983 standards.
58
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The analysis was based on the following assump-
tions:
• 32 percent of the existing capacity covered
under the maximum impact case would
have to install cooling towers on 60 percent
of the plants' total capacity. The plants
could meet water quality standards by
operating the cooling towers only 30 per-
cent of the time.
• A new plant that is not planning some type
of off-stream cooling will have to install
cooling towers on 60 percent of its capa-
city. The plant could meet water quality
standards by operating the cooling tower
only 30 percent of the time.
• All plants that are currently planning to
install cooling towers will be required to
operate the cooling tower 60 percent of the
time on 100 percent of the plants'
capacity.
As shown in Table IV-27, these exemptions
would reduce the required capital expenditure
from $9.5 billion to $2.3 billion in 1977 and
from $15.3 billion to $4.4 billion in 1983. The
projected price increase would fall from 3.2
percent to 0.8 percent by 1977 and from 2.9
percent to 0.9 percent by 1983. The exemptions
would reduce the cost to the consumer $1.5
billion per year by 1977 and $2.2 billion per
year by 1983.
59
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V. Nonpoint Pollution
Nonpoint sources of water pollution vary
considerably in type and stem from a broad
range of human activities and natural causes.*
The activities may be divided into five broad
categories of agricultural-rural, forestry, con-
struction, mining, and urban. In many areas,
pollutants stemming from these activities-
including sediments, organic wastes, salts, min-
erals, acids, and chemicals such as pesticides,
herbicides, and fungicides—constitute a problem
equal to or exceeding that of point source
pollution.
Singly and in combination, these pollutants
present a broad range of problems. In many
Western streams, dissolved solids present the
most pernicious problem. The increasing salinity
of the Colorado River, for instance, threatens
use of this important water source for agricul-
tural as well as municipal and industrial pur-
poses; most of the salinity stems from nonpoint
sources—47 percent from salt springs and other
natural sources, and 38 percent from irrigation.
In Appalachia and other coal-producing areas,
acid mine drainage often constitutes the most
intractable problem. An estimated 20,000 acres
of lakes and more than 12,000 miles of streams
suffer damage from mine discharge or drainage.
Sediments and other nonpoint source pollutants
similarly present a variety of problems.
As Federal and State pollution control
policies have developed, most attention has been
directed toward point sources of pollution.
Nevertheless, certain States such as Iowa have
shown leadership in the control of nonpoint
sources. At the Federal level, the 1972 Amend-
ments took initial steps to develop a nonpoint
source control program.1 The Amendments
*Nonpoint sources of water pollution are not defined by
the 1972 Amendments. EPA considers all sources to be
nonpoint that are not subject to National Pollution
Discharge Elimination System permits.
Sections 303(e), 304(e), 305(b), and 208, Federal
Water Pollution Control Act Amendments of 1972
(P.L. 92-500).
require EPA to develop information on the
nature and extent of nonpoint sources of pollu-
tion and the means to control such pollution
from a range of activities. Similarly, the Amend-
ments require States to submit reports on
nonpoint sources of pollution, and regional
planning and operating agencies to recommend
and develop control programs.
EPA has published the required series of
reports on the nature and extent of nonpoint
sources of pollution. Four are based on the
types of activities that produce such pollution:
agricultural, silvicultural, mining, and urban and
rural construction.2 Three cover unique problem
areas that may cut across these types of activ-
ities: disposal of pollutants in wells or subsur-
face excavations, salt water intrusion, and
hydrographic modification.3 A final report
covers analytic methods for identifying and
evaluating the various sources of nonpoint
pollution.4
In none of these reports, however, is there
significant coverage of control costs and
economic impacts. The omission may be attri-
buted primarily to a paucity of reliable informa-
tion. In an effort to correct, in part, the
information deficiency, EPA contracted with
Iowa State University to study the costs and
Methods and Practices for Controlling Water Pollution
from Agricultural Nonpoint Sources, EPA-430/9-
T 3-015; Processes, Procedures, and Methods To Control
Pollution Resulting from Silvicultural Activities, EPA-
430/9-73-010; Processes, Procedures, and Methods To
Control Pollution From Mining Activities, EPA-430/9-
73-011;Processes, Procedures, and Methods To Control
Pollution Resulting From All Construction Activity,
EPA-430/9-73-007.
3Ground Water Pollution From Subsurface Excavations,
EPA-430/9-73-012; Identification and Control of Pollu-
tion From Salt Water Intrusion, EPA-430/9-73-013;
Control of Pollution Caused by Hydrographic Modifica-
tions. EPA-430/9-73-017.
4Methods for Identifying and Evaluating the Nature and
Extent of Non-Point Sources of Pollutants, EPA-430/9-
73-014.
61
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impacts associated with two major agricultural
pollutants—sediment runoff and nitrogen
fertilizer.5 The remainder of this chapter
discusses the results of that study.
THE PROBLEM
As the real prices of capital inputs such as
fertilizers and equipment have declined, the
American farmer has used them widely and
intensively, substituting them for both land and
labor. As a reflection of these declines, the ratio
of the index of fertilizer price to the index of
farm crop prices declined from 0.98 in 1940 to
0.64 in 1971. Similarly, the ratio of the farm
machinery price to farm labor price declined
from 1.19 in 1940 to 0.50 in 1971.
With modern technology and substitution of
capital for land, the Nation's relative land supply
is greater than at any. time in the last 100 years.
Cropland has remained relatively constant over
the past two decades, but total crop output has
increased nearly 40 percent. The same crop
output could have been produced under a less
intensive production pattern, perhaps reducing
the amount of runoff and contamination accord-
ingly. Until 1973, however, Federal programs
encouraged the trend toward more intensive
farming, with an attendant increase in use of
chemicals and similar inputs, by guaranteeing
prices (coupled with restricting acreage), subsi-
dizing irrigation development, and providing tax
advantages.
While chemicals and similar inputs increase
productivity, they can also have adverse environ-
mental impacts. One impact is direct—unused
fertilizers and organic chemicals flow into
streams and underground water supplies.
Another major impact is indirect. Fertilizers and
pesticides lessen the need for rotational systems,
forages, and mechanical practices. Hence, row
crops can be grown more intensively and even
continuously on the same fields, and the land
loses more water and sediment. The sediment
not only contaminates streams, but—along with
water runoff—it also provides the transport
mechanism by which a greater proportion of
residual fertilizers and pesticides are carried into
streams.
Environmental Impacts and Costs in Agriculture in
Relation to Soil Loss Restrictions and Nitrogen Fertil-
izer Limitations. The Center for Agricultural and Rural
Development, Iowa State University. Ames. 1973.
Technological and economic development of
agriculture has also had beneficial effects on the
environment, because it has resulted in fewer
acres farmed and better use of less erosive lands.
Substituting machines for animals means that
less land is needed for feeding working animals
and that tractors are polluting an average of only
500 hours per year compared with animals that
generate wastes year-round.
STUDY DESIGN
The Iowa Study examines supply capacity,
productivity, farm income, food prices, and
other economic impacts that might prevail under
a selected set of environmental policies for
agriculture. The study focuses on the year 2000,
a period long enough to allow additional do-
mestic and export demands for food to impinge
on agriculture and to allow sufficient time for
agriculture to adjust to new environmental
restraints.
The following basic assumptions were made:
• A free market will exist for commodities
included in the analysis.
• Existing technology will be applied increas-
ingly in crop and livestock production.
• Per capita imports of agricultural commodi-
ties will be maintained at recent levels.
• The national population will be 280 million
in the year 2000 (Bureau of the Census,
level D estimate).
The free market assumption permits efficient
production of agricultural commodities through
crop and livestock allocation and through opti-
mal use of water and land resources. Constraints
are imposed on agricultural production, how-
ever, in the form of environmental policies, food
and fiber demands, and a given land and water
resource base.
The study incorporates a number of other
general assumptions. First, no unexpected or
significant jumps are projected in world demand.
Second, land previously or currently idled in
land retirement programs can be brought back
into production. Finally, no further public
development of irrigated lands is assumed be-
yond 1980.
The main objective of the Iowa study is to
estimate agriculture's food-producing capacity
under a selected set of environmental restraints.
The primary sources of pollution from agriculture
62
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TABLE V-1
ALTERNATIVE FUTURES FOR U.S. AGRICULTURE*
Policy model
Model A
Model B
Model C
Model D
Model E
Model F
Model G
Farm policy
Free market
Free market
Free market
Free market
Free market with no nitrogen
limit
Free market with nitrogen limited
to 110 pounds /acre
Free market with nitrogen limited
to 50 pounds/acre
Soil loss
maximum
(per acre)
No limit
10 tons
5 tons
5 tons
n.a.
n.a.
n.a.
Exports
Average
Average
Average
High
Average
Average
Average
*Assuming a population of about 280 million, the Bureau of the Census, level D estimate for the year 2000.
include soil erosion, soil salts, livestock wastes,
and applied chemicals. Pollutants from these
sources include plant nutrients, dissolved salts,
toxic chemicals and infectious agents such
as coliform bacteria. Except for dissolved salts
from irrigation return flows, the pollutants are
most often characterized by "slug loads," or
large amounts of wastes at irregular time inter-
vals. Slug loads from agriculture include enor-
mous quantities of sediments and plant residues
that represent the greatest volume of wastes
entering surface waters. These wastes originate
primarily from cropland and overgrazed pas-
tures. It has been estimated that agricultural
land use results in four to nine times more loss
of soil than would occur at natural rates.
The evaluation of the impacts of soil loss and
nitrogen fertilizer application is restricted in
scope. Only sheet and rill erosion from culti-
vated lands is analyzed. Sediment yields or the
total sediment outflow from a watershed or
drainage basin are not considered. Nor did the
study include direct analysis of livestock wastes
and chemicals such as phosphates, insecticides,
and herbicides related to nitrogen fertilizer
application.
The basic tool of analysis is a detailed model
that measures interrelationships among all com-
modities, resources, and farming regions.6 The
national model incorporates the resources, com-
modities, and related outputs of agriculture in
223 farm areas, 51 water supply regions, and 30
over-all commodity markets or consumer de-
mand sets.
Seven policy models (alternative futures) are
specified in the analysis (Table V-1). Four cover
soil loss. The Nation's agriculture is first ana-
lyzed in the absence of environmental restraints
(Model A). The outcomes are then examined
with maximum soil loss (gross erosion) over the
entire Nation limited first to 10 tons per acre
and then to 5 tons (Models B and C). To place
these levels in perspective, losses may range from
virtually zero for Class I low erosive lands to
more than 150 tons for Class VIII excessively
erosive lands (Table V-2). Because exports are
important in food production patterns as well as
in farmer and consumer food prices, an alterna-
tive future (Model D) is examined in which food
exports are twice the 1969-71 averages used in
Models A, B, and C.
6
National Environmental Models of Agricultural Policy
Land Use and Water Quality (GI-32990). Iowa State
University under contract to National Science Founda-
tion.
63
-------
TABLE V-2
SOIL LOSS FOR AN AGRICULTURAL REGION*
Soil loss
Land class/acres
Conventional tillage
Reduced tillage
Straight row Contour Strip Straight row Contour Strip
(tons/acre/year)
Class 1(1.0 million
(no erosion hazard)
Class HE /1. 5 million
(slightly erosive land)
Class IIIE/1.1 million
(moderately erosive land)
Class IVE/0.3 million
(marginal cropping land)
Class VI to VIII/0.1 million
(excessively erosive land)
5.0
12.0
38.9
53.8
167.1
2.5
6.0
22.5
32.2
129.1
—
3.0
11.2
16.1
—
2.9
6.7
21.8
30.1
122.6
1.4
3.3
12.5
17.7
104.8
—
1.7
6.2
8.9
"
*Based on a crop pattern of continuous corn rotation in Region 104, located in Iowa.
The final policy models are evaluated under
the restricted nitrogen fertilizer assumption. A
base model specifies no restrictions on nitrogen
fertilizer application (Model B). Then the out-
comes are examined as nitrogen fertilizer is first
restricted to an annual maximum of 110 pounds
per acre and then to 50 pounds per acre (Models
F and G). The 110-pound figure is approxi-
mately the level of nitrogen applied to corn in
1969. Fruits and vegetables frequently receive
higher applications of fertilizer, while most
grains receive less.
SOIL LOSS-EXPORT POLICY MODELS
Soil loss and farming practices under four
alternative policy models are summarized in
Table V-3. As might be expected, the average
soil loss would be highest, 9.9 tons per acre,
under Model A, which does not limit soil loss.
The study indicates that with no restrictions on
soilloss, soil erosion would average 60 tons per
acre per year in certain parts of the South
Atlantic Region. The lowest loss, 2.8 tons per
acre, would take place with a 5-ton maximum
soil loss limitation (Model C). Under this level of
control, total soil erosion would be reduced to
about 0.7 billion tons per year, a reduction of
nearly 2 billion tons, or about 73 percent, from
the level of Model A. High exports (Model D)
would increase total soil erosion about 16
percent over Model C.
The Nation's food and fiber demands (both
domestic and export) and soil loss limitation
could be met by adoption of conservation
practices such as contouring, strip cropping, and
terracing. Compared with the base model (Model
A), acreages farmed under conventional straight
row tillage would decrease, and acreages farmed
under conservation would increase, as the soil
loss maximum is first imposed at 10 tons per
acre and then lowered to 5 tons per acre.
With exports of grains and oilmeals doubled
(Model D), cultivated crop land would increase
about 10 percent. The 5-ton soil loss restriction,
however, could still be met by further applica-
tions of conservation practices. Even with the
increase in cultivated land, total soil erosion
would remain substantially below levels indi-
cated by the no restriction model (Model A).
Land and water use for the four alternative
models are summarized in Table V-4. Three
64
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TABLE V-3
EROSION AND ACREAGES UNDER CONSERVATION PRACTICES FOR
SOIL-LOSS EXPORT POLICY MODELS
Item (unit)
Erosion per acre (tons)
Total soil erosion (millions of tons)
Conventional tillage (milllions of acres)
Straight row
Contour
Strip crop & terrace
Reduced tillage (millions of acres)
Straight row
Contour
Strip crop & terrace
Total under cultivation (millions of acres)
Conventional tillage, straight row (%)
Conventional tillage, contour, strip
crop & terrace (%)
Reduced tillage (%)
Model A,
no limit
9.9
2,677
234
11
3
21
0
0
269
87
5
8
Model B,
10-ton
limit
4.3
1,132
165
33
19
27
14
3
261
63
20
17
Model C,
5-ton
limit
2.8
727
129
37
35
25
19
14
259
50
28
22
Model D,
5-ton
limit and
high exports
2.9
843
134
43
45
28
26
19
295
45
30
25
TABLE V-4
LAND AND WATER USE FOR SOIL LOSS-EXPORT POLICY MODELS
Item Moc|el A*
no limit
Model B,
10-ton limit
Model C,
5-ton limit
Model D,
5-ton limit and
high exports
Total dryland*
Total irrigated
Unused cultivated lands'''
Water consumption
283
31
97
83
(millions of acres)
276 274
32 29
105 108
(million acre-feet/year)
83 77
310
30
72
78
*Not including pasture.
'Including unused summer fallow lands.
65
-------
points are evident from the results:
• Under all policy models studied, both
dryland and irrigated acreages of crops
would be less than at present.
• Unused cultivated land (including 25 to 30
million acres of unused summer fallow
lands) would be substantially greater than
at present.
• Projected increases in water use are only
slightly higher than in 1965, the most
recent year for which data are available.
Even with a high level of exports (model D),
the Nation's land and water resources would not
be strained. In fact, acreages used for crops
would decline under a soil loss limitation be-
cause of:
• Changes in land use—that is, shifts to higher
yielding lands.
• Higher yields of crops resulting from re-
duced tillage and treatment practices such
as contouring and strip cropping.
Should supply control programs be relaxed in
accordance with the assumptions of the study,
crop production would shift to the more pro-
ductive soils and regions of the Nation. Hence,
total land use for agriculture (including irrigated
acreage) would be reduced, and unused land
(including 25 to 30 million acres of unused
summer fallow lands) would approach levels
substantially higher than at present. In addition,
a large amount of relatively unproductive land
currently used for pasture (such as permanent
pasture, public grazing lands, and woodland
pasture) would remain unused under these
policy models. The large amounts of unused
cultivated lands, however, pose important prob-
lems for national policies on agricultural con-
trols and farm prices.
Farm prices under the alternative soil loss-
export policy models are summarized in Table
V-5. Up to this point, the general conclusion has
been that a nationwide soil loss limitation would
not have much impact on agricultural output
and prices. The results summarized in the table
would further support this conclusion. Agricul-
tural production and unit prices under the soil
TABLE V-5
FARM PRICES FOR SELECTED CROP AND LIVESTOCK PRODUCTS FOR
SOIL LOSS-EXPORT POLICY MODELS
Item
Model A,
no limit
Model B,
10-ton limit
Model C,
5-ton limit
Model D,
5-ton limit and
high exports
Crop prices
Corn
Wheat
Soybeans
Cotton
Hay
Livestock product prices
Cattle and calves
Hogs
Milk
Income (returns)
Land, labor, and water
Other
Overall
100
100
100
100
100
100
100
100
100
100
100
100
99
101
100
99
100
100
100
98
101
100
107
103
115
112
101
104
105
100
99
104
103
113
114
162
112
110
110
112
103
131
113
117
66
-------
loss models are shown in Table V-6 and resource
use or values in Table V-7. Although the model
doesn't deal explicitly with the way farm in-
come is distributed among producers and with
prices of various categories of agricultural land,
one can expect soil loss limitation policies to
have a very significant impact on localized areas.
With a 10-ton maximum soil loss (Model B),
farm prices (crops and livestock) and, hence,
food costs would not change significantly. Net
farm income, measured as the return on land,
labor (including hired labor) and water would
decrease slightly. The response to this decrease
would generally be to substitute inputs such as
fertilizer and equipment for land, labor, and
water.
With a 5-ton maximum soil loss (Model C),
farm prices would increase, but by a low
percentage. Soybeans would experience the
highest increase—15 percent. Net farm income
under the 5-ton limit would be nearly the same
as without a restriction. Much greater increases
in farm prices, implied food costs, and net farm
income would result with a combination of high
exports and 5-ton maximum soil loss limitation
(Model D). The price of soybeans, for instance,
would increase by 62 percent.
FERTILIZER LIMITATION POLICY
MODELS
Use of land and water under the three alterna-
tive nitrogen fertilizer limitation policy models
is summarized in Table V-8. Restricting nitrogen
fertilizer use would result in a substitution of
land and water for fertilizer, with a resulting
increase in use of both land and water. Unused
land, not including unused summer fallow lands,
would drop from around 51 million acres with
no restriction (Model E) to about 13 million
acres with a 50-pound limit (Model G). The
110-pound nitrogen limitation would not strain
the Nation's agricultural capabilities under the
food and fiber demand implied under these
three policy models. The total land use for
agriculture would actually remain below 1971
levels. Even under a 50-pound limit, some
unused land (not including unused summer
TABLE V-6
FARM PRICES FOR SELECTED CROP AND LIVESTOCK PRODUCTS FOR
SOIL LOSS-EXPORT POLICY MODELS
Average 1969-711
Projected 20002
Corn (bushels)
Wheat (bushels)
Soybeans (bushels)3
Cotton (bales)4
Hay (tons)
Other crops5
Beef cows (head)
Beef feeding (head)6
Dairy cows (head)7
Hogs (hundredweight)8
Unit price
Production
(million)
4,741
1,490
1,203
10
129
—
36
25
12
20
Value of
production
(millions of $)
5,540
1,937
3,318
1,205
3,158
1,800
—
10,924
6,751
4,502
Unit
price
(*)
1.17
1.29
2.71
0.23
26.36
—
—
27.42
5.68
20.79
Production
(millions)
6,520
1,916
2,117
10
249
—
82
61
8
31
Value of
production
(millions of $)
5,650
2,267
2,768
818
5,903
3,996
—
18,752
3,679
4,643
Model A,
no limit
0.86
1.18
1.30
0.16
23.69
—
—
24.85
3.21
14.94
Model B,
10-ton
0.86
1.17
1.31
0.16
23.41
—
—
24.86
3.21
14.93
Model C,
5 -ton
($)
0,92
1.22
1.50
0.18
24.02
—
—
25.72
3.21
15.66
Model D,
5-ton
limit and
high exports
0.97
1.34
2.10
0.18
26.12
—
_
27.26
3.32
16.66
1 Sources: U.S. Department of Agriculture, Agricultural Statistics, 1972; U.S. Department of Agriculture, Cattle on Feed. January 1973.
^Values are expressed in 1970 dollars and do not take into account inflation from 1970 to 2000.
Includes cottonseed in soybean equivalent.
*Unit price is per pound of cotton.
^Includes sorghum grain, barley, oats, corn, and sorghum silage and pasture. A common unit cannot be used. Pasture not included in average
1969-71 values.
6Value and price are for all cattle and calves, including dairy. Price is in liveweight equivalent.
7 Values and prices represent hundredweight milk production.
*Unit price is liveweight equivalent.
67
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TABLE V-7
RESOURCE USE FOR SELECTED CROP AND LIVESTOCK PRODUCTS FOR
SOIL LOSS-EXPORT POLICY MODELS
Item
Model A— no limit
Row crops
Close grown crops
All hay
Pasture
Beef cows
Beef feeding
Dairy
Hogs
Total
Model B— 10-ton limit
Row crops
Close grown crops
All hay
Pasture
Beef cows
Beef feeding
Dairy
Hogs
Total
Model C— 5-ton limit
Row crops
Close grown crops
All hay
Pasture
Beef cows
Beef feeding
Dairy
Hogs
Total
Model D— 5-ton limit
and high exports
Row crops
Close grown crops
All hay
Pasture
Beef cows
Beef feeding
Dairy
Hogs
Total
Land
2,770
894
1,188
780
0
0
0
0
5,632
2,599
849
1,121
820
0
0
0
0
5,389
2,876
782
1,225
744
0
0
0
0
5,627
4,723
1,370
1,744
882
0
0
0
0
8,719
Water
51
23
81
7
5
3
0
0
170
47
23
87
7
5
3
0
0
172
44
16
69
2
3
3
0
0
137
32
17
91
2
3
2
0
0
147
Labor
(millions of
910
293
467
0
1,350
167
916
523
4,626
873
291
487
0
1,351
167
916
522
4,607
872
284
512
0
1,347
161
906
527
4,609
972
336
535
0
1,345
166
907
530
4,791
Feed
1970 dollars)
0
0
0
0
7,175
4,053
1,648
2,067
14,943
0
0
0
0
7,161
4,054
1,652
2,066
14,933
0
0
0
0
7,294
4,325
1,745
2,272
15,636
0
0
0
0
7,804
4,696
1,897
2,552
16,949
Other*
7,161
2,412
3,523
866
3,251
1,663
2,106
2,054
23,036
7,223
2,409
3,665
866
3,274
1,662
2,107
2,055
23,261
7,433
2,273
3,929
953
3,323
1,733
2,049
2,071
23,764
8,878
2,723
4,049
867
3,518
1,724
2,096
2,100
25,955
Total*
10,892
3,622
5,259
1,653
11,781
5,886
4,670
4,644
48,407
10,742
3,572
5,360
1,693
11,791
5,886
4,675
4,643
48,362
11,225
3,355
5,735
1,699
11,967
6,222
4,700
4,870
49,773
14,605
4,446
6,419
1,751
12,670
6,588
4,900
5,182
56,561
*Includes all other costs not itemized.
"•"Water used by exogenous crops (fruits and vegetables, for example) and water and feed used by exogenous
livestock (broilers, sheep, and lambs, for example) are not reported.
68
-------
TABLE V-8
LAND AND WATER USE FOR NITROGEN FERTILIZER POLICY MODELS
Item
Model E,
no limit
Model F,
110-lb limit
Model G,
50-lb limit
Total dryland*
Total irrigated
Unused cultivated lands1"
Water consumption
255
26
51
92.0
(millions of acres)
265
26
41
(million acre-feet/year)
92.4
292
27
13
96.6
*Not including pasture, orchards, vegetables, and other miscellaneous crops.
'''Not including unused summer fallow lands.
fallow lands) would remain for further substitu-
tion or other uses. Compared with no limit, the
50-pound limit would result in 14 percent more
land being used, a reduction in unused land by
nearly 75 percent, and an increase in water
consumption of about 5 percent.
With a 110-pound limitation, crop prices
would increase by less than 12 percent, and
livestock by less than 4 percent (Table V-9). Net
farm income would be higher, but so would
consumer food costs. Farm prices would be
substantially higher under a 50-pound limit than
under either no limit or a 110-pound limit, crop
prices increasing up to 50 percent and livestock
prices up to 28 percent. Resulting net farm
income and food outlays also would rise sub-
stantially.
IMPLICATIONS FOR FARM PROGRAMS
Restrictions on soil loss and fertilizer use hold
important economic implications for farm in-
comes, commodity supplies, and environmental
control programs. To examine these implica-
tions, one first has to look at the demand and
supply considerations associated with farm
products.
Demand for agricultural commodities is basic-
ally inelastic. Thus, if farm production is in-
creased by a given percentage, the price received
will decrease by a greater percentage; or con-
versely, should production fall off by a certain
percentage, the price received would increase by
a greater percentage. Expressed in different
terms, farm incomes will increase with reduced
production and fall with increased production.
Without price guarantees, farm incomes in the
aggregate are not increased by applying fertil-
izers and other inputs that increase productivity,
because the increased production is offset
by lower prices. Since no producer is so large
that he can significantly influence market prices
by his own actions, there is always an incentive
to increase production efficiency.
Government farm programs used in recent
years to reduce acreage and limit outputs were
designed to maintain farm incomes by keeping
supplies at a fixed level in relation to demand.
Generally, the programs have kept farm income
higher than would have been the case in their
absence. The same logic has underlain the
government programs to increase exports. Ex-
porting a given percentage of commodities
(hence removing them from domestic markets)
would result in a larger percentage price in-
crease, at least for those commodities suffi-
ciently protected from world market prices.
Of course, as more individual farmers use
advance technologies and increase output in a
free market situation, market prices will fall by a
greater proportion, and total farm income will
be reduced accordingly. In the absence of farm
supply control programs that materially affect
total crop output (and thus maintain higher
prices), the individual farmer will be worse off
69
-------
TABLE V-9
FARM PRICES FOR SELECTED CROP AND LIVESTOCK PRODUCTS FOR
NITROGEN FERTILIZER POLICY MODELS
Item
Crop prices
Corn
Wheat
Soybeans
Cotton
Hay
Model E,
no limit
100
100
100
100
100
Model F,
110-lb limit
109
106
104
112
102
Model G,
5-ton limit
150
147
136
151
124
Livestock product prices
Cattle
Hogs
Milk
100
100
100
102
104
102
120
128
113
unless he continually uses new technologies and
produces more to sell at the reduced prices.
Farm production could also be controlled, at
least in part, through environmental programs
that restrain production. Essentially, farm pro-
grams have restricted output by taking part of
the Nation's cropland out of production. Some
combination of lower productivity and utiliza-
tion of idle land could restrict available supplies
in a manner similar to the land restriction
program. Environmental protection measures
might be phased in as control programs are
eliminated.
The Iowa study reveals that a surplus of land
will continue to exist to the year 2000 under the
1969-71 average level of exports. This reserve
capacity could be used in combination with
environmental protection measures (such as re-
strictions on fertilizer use) in place of existing
government supply control programs.
Such a program is not only possible, but, if
designed properly, would result in an efficient
use of resources. One reason for the overuse of
chemical fertilizers and row cropping is that
market prices do not reflect the social cost of
their use. Prices reflect neither the cost of
eutrophication that may result from the buildup
of nitrates nor the adverse effects of sedimenta-
tion on recreation and on certain species of fish
and wildlife. At this time it is impossible to
determine the most efficient combination of
inputs, because the full social costs cannot be
measured in dollars. It is possible, however, to
indicate the potential benefits of an environ-
mental control program and its economic
impact.
Reduced Erosion. Results of the study indi-
cate that agriculture has the opportunity to
contribute to an improved environment. In
general, they indicate that a nationwide soil-loss
limitation would have on'v minor impacts on
land and water resource use, farm prices, food
costs, and net farm incomes. Soil erosion,
however, would be reduced considerably with an
attendant improvement in water quality. This
reduction would be possible at relatively small
cost to farmers, as a group, if adequate time for
adjustment were allowed. The reduction would
be affected through changes in crop rotations
and the adoption of conservation tillage prac-
tices such as contouring and strip cropping.
Individual farmers, however, may be reluctant to
switch from conventional practices for a number
of reasons. Reduced tillage practices, as com-
pared to conventional practices, would in most
cases, require new or different equipment. Also,
weed control can become a problem, and colder
soil temperature (which results from reduced
tillage) sometimes delays seed germination. Over
time, though, it is expected that farmers could
make the necessary adjustments.
A doubling of exports over the 1969-71
70
-------
average would have a much greater impact on
resource use, farm prices, food costs, and net
incomes than the adoption of a nationwide soil
loss limitation. With higher exports, total soil
erosion also would increase. But even if the
higher level of exports were combined with a
soil loss limitation, total soil erosion could still
be held to reasonable levels.
Nitrogen Fertilizer Limitations. The results of
the study indicate that a mild restriction on the
use of nitrogen fertilizer (such as 110 pounds
per acre per year) would not strain land and
water resources. The substitution of water and
land (mostly land) for fertilizer under a 110
pound nitrogen limit would still leave a consider-
able amount of surplus land and water to meet
possible increases in demand. Also, the restric-
tion would result in farm prices above those
experienced without a restriction.
With nitrogen fertilizer limited to 50 pounds
per acre, the reserve supply capacity of U.S.
agriculture would be reduced considerably—
nearly 75 percent. Farm prices and consumer
food outlays, however, would be expected to
increase, some by as much as 50 percent.
Income Distribution and Equity Effects. En-
vironmental control measures that lessen output
can increase gross farm income because demand
for the basic agricultural commodities is in-
elastic. This does not mean, however, that all
groups of farmers would benefit or have their
income protected. The results of the study
indicate that certain types and levels of environ-
mental protection measures would have greatly
different effects in different regions. Some
regions have topography that would not be
affected greatly by toil-loss limits. Also, some
regions have climatic conditions and crop
adaptation that permit meeting crop nitrogen
requirements through natural processes of nitri-
fication—the summer fallow wheat areas of the
Great Plains, for example. In contrast, certain
areas of the Southeast have crop farming on
hilly and erodable land. Production from these
areas is greatly dependent upon the amount of
chemical fertilizer applied. Limits on nitrogen
fertilizer application in these areas could reduce
crop yields by a greater percentage than offset-
ting percentage price gains resulting from en-
vironmental protection measures or government
supply control programs. Agricultural regions
based entirely on semiarid grazing lands and beef
production generally are not faced with reduc-
tion in crop yields and output as environmental
measures are taken. Some, however, would face
greater competition from those regions that
would be forced to incorporate more forages
into their rotations (or sod-based rotations) as a
means of attaining environmental standards.
Imposition of soil loss and nitrogen applica-
tion limits would not reduce total national
farmer receipts if two conditions were met:
• The farmer's level of production is not
lower than under the land retirement pro-
grams.
• The farm community must receive pay-
ments equal to what it formerly received
for removing land from production.
However, income effects would vary widely
among the 223 farm regions delineated in the
study. Not all of them possess the characteristics
needed to have their income improved or main-
tained under conditions of prevailing farm
programs or a free market situation.
Adoption of environmental measures that
would just offset and replace government supply
control programs would still have a differential
effect among regions. As might be expected,
areas using little nitrogen fertilizer and having
soils and climate causing little soil loss would
realize more income, as well as windfall gains in
the form of higher land values. Conversely, those
areas with yields affected materially by shifts in
land use and reduced nitrogen would have less
income, even though total revenue would remain
constant at the national level.
71
-------
VI. Benefits From Water Quality Enhancement
INTRODUCTION*
Meeting the water quality goals set by the 1972
Amendments will require expenditures by Fed-
eral, State and local governments and by private
industry. Given the costs involved, it is impor-
tant to know what will be received in return,
what will be the economic value of enhancing
the quality of water resources, and in which
locations and for what purposes will abatement
efforts be most valuable.
The purpose of estimating benefits is to infer
the economic value of pollution control. The
market value of most goods and services and
factors of production is known by their market
prices—that is, the amount that someone is
willing to pay for their use. However, normal
market transactions are not usually available for
valuing water quality. Therefore, the value must
be imputed indirectly as it affects the costs of
producing goods or the demand for water-
related activities. The estimation of benefits is
an effort to identify how much water users
would be willing to pay for an amount of water
quality enhancement if a market existed. For
example, consumers would be willing to pay for
increased pleasure in recreation uses, and indus-
try and municipalities would be willing to pay to
avoid the costs of treating water before they use
it.
Estimating benefits at a particular site
requires four sequential steps:
• The abatement plan must be specified in
terms of the amounts and types of pollu-
tants to be reduced.
* The impact of the abatement plan on the
parameters of watercourse quality must be
predicted.
For a more theoretical and comprehensive discussion of
the issues in benefit analysis by EPA, see Techniques
for Cost and Benefit Analysis of Water Pollution
Control Programs and Policies, report to Congress in
compliance with Public Law 92-500. January 1974.
• The impact of changes in the parameters on
water uses must be estimated.
• The economic value of induced changes in
the level of uses and in the increased value
of existing uses, plus cost savings because
of improved water quality, must be
identified.
The first step is required because a benefit
study is useful only if estimated benefits can be
compared to the costs that produced them. A
benefit study is undertaken at a site to compare
the value of abatement with the costs of
abatement. The effluent guidelines, established
under the 1972 Amendments, become the abate-
ment plans. And the projected total effluent
releases must be compared to the present level
of effluent releases in order to obtain a measure
of abatement. The first step is probably the least
difficult once the guidelines are established,
although the content of some presently released
effluents, particularly industrial wastes, is not
completely known. Abatement can reduce re-
lease of a combination of pollutants such as
oxygen-demanding organic wastes, suspended
and floating solids, hazardous materials, waste
heat, and other chemical substances. Data on
abatement plans already undertaken should
depend mainly on monitoring effluent streams
before and after abatement. For benefit studies
of proposed plans, the abatement efficiencies of
selected technologies must be inferred from
experience elsewhere.
For the second step, a transfer function must
be constructed relating pollutant emission qual-
ity to changes in ambient conditions. Abatement
can affect parameters such as dissolved oxygen,
temperature, and chemical concentrations in a
wide variety of ways. Some of the effects are
well known, but others are not. The effects
depend in part on existing water temperature,
air temperature, wind, water current and mixing,
and other physical and biological characteristics
of the receiving waters. In-stream monitoring
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should include several water quality parameters,
a number of monitoring sites, since effects can
vary widely between nearby points. However,
monitoring is so expensive that inferences must
be made from samples made at few points and
for only a few parameters. This tends to weaken
this step in the benefit estimation process.
Probably the most difficult step in benefit
estimation is to link changes in water quality
parameters and man's potential use of water
resources. For this third step, it is useful to
classify water uses as withdrawal or in-stream
uses. Withdrawal uses include municipal, indus-
trial, and agricultural (irrigation) activities. In-
stream uses include commercial fishing,
water-related recreation, and navigation. There
are also ecological benefits and aesthetic values
not directly related to recreation.
The fourth step in benefit estimation is to
assign values to use changes. Municipal and
industrial water users value improved water
quality because it can lower water treatment
costs, and farmers and commercial fisherman
value it because it increases crop and fishery
yields and thus increases their income. Many
individuals value improved water quality because
it increases the potential for water related
activities, aesthetic enjoyment of water courses,
and maintenance of the ecological system. In-
dividuals also value improved water quality
because it reduces the potential for health
hazards.
Each of the four steps must be completed in
order to estimate the benefits of a given abate-
ment scheme. The ability to measure benefits is
a composite of the four steps. The greatest
difficulties lie in the second step, tracing the
effects of an abatement plan on water quality
parameters, and in the third step, relating
parameter changes to man's use of the water. To
a large extent, improved benefit analysis
depends on better knowledge of how to measure
these relationships, but the emphasis here will be
on the fourth step of placing a value on the
changes in use.
WATER QUALITY AS AN INPUT INTO
PRODUCTION
Water quality is important as an input into
industrial water uses, municipal (domestic)
water uses, commercial fisheries, and agriculture
With cleaner raw water, an industry or munici-
pality may incur lower treatment costs or a
fishery or farm may be more productive. The
approach to measuring the benefits is to esti-
mate the value of lower costs of production and
increased productivity resulting from improved
water quality.
Industrial Uses. Deviating from prescribed
water quality for particular industrial uses can
result in damage to equipment, reduced effi-
ciency, reduced product quality, or other eco-
nomic costs such as reduced yields. Water
quality requirements vary widely from industry
to industry. For example, water with color
would be suitable as boiler feed but unsuitable
in the manufacture of clear, uncolored plastics.
Because of the wide variations in water quality
requirements, benefit estimates for one or two
industrial sectors cannot be generalized to all
industry in a region or in the Nation.
The benefits from water quality enhancement
are probably measured most accurately in indus-
trial water uses. Engineering studies can calcu-
late the cost savings from decreased require-
ments for water treatment; the cost calculation
is facilitated by the use of normal market prices
for the inputs that will no longer have to be
used. Measuring benefits for more than one firm
or for regional or national studies might be done
using statistical cost functions, and future cost
savings might be estimated through use of
population and water use projections—that is,
demand projections. If statistical cost functions
are not available, then survey and interview
techniques could be applied; their accuracy
would probably be lower, however.
Municipal Uses. Estimating the benefits of
cleaner water to municipal water systems is as
straightforward as for industrial water uses, but
the engineering studies of damage to equipment
and to other factors are not as well developed.
Statistical cost functions for particular treat-
ment plants, if applied to plants in other
locations, would probably be more reliable than
the same procedure in industrial studies because
the product, clean water, is much more similar
between regions. There is still the problem,
however, of variations in natural pollutants.
Treatment costs and techniques vary between
locations, which makes generalization of a few
studies to broader areas unreliable.
Although treatment cost savings can be calcu-
lated, it is difficult to relate these benefits to the
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cost outlays made upstream for waste treatment.
Frankel (1965) attempted to make this link
using a simulation model of a part of a river.*
His results indicate the complexity of the
linkage because of hydrologic variations in
rivers, both between sites and at the same site
over time. Benefit estimates are not useful as a
policy guide if they cannot be related to the cost
outlays needed to produce them.
There is one national estimate of water supply
benefits to domestic users. Tihansky [1973(b)]
derived individual functions that relate physical
damages from minerals and other pollutants to
both household appliances and to water distribu-
tion facilities. The effects were converted to
economic losses from operating problems and
equipment depreciation in a typical household.
Average household damages were found to
depend on the sources of water supply—whether
it was publicly treated surface water, publicly
treated groundwater, or private well water. The
most economically damaging pollutants were
hardness and total dissolved solids. Because
these pollutants are partly natural in origin, the
portion due to man-made pollutants is difficult
to segregate.
Multiple Uses. Some benefit studies do not
emphasize one water use but instead study one
pollutant in several contexts. Considering both
domestic and industrial uses, Brandt (1972)
assessed the economic effects of sediment along
the Potomac River north of the District of
Columbia. Not all of the effects were detrimen-
tal, since turbidity in municipal water supply
absorbs certain foul-tasting and odor-producing
constituents. Hypothetical linear damage func-
tions were used to relate sediment loads to the
chemical treatment costs of water supply.
In a more comprehensive geographic analysis,
Stoll (1966) estimated annual sediment damages
for the United States. Damage categories in-
cluded reservoir capacity losses, inland naviga-
tion route blockages, obstruction of irrigation
canals, excess turbidity in public water supplies,
and commercial fishery losses. The validity of
such estimates is questionable because accurate
data on sediment discharge, transport, and
subsequent effects do not exist in most regions
of the country. Benefits were estimated by using
*References cited are included in a bibliography located
at the end of this section.
the cost of repairing the damage or removing the
obstruction. For example, the cost of dredging
was used as a surrogate for damages although
firms using a dredged canal or whatever may be
willing to pay much more (or less) than these
costs. Thus, costs of repair are not an accurate
surrogate for benefits.
Commercial Fishing Uses. Commercial fish-
ery losses from pollution have been estimated
for small coastal areas, estuaries, and river
stretches throughout the United States, but
there are only a few national estimates. Bale
(1971) estimated total national losses of revenue
(dockside) from DDT, mercury, and pathogenic
organisms. Fish kills were evaluated by assigning
an arbitrary price per fish and assuming that
roughly two-thirds of reported kills were com-
mercial species. This assigned value may be
modest; further, because fish kills are not
carefully monitored, the damage estimates are
highly conjectural. Bale calculated the economic
losses to the shellfish industry by assuming that
only clams and oysters, which are immobile,
were reduced in catch. Other species were
assumed to avoid pollution. The reduction in
potential supply was assumed to be proportional
to shellfishing areas closed by pollution. Poten-
tial revenue gains used as benefit estimates were
calculated from the original price of shellfish.
This may be inaccurate since an increase in the
national supply should lower prices.
The Council on Environmental Quality
(1971) also estimated national revenue losses of
commercial (marine) shellfishing; this value is
four times as large as Bale's estimate because it
included all species caught. The Council's esti-
mate is probably too high because some species,
such as lobsters and crabs, can tolerate more
pollution than clams and oysters. The fourfold
difference in loss estimates indicates that benefit
estimation is not far advanced.
Weddig (1972) calculated the impact of mer-
cury restrictions on inland and estuarine fish
supply in the United States. He assumed that
roughly 1.5 percent of potential domestic sup-
ply is lost. An interesting part of this estimate
pertains to a potential coho salmon fishery in
Lake Michigan. Since it "closed before it
began," the real dollar losses to private fisher-
men are assumed to be nil. By overlooking the
social cost of unfilled opportunity and lost
option demand, this viewpoint avoided a very
difficult measurement problem.
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Agricultural Uses. The salt content of water
can have serious economic and social impacts on
agriculture by contaminating irrigation water.
Callinan and Webster (1971) estimated farm
production losses and the social costs of uproot-
ing rural community life by forcing farmers to
move. The economic cost of re-establishment
was assumed to be a fixed amount per capita
and the corresponding "social cost" to be
one-fourth of the economic value. These costs
were not defined explicitly and apparently
included some concept of value in addition to
the normal efficiency concept of benefits. Dam-
age to crops may be caused by other factors
such as poor farm management, the effects of
which were not considered in the study. Finally,
farm crop losses are an immediate effect and
may not reflect long-term damages. Crops more
tolerant of salinity may be substituted in irri-
gated fields, reducing initial income losses.
Vincent and Russell (1971) presented a more
comprehensive analysis of saline water uses.
Economic losses estimated were decreased agri-
cultural crop yields, municipal and industrial
water treatment costs, corrosion of water supply
intake pipes, and reduced palatability of drink-
ing water. The palatability loss referred to
consumers' willingness to pay for their taste
preferences and hence was more subjective than
the other impacts. Because general information
on salinity effects was minimal, the authors
derived estimates of expected values and prob-
abilities of damage levels by soliciting the
opinions of experts.
In a theoretical decision model, EPA (1971)
attempted to identify the least cost solution of
salinity control. Farmers had five possible
responses to saline irrigation water from the
Colorado River Basin. Their options varied from
no remedial action (with reduced crop yields) to
maintenance of past crop yields (with increased
water requirements). Nonlinear economic dam-
age curves were formulated for each action, but
they were based on minimal data and incom-
plete surveys of farmers' preferences for action.
As a hedge, all damage estimates were made on
the conservative side.
Another study of this region, by the Bureau
of Reclamation (1969), derived what appear to
be high damage values. On the basis of no
remedial actions, crop losses were evaluated on
the assumptions that the highest valued crops
were destroyed and that soil leaching conditions
were extreme. Estimates of regional crop dam-
ages were based on fixed prices and thus
overlooked the possibility that large-scale
changes in supply could significantly affect the
market prices,
Implications. The ability to estimate benefits
varies when water quality is an input in produc-
tion. Benefit estimation can be quite accurate
for a single industrial plant or a municipal water
treatment plant. It is less accurate in agriculture
because of problems of changing levels of
output, of subsidized prices, and in separating
natural from man-caused pollutants. Finally, it is
probably inaccurate in commercial fisheries be-
cause the effects of pollutants are not well
known and the price-quantity relationships vary
greatly in short time periods as fish supplies
change. In addition, benefit studies must be
specific to a plant or site to have any validity.
Generalization of the results of one study to
other sites or plants is usually not valid. National
benefit studies must be a summation of the
results of many studies and not a generalization
from one or a few studies.
WATER QUALITY WHEN CONSUMED WITH
ANOTHER GOOD
Clean water is consumed with some final goods.
In this case, the benefits of water quality
enhancement are measured by the increased
willingness to pay for the good consumed with
the cleaner water. For example, the additional
amount that persons would be willing to pay for
a recreational experience on a cleaner lake or
river is the relevant concept of benefits.
The primary good for which water quality is
important is water related recreation. But a
complicating factor is that outdoor recreation is
usually a nonmarketed good so that the demand
has to be determined from some other activity.
There are three main approaches to determining
benefits and variations within each method.
One approach is to use market data of private
recreation facilities. If a private development is a
close substitute for a public facility, then will-
ingness to pay for private recreation is likely to
be a valid estimate of the value of the public
recreation. Unfortunately, private recreation
developments are usually not similar to public
ones.
A second approach is to ask potential benefi-
ciaries how much they would be willing to pay
76
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to use a particular recreation facility. The
critical problem with this approach is that
responses to survey questionnaires tend to be
biased whenever the respondent believes his
answer to be self-serving. For example, a
respondent may overestimate his willingness to
pay for a recreation area if he believes his answer
will encourage a decision to provide more such
areas. He may understate it if he thinks he may
have to pay. In addition, there is the problem of
people making hypothetical choices. The
respondent is not as likely to evaluate the
consequences of a hypothetical choice as care-
fully as he would the possible outcomes of an
actual choice. In fact, the choice may be made
with very little thought since he will not
experience the consequences.
The third approach is the travel-cost method.
This method derives a market-demand function
for a particular recreation site. It bases willing-
ness to pay on travel costs to get to a particular
site. However, this approach underestimates
willingness to pay to the extent that persons are
willing to use their scarce time for travel to the
site.
The travel-cost approach has been applied
successfully several times and is probably the
most useful of the three models. Its most serious
difficulty is that it primarily is useful only for
calculating benefits on a completed project.
Since the method depends on participation
rates, the use before and after a change in water
quality must be known before willingness to pay
for the site can be estimated. This difficulty is
serious, since the primary use of benefit esti-
mates is for evaluating proposed projects.
One of the earliest and most comprehensive
benefit studies dealt with water quality in the
Delaware Estuary. The study, made by the
Federal Water Pollution Control Administration
(1966), attempted to quantify water quality
benefits to recreation, commercial fishing, and
domestic water supply. Rough estimates of
recreation benefits based on national participa-
tion rates and applied to the regional population
accounted for the great majority of water
quality benefits. Benefits to commercial fishing
were significant, although only a small fraction
of total benefits. Benefits to domestic water
supply were negligible.
In an extension of the Delaware study,
Tomazinis and Gabbour (1967) estimated the
economic impacts of pollution control on the
specific activities of boating, fishing, swimming,
and beach picnicking. Like another related study
completed earlier by Davidson (1966), they
assumed that demand increases linearly with the
supply of clean surface water. The major short-
coming of both studies was that total benefits
were determined by multiplying the anticipated
increased use by a range of essentially arbitrary
values. This approach does not represent bene-
fits in terms of willingness to pay, nor is there
any reason to suspect it is a good approxima-
tion. Nevertheless, useful attendance informa-
tion was developed.
A rigorous benefit study by Stevens (1966)
looked at the relationship between water quality
and the value of the Yaquina Bay sports fishery
in Oregon. Demand for fishing was estimated by
the travel-cost method but modified to include
the quality of fishing, which in turn depended
on the quality of water. The benefits of cleaner
water were estimated by the willingness to pay
for sports fishing. The benefit estimation was
later successfully questioned by Burt (1969) as
underestimating the total willingness to pay.
Despite their limitations, studies such as these
have provided useful information and have
advanced benefit evaluation. More empirical
work based on sound analytical procedures is
needed, but rigorous studies tend to be both
time consuming and expensive. Data require-
ments can be staggering and the necessary
methodologies highly technical. The value of
future studies would be enhanced greatly if
results could be legitimately generalized to the
regional level. High priority should be given
those studies most likely to produce results that
can be extended to other situations.
WATER QUALITY AS A FACTOR IN
HUMAN HEALTH
There has been considerable research on the
impact of inadequate water quality control on
human health. Epidemiologic and other health
data are now compiled in detail for acute clinical
illnesses, however, and they do not exist for
subclinical and low-level illnesses such as com-
mon diarrhea as related to water quality. Prob-
lems arise in that the victim may not report the
illness, or the effects may only occur after a
period of time has elapsed, making its cause
impossible to trace.
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Water pollutants are transmitted to man in
several ways. Pollutants enter through the public
water supply system in the form of such things
as chemical impurities, bacteria, and viruses.
Second, they enter through the food supply
such as a buildup of chemicals in fish. Third,
pollutants enter through direct body contact
with the water such as in swimming. Finally,
pollutants may lead to ecological changes that
affect man's physical or psychological health.
The research on health impacts and water
quality is concerned with several basic areas:
• Bacteriological parameters of surface water
bodies, including discussions of source,
survival, and removability.
• General reviews of the incidence, out-
breaks, and significance of waterborne
diseases.
• Engineering evaluations of health hazards
and water quality parameters.
• Studies of specific pollutants such as miner-
alization, mercury, or coliform bacteria,
and their relation to human health.
• Bacteriological parameters and contact
recreation.
The emphasis at this time has not yet shifted to
the economic quantification of reduced health
hazards or risks associated with water pollution
abatement.
The value of avoiding sickness or of dying
prematurely from polluted water does not fit
well into the two previously discussed concepts
of benefits. When water is used directly for
drinking, cooking, bathing, and swimming, or
indirectly in the production of some good, there
is a risk of contracting some disease. A person
would not use water if he knew that it would
make him sick. But he would use water if he
knew there was only a small chance of contract-
ing a sickness—that is, he thought perhaps that
someone may get sick, but he did not know
who. Thus the correct concept of benefits is the
amount a person is willing to pay to reduce the
risk of getting sick.
Health benefits have been conceptualized in
several ways. One is to measure loss in gross
earnings. This assumes that there is no benefit in
preventing illness for housewives, children, or
persons who are retired, on vacation, on welfare,
or living on investment income. It is not clear
that even persons who are working would be
willing to pay all of their income losses to avoid
being sick. A second measure takes gross income
minus consumption expenditure. It is again not
clear that persons who are working would be
willing to pay only their savings to avoid being
sick or dying prematurely. A third measure adds
up outlays by sick persons for doctors, hospitals,
and medicine. The amount that persons would
pay to repair a sickness may be very different
from the amount they would pay to reduce the
risk of getting sick in the first place.
There is recent but increasing acceptance of
the concept of health benefits as being willing-
ness to pay to reduce the risk of contracting a
sickness or of dying prematurely, but very little
successful work has been done to identify a
proxy for this amount for water quality (or for
other health situations) (Liu 1972).
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85
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VII. Constraints
This chapter examines some of the potential
problems in implementing the 1972 Amend-
ments. A national determination that water
pollution control is in the public interest does
not eliminate economic and administrative prob-
lems. The economic problems of concern in this
report are the financial burdens placed on
municipalities and industries as they meet the
1977 standards, and the capacity of the con-
struction and equipment supply industries to
put in place the required capital without ad-
versely affecting the levels, volume, and prices of
construction and equipment, as well as wages
and employment in those industries.
FISCAL IMPACT ON LOCAL
GOVERNMENT
Localities will not, in general, find it difficult to
finance their share of the capital outlays
required to construct sewerage facilities. Local
agencies will bear, however, the considerably
increased annual cost of operating, maintaining,
and administering public sewerage facilities and
services.
Required Capital Outlays. The 1973 "Needs"
Survey indicates that an enormous investment is
required to bring the Nation's public sewerage
facilities up to an acceptable level. The indicated
costs (Table III-5) may be summarized as
follows:
Category
Billions of
1973 dollars
II
III
IVA
IVB
To meet the "secondary treatment" standards
contained in the 1972 Act.
To provide more stringent treatment when
required by water quality standards.
To correct sewer infiltration and inflow.
To construct new interceptors, forcing mains,
etc.
To construct new collection sewers in existing
communities.
To correct overflows from combined sewers.
TOTAL
$16.6
5.7
.7
13.6
10.8
12.7
$60.1
87
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Projecting Sewerage Capital Expendi-
tures. The results of this latest Needs Survey
were meant to serve as a basis for allocating
available Federal construction grant funds
among the various States. The survey results
have not been used directly in projecting capital
outlays for sewerage facilities during the next
several years. The primary reason is that the
individual States and localities developed their
estimates of expenditures and completion dates
without consideration of the overall amount of
funds that might be available. Instead, public
expenditures for sewerage construction were
projected (Table VII-1) primarily on the follow-
ing assumptions:
• The remaining unallocated funds ($13 bil-
lion) authorized in the 1972 Amendments
TABLE VII-1
PROJECTION OF CAPITAL OUTLAYS ON PUBLIC SEWERAGE CONSTRUCTION, 1974-80
EPA grant outlays
Pre-1 97 3 funds*
1972 Act funds*
1973/74 allocation
1975/76 allocation
1974
$1,500
500
1975
$1
1
,600
,350
550
1976
$ 700
1,650
2,050
1977
(millions of
$ 300
800
3,300
1978 1979
1973
$
3,
dollars)
200 $
400
200
100
200
2,100
1980
$ 100
1,100
Total
$ 4
5
12
,400
,000
,300
Total EPA outlays
State and local outlays
Match for pre-1973 funds"1"
Match for 1972 Act funds**
Projects with no EPA funds
Total State and local
Direct capital outlays"'"''
Cumulative direct outlays
$2,000 $3,500 $ 4,400 $ 4,400 $ 3,800 $ 2,400 $ 1,200 $21,700
$1,200 $1,100 $ 700 $ 300 $ 200 $ 100 - $ 3,600
200 600 1,200 1,400 1,200 800 400 5,800
500 500 500 500 500 500 500 3,500
$1,900 $2,200 $ 2,400 $ 2,200 $ 1,900 $ 1,400 $ 900 $12,900
$3,600 $5,200 $ 6,800 $ 6,600 $ 5,700 $ 3,800 $ 2,100 $33,800
$3,600 $8,800 $15,600 $22,200 $27,900 $31,700 $33,800 —
"•Including $1,900 million in reimbursables.
'''Based on the following projection of obligations and upon historical time lags between obligations and outlays:
(Outlays of $700 million from the 1975/76 allocation will be made after 1980).
Allocation
Obligations
1973 (4th Quarter)
1974
1975
1976
1977
1973/74
1.6
3.2
.2
—
—
5.0
1975/76
—
1.4
4.8
5.0
1.8
13.0
Total
1.6
4.6
5.0
5.0
1.8
18.0
This projection of obligations was made on 11/1/73 and is subject to substantial changes due to such factors as
limitations on the total Federal budget, and the rate at which states and localities can produce applications that
meet all applicable criteria for grant awards.
t Assumes a 1:1 match, but excluding the effect of the approximately $800 million in Federal reimbursables paid in
FY 74 but related to construction in place as of 7/1/73.
* * Assumes a 1:3 match.
ttgxcludes the effect of the approximately $800 million in Federal reimbursables paid in FY 74 but related to
construction in place as of 7/1/73.
88
-------
will be released in the FY 1975 and FY
1976 allocations. The actual rate of allot-
ment will be determined by Federal fiscal
policy.
These allotments will be obligated over the
30-month periods provided for in the 1972
Amendments.
Federal outlays will continue to lag obli-
gations in the pattern observed in this grant
program in the recent past.
State and local outlays will occur in the
same period as related Federal outlays.
Future Federal outlays from pre-1973 EPA
funds will be matched equally by State and
local funds.
1 Much of the construction begun during the
next several years, including all sewerage
treatment plants and ancillary facilities (for
example, interceptors and pumping sta-
tions), will be 75 percent Federally funded.
• Approximately $500 million of sewerage
construction, primarily collection sewers,
will be built annually without EPA finan-
cial assistance.
Although the projection is based in part upon a
level of allocations in FY 1975-76 higher than
that used when discussing the impact on the
construction industry, it provides a reasonable
basis for discussing the potential fiscal impact on
local government during the next several years.
Local Fiscal Impact. The projection indicates
a considerable increase in total capital outlays
on public sewerage facilities over outlays made
in the recent past (Table VII-2). The 1975 direct
outlay of $5.2 billion is almost four times that
of 1970. Furthermore, State and local projected
outlays on sewerage construction during the
next several years will constitute a larger portion
(11.6 percent) of their total capital expendi-
tures. Finally, even though EPA grants will make
up a much larger portion of total outlays, State
TABLE VII-2
STATE AND LOCAL CAPITAL OUTLAYS. 1961-70
Year
Direct capital outlays*
Sewerage outlays only
All
purposes
Sewerage
> sewerage
EPA grant1"
outlays
State and*
local sources
EPA grant
outlays
(millions of current dollars)
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
Totals
1975 (projected)
$ 16,091
16,791
17,638
19,087
20,535
22,330
24,233
25,731
28,240
29,650
$220,326
$ 43,099**
$ 747
798
928
1,095
1,107
1,202
1,093
1,107
1,208
1,385
$10,670
$ 5,200**
4.6%
4.8
5.3
5.7
5.4
5.4
4.5
4.3
4.3
4.7
4.8%
11.6%
$ 44
42
52
66
70
81
84
116
135
176
$ 866
$3,000tt
$ 703
756
876
1,029
1,037
1,121
1,009
991
1,073
1,209
$9,804
$2,200tt
5.9%
5.3
5.6
6.0
6.3
6.7
7.7
10.5
11.2
12.7
8.1%
57.7%
*U.S. Bureau of the Census, Governmental Finances in 1969-70, Series GF70-No. 5, U.S. Government Printing
Office, Washington, D.C. 1971 and preceding issues.
'('Cash outlays reported to Department of the Treasury.
* Includes funds from Department of Housing and Urban Development, Farmers Home Administration, and the
Appalachian Public Work Program.
**The Financial Outlook for States and Local Government to 1980. Tax Foundation, Inc., New York, 1973.
Table VIM.
89
-------
and local governments will be called upon to
contribute approximately $2 billion annually.
This is approximately twice what they supplied
annually from 1961 through 1970.
Local governments can be expected to finance
the non-EPA portion of the projected capital
expenditures in a variety of ways. The most
common sources of funds are likely to be
current general revenues and the issuance of
municipal bonds. Several recent studies indicate
that State and local governments may run
surpluses in their current general accounts over
the next several years.1 '3 Hence, most localities
may have more flexibility to deal with an
increase in sewerage service costs than they have
had in the recent past.
A survey conducted in 1969 indicates that
localities nationwide had been initiating or
boosting "user fees" to finance sewerage ser-
vices.4 Of the 1,040 localities that both collect
and treat wastewater, 86 percent indicated they
levy such a charge. In the aggregate, revenue
from user fees exceeded the annual costs for
operating and maintaining sewerage facilities,
but had to be supplemented by other charges in
order to cover debt service payments. The
survey indicated a trend for more cities to levy
user charges, and for such charges to pay a larger
portion of total annual costs. This trend should
be reinforced by requirements in the 1972
Amendments that agencies adopt user charges,
and, in particular, that such charges be sufficient
to ensure that industrial users repay an appro-
priate portion of the costs of constructing such a
facility.
Between 1961 and 1970, approximately 67
percent of funds required by State and local
governments for sewerage construction were
provided through long term borrowing (Table
VII-3). Assuming this percentage continues over
the next several years, new issues of sewer bonds
would total $5 billion for FY 1974-77 (Table
VII-4). A recent study estimated that total
^Setting National Priorities—The 1974 Budget. Brook-
ings Institution, Washington, D.C., 1973.
'^Public Claims on U.S. Output. American Enterprise
Institute for Public Policy Research, Washington, B.C.,
1973.
3 The Financial Outlook for State and Local Government
to 1980. Tax Foundation, Washington, D.C., 1973.
4 Sewer Services and Charges. Urban Data Service (Inter-
national City Managers Association) Washington, B.C.,
Vol. 2 No. 2. February, 1970.
municipal bond sales in 1975 would amount to
$25.9 billion.3 The $1.5 billion projected sales
of sewer bonds in 1975 would represent 5.8
percent of the total, a percentage only slightly
above the 5.2 percent experienced in the recent
past.
There are, of course, many factors that will
determine the success of localities in the munici-
pal bond market, including:
• Basic demand for municipal bonds. The last
comprehensive study of the demand for
municipal bonds was made in 1966.5 How-
ever, one indicator of a continuing demand
is the fact that in the face of generally tight
credit markets and record interest rates,
interest rates on municipal bonds have
fallen from 1970 highs to a current level of
approximately 5 percent. In addition, a
projection of State and local general
finances over the coming decade indicates
that debt as a portion of own source
revenue will drop from 124 percent in
1970 to 112 percent in 1975.3 This trend
may be generally viewed as a reduction of
the risk involved in buying municipal
bonds, thereby strengthening demand.
• Tighter credit market conditions. Munici-
pal bond sales during the last half of
calendar year 1969 were sharply reduced,
primarily due to a severe "credit crunch."
A Federal Reserve Board study indicated a
net short fall of $5.2 billion in long-term
State and local borrowing in FY 1970
below a planned level of $18.5 billion.6
However, in the following year relatively
favorable market conditions stimulated a
record volume of municipal bonds. The
effect on capital spending was apparently
minimized by the ability of States and
localities to fill the gap with short-term
borrowing. A similar response to future
credit market conditions of similar severity
would be expected.
• Legal constraints. State and local govern-
ments are generally restricted in the
amount of general indebtedness that they
^State and Local Public Facility Needs and Financing.
U.S. Congress, Joint Economic Committee, 1966.
6 Peterson, John E. Response of State and Local Govern-
ments to Varying Credit Conditions. Federal Reserve
Bulletin. March 1971.
90
-------
TABLE VI1-3
STATE AND LOCAL SEWER BOND SALES, 1961-70
Year
Construction
contracts*
EPA grants*
State and
local funds
Sewer"*"
bond sales
bonds
Total
municipal
bond
% sewer
bonds
(millions of current dollars)
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
Totals
$ 763
803
1,004
862
832
919
1,045
1,449
1,510
1,843
$11,030
$ 45
66
93
85
84
120
134
194
203
577
$1,601
$
718
737
911
777
748
799
911
1,255
1,307
1,266
$9,429
$ 624
659
607
290
629
591
572
631
490
1,180
$6,273
86.9
89.4
66.6
37.3
84.1
74.0
62.8
50.3
37.5
93.2
66.5
*EPA files.
"^Securities Industries Association.
t Federal Reserve Board of Governors.
$ 99,463
8,568
9,151
10,201
10,471
11,303
14,643
16,489
11,838
18,110
$120,237
6.6
7.7
6.6
2.8
6.0
5.2
3.9
3.8
4.1
6.5
5.2
TABLE VI1-4
OBLIGATIONS FOR SEWERAGE FACILITY CONSTRUCTION
STATE AND LOCAL FUNDING*
Fiscal
year
EPA grants1"
Match for
EPA grants*
Other
projects
Total
New issues of
sewer bonds
1974
1975
1976
1977
$
4.6
5.0
5.0
1.8
Total
$16.4
$1.5
1.7
1.7
.6
$5.5
(billions of 1973 dollars)
$ .5
.5
.5
.5
$2.0
$2.0
2.2
2.2
1.1
$7.5
$1.3
1.5
1.5
.7
$5.0
* Assuming that State and local funding is arranged in same period as the related EPA grant.
"•"From Table VII-1, second footnote.
* Assumes 1:3 match.
can issue by State constitutions or statutes.
A recent study indicates that debt limits
generally inhibit local spending, rather than
encourage the use of other sources of
funds.7 A second study, however, asserts
that legal debt limitations in general are
ineffective in controlling total debt.8 Debt
limits have been avoided through such
measures as:
— Issuance of nonguaranteed debt such as
revenue bonds.
7Pogue, T. F. The Effect of Debt Limits: Some New
Evidence. National Tax Journal, 23(1) March 1970, p.
36-44.
8Hoggan, D. H. Can State and Local Governments
Assume More of the Costs of Water Development?
Water Resources Bulletin, 8(3) June 1972, p. 626.
91
-------
— Shifting of financial responsibility to
independent authorities, or special dis-
tricts.
— Use of lease purchase arrangements.
Legal debt limits should continue to be
avoidable in most cases.
Most localities will probably not find it
difficult to finance their share of the anticipated
surge in capital expenditures on sewerage facili-
ties. There will, of course, be individual localities
where financing will pose a major problem,
perhaps because of unacceptable credit ratings.
The source of support in these cases may be the
State construction grant programs. In response
to earlier Federal legislation, approximately 40
States have established such programs, which
can provide up to 25 percent of total construc-
tion financing. A second source of financial
assistance for these localities will be the Environ-
mental Financing Authority, which was created
by the 1972 Amendments ". . . to assure that
inability to borrow necessary funds on reason-
able terms does not prevent any State or local
public body from carrying out any project for
construction of waste treatment works deter-
mined eligible for assistance ..." The Authority
will begin operation in calendar year 1974.
Finally, the Farmers Home Administration is
currently making loans for community facilities,
including wastewater treatment projects, to
communities of under 10,000 population.
Annual Costs. While Federal financial assist-
ance will largely mitigate the fiscal impact on
localities of constructing waste treatment facili-
ties during the next several years, localities will
largely be on their own when it comes to
financing the operation and maintenance of a
vastly increased amount of sewerage capital.
The annual expenses of providing sewerage
service may be classified as operation costs
(plant operation and maintenance, sewer mainte-
nance, and overall administration), and capital
costs (interest and depreciation). Both categories
of costs may be expressed as a function of the
value of sewerage capital in place, which is
projected to increase from $35 billion in 1973
to $52 billion in 1977 (Table VII-5). Based upon
this estimate, the annual cost of providing
sewerage services may increase by 66 percent in
the next 4 years (Table VII-6).
In the aggregate, this rapid increase in annual
costs should not result in severe pressures on the
general revenue of localities because:
• Expenditures on sewerage operations repre-
sented just over 1 percent of all current
expenditures by local governments in 1970.
Even a 66 percent increase would have
meant that the cost of sewerage operations
was no more than 1.7 percent of all current
expenditures in that year.
• As discussed earlier, several recent reports
indicate that State and local governments
may well run surpluses in their general
accounts over the next several years, due in
part to the advent of general revenue
sharing. Hence, most localities may be
better able to absorb an increase in sewer-
age service costs.
TABLE VII-5
ESTIMATED VALUE OF SEWERAGE CAPITAL
IN PLACE
(billions of 1973 dollars)
Value, July 1973*
Net investment—FY 74-77
Capital Expenditure''"
Less: depreciation?
Value, July 1977
$22
5
$35
17
$52
*Estimated from net investment in Table III-4.
Trom Table VIM.
$ Based on 4 percent annual depreciation for treatment
plant and 2 percent for sewers.
TABLE VII-6
TOTAL ANNUAL COSTS OF
SEWERAGE FACILITIES
Category
July 1973
(billions of 1973 dollars)
July 1977
Interest*
Depreciation t
Cost capital
Operations^
Total costs
$1.7
.9
$2.6
1.2
$3.8
$2.6
1.6
$4.2
2.1
$6.3
*5 percent of estimated value of sewerage capital.
?4 percent for plants, 2 percent for sewers.
t Based upon an extrapolation of recent trends in the
ratio of operating costs to the value of sewerage capital.
92
-------
• Localities are increasingly utilizing sewer-
age user fees as a source of income. Hence,
although the public will pay increased
costs, the impact on local budgets will be
further mitigated by a corresponding in-
crease in revenue.
It should be noted, however, that the per
capita annual costs of sewerage services can be
considerably higher in smaller communities than
in larger communities (Table VII-7). These
variations, which result primarily from the con-
siderable economies of scale experienced in
facility construction, may be even greater for
very small communities.
Analysis of Bureau of the Census data yields
conflicting indications regarding the ability of
the residents in these smaller communities to
pay these higher costs (Table VII-8). On the one
hand, as per capita income does not vary
significantly by community size there would
seem to be a real difference in impact on the
residents of small communities. On the other
hand, as smaller communities generally exert a
smaller "own revenue effort" (that is, local
governmental income as a percent of personal
income), these higher sewerage charges appear to
be more than offset by lower burdens from
other sources of revenue.
ECONOMIC IMPACTS ON DIRECTLY
DISCHARGING INDUSTRIES
The economic impact of the 1977 standards on
industrial sectors is highly dependent upon their
ability to recover abatement costs through price
increases. If they can recover costs, it is antici-
pated that they will be able to meet the
standards. If they cannot recover costs, they will
TABLE VII-7
PER CAPITA COST OF SEWERAGE FACILITIES,
BY SIZE OF COMMUNITY
Community size
Average per capita
Costs
25,000
25-250,000
250,000
$30.
$19.
$13.
TABLE VII-8
FISCAL CHARACTERISTICS OF COMMUNITIES.
BY SIZE OF COMMUNITY*
Community
size
2,500 to 9,999
10,000-25,000
25,000-50,000
50,000-100,000
100,000-200,000
200,000-300,000
300,000-500,000
500,000-1,000,000
greater than 1,000,000
Average per
capita income
$2987
3310
3432
3425
3277
3188
3211
3221
3736
Average own
revenue effort
.0209
.0238
.0267
.0296
.0326
.0377
.0405
.0368
.0466
*Based on the 1970 Census of Population and the 1967
Census of Governments,
experience declines in profits and in certain
instances may have to curtail production or
close plants.
Methodology of Analysis. Recognizing the
potential economic problems facing industry in
meeting control requirements, EPA contracted
for microeconomic studies to be conducted in
conjunction with development of effluent stand-
ards (VII-9). For each of the 23 industries under
consideration an economic impact analysis was
performed which focused on the following
parameters:9
• Price effects—including effects upon an
industry's suppliers and consumers.
• Profitability, growth and capital avail-
ability.
• Number, size and location of plants that
can be expected to close or curtail produc-
tion.
• Changes in employment.
• Community impacts.
• Balance of payments consequences.
The analysis started with an examination of
the costs of pollution abatement in light of
existing institutional and market factors.
9The 1972 Amendments require promulgation of efflu-
ent guidelines for 27 major industry categories. The
effluent guidelines for four major industrial categories
have not been completed at the time of publication.
93
-------
TABLE VI1-9
CONTRACTORS FOR MICROECONOMIC STUDIES
OF SELECTED INDUSTRIES
Industry
Contractor*
Asbestos
Beet sugar
Cane sugar
Cement
Dairies
Electroplating
Feedlots
Ferroalloy
Fertilizer
Fiberglass
Fruits and Vegetables
Flat glass
Grain milling
Inorganic chemicals
Leather
Meat
Nonferrous
Organic chemicals
Petroleum
Phosphates
Plastics
Paper
Rubber
Steel
Timber
ADL
DPRA
DPRA
Southern Research Institute
DPRA
ATK
DPRA
ATK
DPRA
No contract
DPRA
ADL
DPRA (with feedlots)
ADL
DPRA
DPRA
ADL
ADL
Steve Sobotaka
ADL
ADL
ADL & in-house
ADL
ATK/Booz-Allen
ADL
*ADL-Arthur D. Little
DPRA—Development Planning Research Associates
ATK-A. T. Kearney
Primarily this was to determine whether various
industry subcategories could meet the necessary
capital requirements and recover abatement
costs through price increases. Assumptions were
made regarding each industrial category's partici-
pation in publicly owned treatment works and
present levels of abatement. In cases where full
recovery of pollution control costs appeared
impossible through price increases, some costs
were assumed to be absorbed internally, with
profits declining accordingly.
Following this step, an attempt was made
(using, where feasible, a discounted cash flow
analysis) to determine if future cash flows would
justify continued operation of various types of
plants in light of additional investments required
for pollution control. This analysis was done for
both the 1977 and 1983 proposed effluent
standards.
In performing the analysis, it was necessary to
synthesize model plants by size group and to
make certain assumptions regarding the relation-
ship between production costs, salvage value,
abatement costs, and discount rates. Due to
uncertainties inherent in the data (and in some
cases, the lack of data), the discounted cash flow
analysis was used only as an indicator of the
plant or types of plants that could be severely
impacted by pollution control requirements and
related costs. Final determination of the num-
bers of plants impacted to the point where
closure could be considered a real possibility was
made only after consideration of other factors
such as geography, land costs, access to munici-
pal waste treatment systems, and other potential
alternatives.
Summary Results. The results of the analysis
are based primarily on the reports of the
contractors and are subject to revision as EPA
develops the final versions of effluent guidelines.
However, the revisions are not expected to alter
the general conclusions of the contractor
reports.
An overview of 23 industries discharging
directly into the Nation's waters indicates that
in most cases they will be able to recover the
costs of best practicable wastewater treatment
by increases in prices. However, individual plants
in certain industries will experience difficulties
in meeting the requirements. Generally, the
profitability of smaller and/or older plants may
be so reduced by pollution control that many of
them may decide to close prior to 1977.
Secondly, plants located in heavily urbanized
areas, especially small older ones, will experience
difficulties because they lack the necessary land
to use the most cost-effective treatments. This is
the case in fruits and vegetables and electro-
plating where some 546 plants are expected to
close. In the absence of adequate municipal
treatment facilities the 1977 requirements may
force many of these plants to close, relocate
elsewhere, or be absorbed by more viable firms.
Not all of the costs will be passed on because
of the availability of substitute products and
imports. Also, smaller plants in an industry
cannot pass on all costs because they may be
constrained by larger firms with lower unit
costs. Thus some firms will earn lower profits,
some will curtail production, and some firms
will be forced to shut down.
Prices. Most of the industries studied are
expected to raise prices (regardless of potential
closures) with the size of the increase varying
94
-------
among segments of an industry (Table VII-10).
The industries expected to experience price
increases of less than 1.5 percent are asbestos,
dairies, feedlots, flat glass, leather, meatpacking,
nonferrous metals, softwood plywood, and
wood preserving. Price increases of 1.5 to 5
percent are expected to occur in cement, fertil-
izer, fiberglass, fruits and vegetables, and hard-
wood plywood. Price increases higher than 5
percent are expected in electroplating, hard-
board, inorganic chemicals, organic chemicals,
paper, and plastics and synthetics. (The indus-
tries italicized also face significant air pollution
control costs.)
The average price increases do not always
reflect the cost of the most difficult waste
treatment problems. For example, in both the
organic and inorganic chemical industry, the
average price increase is no more than 3 or 4
percent. However, in several chemical subcate-
gories, such as titanium dioxide, sodium sulfite,
sodium chloride, potassium sulfate, lime, ethyl-
ene glycol, and acetic acid, price increases may
be 5 percent or greater.
Plant closings. Pollution control costs that
cannot be passed on in the form of price
increases will result in decreasing profit margins
and, in some cases, plant closings. Plant closings
are expected in all of the industries with the
exception of cement, ferroalloys, flat glass,
fiberglass, grain milling, and rubber.
In many of the industries studied, closings
will be due primarily to factors unrelated to
water pollution control costs, but they will be
accelerated by the costs. Feedlots, leather,
dairies, and fruits and vegetables are examples.
In these industries, many plants are old, family-
owned, largely financed with internal capital,
and have a low level of long-term debt. Expendi-
tures for new technology have been modest
because of difficulty in getting outside capital.
Another factor in the closings is that the
threatened plants are usually small. Their high
vulnerability may be partially explained by a
number of factors: lack of access to municipal
treatment systems, diseconomies of scale in
pollution control facilities, lower efficiencies of
operations, and extensive investment required to
modernize.
These plant closings may result in a maximum
direct unemployment of approximately 50,000
or 1.2 percent of the estimated 3.3 million total
employment in the industries studied.
Industry Summaries. The following is a brief
discussion of the economic impacts associated
with the proposed guidelines for major segments
of 23 industries. Although studies have been
undertaken of the paper, seafood, steel, and
textiles industries, results are not available as the
effluent guidelines for these industries have not
been completed nor are the relevant economic
data available at this time.
Asbestos. Eighty-one firms operating 138
plants are involved in manufacturing asbestos
products. Corporations dominate, controlling
about 84 percent of the physical facilities and
99.5 percent of the work force. Plants tend to
be specialized and are concentrated near metro-
politan areas to serve their major markets, the
automotive and construction industries. Most
larger plants are well over 25 years old.
The economic viability of the asbestos indus-
try will not be seriously affected by the 1977
standards. To meet the goals, the industry will
have to invest roughly $3 million, with an
annual cost of about $1.4 million. The addi-
tional costs, assuming that they are passed on to
the consumer, would not exert a significant
impact on prices or market competitiveness.
Manufacturers will probably absorb the costs
because they are negligible and because of
competition from substitute products. If costs
are absorbed, impact on overall corporate profit-
ability is expected to be minimal since almost all
manufacturers are highly diversified.
Most industry plants will be able to comply
with the new requirements. No more than four
plants, accounting for less than 0.5 percent of
total industry capacity, are threatened. The
millboard segment of the industry will be most
affected, since two of its plants now lack any
control facilities and will face high control costs.
Approximately 2 percent of the industry's
13,500 employees work in plants threatened by
1977 standards.
Beet Sugar. Currently, there are 52 plants
processing beet sugar in the United States, 38 of
them built before 1933. The number has been
slowly declining, and in 1971, three plants
closed due to higher production costs and
relatively low sugar prices. (However, three new
plants are due to begin operation in 1974-75.)
Most plants are located near supplies in rela-
tively small, rural communities where they
constitute a major enterprise. The industry has
not been highly profitable, with after-tax return
95
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TABLE VII-10
POTENTIAL IMPACT OF EFFLUENT STANDARDS ON INDUSTRY OPERATIONS1
Industry
Price increases to consumer (%)
Plant closings
Unemployment
1977
1983
1977
1983
1977
1983
Asbestos
Beet sugar
Cane sugar
Cement
Dairies
Electroplating
Feedlots6
Ferroalloys
Fertilizer7
Fiberglass (wool)
Flat glass
Fruits and vegetables*
citrus
apple
potato
Grain milling
Industrial phosphates
Inorganic chemicals
titanium dioxide
lime
potassium sulfate
sodium chloride
sodium sulfite
sodium chromate
&. bichromate
Leather
Meatpacking
Nonferrous (aluminum only)
primary
secondary
bauxite refining
Organic chemicals
Petroleum
Plastics and synthetics
Rubber
Timber
softwood plywood
hardwood plywood
hard board
wood preserving
0.1-1.0%
0
0
1-3
0-.8
15
<0.3
1.2
0-3.5
.6-3.8
0.1-0.3
1-2
1-2
1-2
n.a.
0-1.9
.6-1.6
9 0-2%
7.7-16.7
0-6.4
6.1
11.8-19.9
5.9
3.4
ll.6-1.3
.1
minimal
0
0
16 1.0-4.0
<1
0.1-2.4
0-3.5
1-8
1
2
4-8
1
1%
2n.a.
0
4n.s.i.
0
8
n.a.
n.a.
4-5
0
0-0.4
2
2
n.a.
n.s.i.
n.a.
0-3
10 13.4-19.6
0-6.4
6.1
11.8-19.9
7.2
4.8
n.a.
.3
n.s.i.
n.s.i.
n.s.i.
n.a.
n.a.
0.5-6
0-3.5
n.a.
n.a.
n.a.
n.a.
n.a.
3
4-10
3-6
50
514-659
517
minor
0
23-61
0
0
29
n.a.
n.a.
0
0
few
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
21
10
n.s.i.
n.s.i.
2
1 7 some
2-11
6-53
0
75-85
15-20
30
1
30-35
1
n.a.
0
0
0
25
minor
n.a.
n.a.
0
0
n.a.
n.a.
n.a.
0
0
n.s.i.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
12n.a.
89
n.s.i.
146
n.a.
n.a.
n.a.
1-33
0
n.a.
n.a.
n.a.
n.a.
n.a.
275
3 2,200-5,500
300-2,000
0
3,250
2,397
n.a.
0
590-1,620
0
0
232
n.a.
n.a.
0
0
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
13950
400
n.s.i.
n.s.i.
15 3,700
n.a.
500
1,100-3,170
0
1,600
375-1,000
750
n.a.
1,050
50
n.a.
0
0
0
248
n.a.
n.a.
n.a.
0
0
n.a.
n.a.
n.a.
0
0
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
3,400
n.s.i.
160
n.a.
n.a.
n.a.
0-780
0
n.a.
n.a.
n.a.
n.a.
n.a.
'Potential impact of the 'proposed' effluent limitations on directly discharging industries.
2Not available.
30nly 200 to 500 are fulltime employees.
4No significant impact.
5Twenty plants expected to close primarily due to factors unrelated to water standards.
'•Projected closures are difficult to assess due to importance of many other economic factors and applicability of effluent guidelines. Impact will be
heaviest in swine operations.
7Industry as a whole is not significantly affected; impacts occur primarily in subcategories where trend is to excess capacity.
"impacts relate only to subcategories of citrus, apple, and potato.
9 Average price increases for the industry range from 0-3%; however, the six chemicals listed will experience greater price increases.
10Figures represent two different processes.
11 Estimated price increase for large plants is roughly 1.3%; for small plants it ranges up to 20%,
12Excludes marginal operations that would have closed without controls. This industry needs additional study.
13Plus 5,625 in secondary leather manufacturing.
14 Wet dross operations.
15Potential unemployment estimate for two plants out of nine that have not installed control technology.
16Potential price increases may be high as 6 to 12% where waste treatment problems are most difficult, specifically ethylene glycol, ethylene dichloride,
caprolactam, ethyl aery late, acetic acid, para-cresol, and aniline.
1 7Small firms with less than 20 employees will be affected most by the standards.
96
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on sales ranging from -0.2 to 4.0 percent in the
past 2 years.
The estimated capital costs for achieving the
proposed 1977 level of control range from $4.3
to $7.7 million, with an annual operating cost
ranging from $0.4 to 0.8 million. The price
increase required to offset the costs ranges
between 0.2 and 2.2 percent, depending on the
size of the plant, the length of its season, and
the current degree of control. Prices are not
likely to increase, however, because of Depart-
ment of Agriculture policies and competition
from other sweeteners. Consequently, the
profits of some firms may decline.
While most plants in the industry should be
able to comply with new standards, some may
not be able to absorb the required capital and
operating costs and may have to close. Typi-
cally, these plants are small, old, and already in
jeopardy because of factors such as urban
encroachment and declining beet supplies. Even
without pollution control requirements, from
two to six plants may have to close over the
next 10 years. The proposed 1977 standards,
which require zero discharge where land is
available, threaten an additional four to 10
plants, representing 4 to 13 percent of industry
capacity. Assuming each plant has 50 full time
and 200 seasonal employees and serves 300
growers, 2,200 to 5,500 people would be
affected. Growers might be able to process their
beets in nearby plants with excess capacity or in
new plants, or they may choose to grow other
crops.
Cane Sugar. The cane sugar refining industry
will react much as the beet sugar industry. The
capital costs associated with meeting the 1977
standards are $5.6 million, with an annual cost
of $1.9 million. The price increases required to
offset the costs would range between 0 and 2
percent. As in the beet sugar industry, however,
prices are not expected to increase. From three
to six plants could close, representing 6 to 12
percent of industry capacity. Three of the plants
are small rural refineries in Puerto Rico. Since
excess capacity exists in the other Puerto Rican
facilities, any closings would probably result in a
consolidation of the industry, rather than a
permanent loss of production. From 300 to
2,000 employees could be affected by the plant
closings. Under normal conditions, they should
be able to find work in similar occupations.
Cement. There are currently 166 cement
plants in operation in the United States; 154
involve nonleaching operations in which water
pollution is inherently not a problem. The
number of cement plants has been declining in
recent years. Plant obsolescence is usually the
reason for such closures. Some 10-20 plants
could close in the next 4 years, continuing the
recent trend. The closing of these plants,
generally the older, less efficient ones, may be
accelerated if they cannot raise the additional
capital necessary to finance water pollution
control equipment. The greatest cost pressures
have usually stemmed from air pollution.
The total cost of achieving the 1977 standards
is $15-17 million for capital investment; total
annual costs are estimated at $5.5 million.
Impact of the controls might result in a price
increase of 1 to 3 percent. Each of the eight
leaching plants with the most serious problems
may have to invest a half million dollars. The
eight are considered to be the most productive
and profitable in the industry and so are
unlikely to close.
Dairies. Of the 4,870 plants in the dairy
processing industry today, as many as a third
could close by 1977 through "natural" attrition.
An additional 514 to 659 plants representing
about 12 percent of industry plants could close
as a result of the 1977 water pollution stand-
ards. The plants threatened by pollution costs
are usually the small, old plants in rural areas.
They have less in-plant control, they suffer from
diseconomies of scale in control, and they lack
access to a municipal treatment system. Further-
more, these operations are already in jeopardy
because of other factors such as shrinking milk
supplies, difficulties in maintaining sanitary
standards, lower efficiencies of operation, and
lack of capital to modernize operations. These
estimated closings are based on use of activated
sludge and sand filtration, now the recom-
mended technology for meeting the standards.
The estimates might be slightly lower if less
expensive systems such as ridge and furrow or
spray irrigation were used. If land were available
and climatic problems overcome, these methods
might be a viable alternative for the small plants.
The estimates are also very sensitive to the
percent of plants using municipal systems and
the level of control currently in place.
To meet the proposed 1977 standards, the
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dairy processing industry would have to invest
$357 million, or almost 16 percent of the
industry's current fixed investment. The
required operating costs of $31.7 million, how-
ever, would represent only a few percent of
sales. The cost of water pollution control would
not be passed backwards to the farmer, since
most of them are in strong, effective coopera-
tives and because the Department of Agriculture
regulates raw milk prices. Efficient operations
would pass the costs—generally no more than 1
percent—on to consumers. The less efficient
operations would have to absorb the costs, a
significant consideration since their after-tax
profits are generally below 1 percent of sales.
The potential closings in 1977 could affect
approximately 3,250 plant employees. Milk pro-
ducers could probably find alternative markets.
While the number of employees affected would
be relatively low, they would have little oppor-
tunity to be reemployed in remaining dairy
processing plants. Any new plants that would be
built would probably not be located in the same
towns where old plants closed. Furthermore,
employment in the industry has been dropping
because of increased automation.
Electroplating. A wide variety of platings and
coatings are used on manufactured items when
the base metal does not have the characteristics
desired. This study scope was limited to copper,
nickel, chromium, and zinc electroplating. The
industry consists of approximately 5,600 shops
and 78,000 employees.
The industry is characterized by relatively low
capital investment in equipment, land, and
buildings. Once purchased and installed the
market value of equipment decreases rapidly.
Annual sales range from $60 thousand to $8
million; however, most of the shops surveyed
reported sales of less than $1 million. Total
industry sales are approximately $876 million
annually.
The total investment required for the electro-
plating industry to meet the proposed 1977
standards is approximately $481 million, with
an annual cost of $35 million.
The proposed requirements by 1977 are not
expected to have any significant effect on the
production capacity or future growth of the
electroplating industry. However, it is likely that
significant price increases will result from meet-
ing the proposed standards. These increases are
projected to be a maximum of 15 percent for
1977, with additional increases of about 8
percent for 1983. Since these estimates assume
that none of the required costs for 1978 have
been incurred, the actual increases will be highly
dependent on the level of control already
attained.
Production effects are expected primarily
among low volume independent job shops. Such
shops are expected to incur disproportionate
cost increases in relation to larger operations. In
addition, many of them are expected to have
difficulty raising the necessary capital. In the
absence of less expensive treatment methods,
many of these operations probably would be
forced to close. As many as 517 such shops
representing approximately 5.4 percent of total
job shop capacity and about 2,397 employees
might have to close as a result of the proposed
1977 standards.
Ferroalloys. Roughly 85 percent of the ferro-
alloy industry's output consists of four major
alloys (iron-manganese, iron-silicon, iron-
chromium, and silicon-manganese) and products
from electric furnaces. This study was limited to
the nine companies making those products. The
firms range in size from annual sales of $20
million to over $3 billion. Some produce only
ferroalloys, while ferroalloys represent about
half of annual sales of other firms.
The iron and steel industry is the major
consumer of ferroalloys. With the high level of
steel production, the ferroalloy industry has
been operating at full capacity. In 1972, how-
ever, its shipments and profitability were
severely affected by imports. In addition, air
pollution control requirements are becoming a
major concern. These two factors are expected
to have a greater impact on the industry than
the anticipated costs of water pollution control.
Of the 22 plants in the study, 14 (represent-
ing over 70 percent of industry capacity) are
already using the technology needed to meet the
1977 standards. For the other eight to meet the
standards requires an additional investment of
$9.5 million. Annual operating costs would
increase by $4.0 million. To offset the costs,
industry would have to increase prices by 1.2
percent, to maintain its current return on total
assets.
Fiberglass (Wool). There are 19 plants pro-
ducing glass wool in the United States; 15 plants
operated by two firms are responsible for about
95 percent of the production. There are no small
98
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producers, since the process is basically a high-
volume operation. The plants range in size from
5 million to 440 million pounds per year. The
majority are multiproduct operations. Plants
range in age from 2 to 25 years, with about 30
percent being 10 to 15 years old. Age is not
necessarily a good guide to plant efficiency or
profitability, however, since most plants have
been expanded or modernized over the years.
The primary markets for glass fiber are as
building insulation, acoustical ceiling tiles, and
insulation for pipes, ducts, process equipment,
and appliances.
The industry will have to spend about $10
million to meet the proposed 1977 standards;
annual operating costs will be about $3.7 mil-
lion. Price increases of 0.6 to 4 percent would be
necessary to offset the added costs. In the past,
however, the industry has been able to offset
cost increases by increasing productivity.
No plant closings are forecast from pollution
control costs. The industry is operating at full
capacity, and demand is expected to increase.
One major producer plans to increase capacities
in spite of additional pollution control costs.
Flat Glass. The production of sheet, plate,
and float glass in the United States is highly
concentrated and involves only seven companies.
The total capital costs of the 1977 and 1983
standards are less than $1 million, with annual
costs below 0.4 percent of the 1972 unit price.
The major segments of the industry—sheet glass,
plate glass, and float glass-are not impacted by
the effluent guideline limitations. Relatively
greater problems exist in the industrial segments
of automotive glass tempering and lamination.
To meet the standards, prices of tempered and
laminated glass would have to increase by 0.1 to
0.3 percent. Increases would be passed on by
glass fabricators so that the industry's current
rates of profitability would not be affected.
The capital required should be readily available.
Fruits and Vegetables. There are almost
1,400 plants in the United States that can,
freeze, or dehydrate fruits and vegetables. They
vary greatly in size, organizational structure,
product mix, degree of diversification, and
integration. Although about 70 percent process
two or more products, plants are specialized in
that they are located near concentrations of
specific crops and they require specialized equip-
ment. Many of the plants are relatively old, but
new equipment has been added so that most are
a combination of old and new equipment.
The industry's plants are frequently major
employers in their areas. Further, they use a
high proportion of unskilled seasonal workers.
Curtailed production would therefore have an
important impact on lower income levels.
In development of the standards, three seg-
ments of the industry were selected for con-
trols: apples, citrus and potatoes.
These three would have to invest $26.1
million to meet 1977 standards; annual costs
would be $3.6 million.
Of the 105 plants involved in processing citrus
fruit, 41 are strictly citrus processors. The
remaining process other fruits or vegetables.
About one third of the plants are tied to
municipal treatment systems and one third have
technology in place that can meet 1977 stand-
ards.
Orange juice, which constitutes 90 percent of
the industry's business, was used to represent
cirtus products in general. Small plants making
frozen concentrates would have to increase
prices 1.9 to 2.5 percent to recover the costs of
pollution control. For plants producing single-
strength juice, increases would have to be 4.4 to
5.5 percent. Since the two forms are competi-
tive, the ability to pass costs on may be limited
by the fact that two thirds of the plants will not
be affected by the standards. Therefore, price
increases would most likely be on the order of 1
percent.
Two single-strength plants should have diffi-
culty meeting the standards. They represent 6
percent of single-strength output. If past trends
in the canning and freezing industry continue,
eight citrus plants would be expected to close by
1977 and 10 more by 1983. However, the
standards may hasten the closings so that all 18
would close by 1977. Of the 10,600 employees
in the citrus processing industry, only 1.5
percent would lose jobs because of water pollu-
tion abatement.
Since over 40 percent of canned orange juice
is exported, any major reduction in production
could result in losses of exports. Larger plants,
however, would probably take up any slack.
Of the 144 plants that process canned or
frozen apple products, about 29 pack only apple
products. As with citrus processors, two-thirds
of apple processors are tied to municipal
systems or have technology in place to meet the
1977 standards. The ability to raise prices to
recover the 1977 pollution costs may be limited
to less than 1 percent. Four plants may have to
99
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close, affecting 0.5 percent of the apple process-
ing industry's 14,650 employees. In addition, 12
plants would normally be expected to close by
1977 for other reasons and 13 might have to
close early because of the standards.
Prices of potato products may increase by 1.5
to 1.8 percent from the 1977 standards; how-
ever, this is only a preliminary estimate since
little information is available for analysis.
Grain Milling. Assessment of the grain mill
products industry was limited to flour and other
grain mill products (including dry corn milling),
rice milling, and wet corn milling. These seg-
ments account for 20 percent of the industry's
establishments and 35 percent of its capacity.
The number of plants and companies has been
decreasing in all three segments in recent years.
In flour mill products, only corn wet milling
will be affected by the 1977 standards. Most of
the mills with process wastewaters discharge into
municipal systems. For plants that discharge
directly to surface waters, the impacts are slight.
All rice milling operations discharging waste-
waters are tied to municipal systems.
Only in corn wet milling will the cost impact
be appreciable. However, no closures or produc-
tion curtailments are expected. Of 17 plants,
five (representing 30 percent of industry capa-
city) now discharge directly to surface waters;
three have some biological treatment facilities,
one is constructing a treatment system, and the
fifth will soon discharge to a municipal system
under construction.
Wet corn milling plants discharging directly to
surface waters face the greatest cost burden. To
completely cover costs, prices would have to
increase 1.2 to 1.9 percent. However, because of
the competitiveness of the industry, it is possible
that price increases may amount to no more
than 1 percent. Thus profitability of some firms
would decrease.
The most serious problem may be some mild
curtailment of industry growth. Wastewater
flows are substantial, and effluent overloads and
periodic spills are a recurring problem. Before
output can be significantly expanded, improve-
ments must be made in controlling these
problems.
Industrial Phosphates. Phosphorus and its
nonfertilizer derivatives are the principal prod-
ucts of the industrial phosphates industry. In
general, the same companies that make elemen-
tal phosphorus also make the derivatives. With
two exceptions, the producers are large chemical
or petroleum companies for whom phosphorus
and derivatives represent only a small percentage
of total sales. The companies usually use the
products to make other products, creating prob-
lems in estimating the profitability of individual
products.
Phosphorus is produced by six companies in
28 plants; in addition, TVA is a major producer.
Production is concentrated near deposits of
phosphate rock in Florida, Tennessee, and the
Idaho-Montana area. Because phosphorus plants
are generally located near raw materials and
because phosphorus is the most economic form
in which to transport phosphate values, phos-
phorus derivatives are usually produced at other
locations.
The pollution control costs required for the
industry to meet 1977 standards range from
$1.40 per ton for food grade dicalcium phos-
phate to $4.60 per ton for phosphorus. These
costs represent an increase of no more than 1.6
percent of current selling prices. A cost increase
of this magnitude should have no measurable
impact on productive capacity or the economic
viability of the industry.
Inorganic Chemicals. The study of a part of
the inorganic chemical industry analyzed 23
chemicals: aluminum chloride, aluminum sul-
fate, chlorine and caustic soda, hydrochloric
acid, hydrofluoric acid, hydrogen peroxide,
lime, nitric acid, sulfuric acid, calcium carbide,
sodium sulfate, titanium dioxide, sodium chro-
mate and bichromate, potassium bichromate,
sodium bicarbonate, sodium chloride, sodium
silicate, sodium, sodium sulfite, calcium chlo-
ride, soda ash, and potassium sulfate.
There is no definite indication that any
significant economic impact will result from the
1977 standards. Some small, older plants that
are already marginal may be forced to close, but
they generally comprise a very minor segment of
the industry. With present market conditions,
most costs can probably be passed on, at least to
the extent that profitability will not decrease
markedly. The long-term growth of the indus-
tries may be slightly impaired, but these impacts
will be far overshadowed by such factors as
market trends, technological advances, and pro-
ductivity.
Price increases ranging from 0 to 20 percent
are possible for lime, titanium dioxide, sodium
chloride, sodium sulfite, and potassium sulfate.
100
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Sodium chromate and bichromate prices might
increase by about 3 percent, but for all the other
inorganic chemicals studied, increases will be less
than 2 percent, and in some cases, even zero.
Several products appear to be more sensitive
to costs because of a wide variability in control
costs, low profits, or special market situations.
Chlorine-caustic plants using mercury cells will
incur greater costs than those using diaphragm
cells. For the four or five plants that have not
yet invested in controlling mercury, costs may
be prohibitive, and one or two of them may
close prior to 1977.
In the lime industry, 25 percent of the plants
are achieving zero discharge. The remaining
plants will try to pass their abatement costs on
to the customer. In cases with unique supply-
demand situations, the producer may be able to
pass on his full cost, but in general a large
segment of the lime industry will be at a
competitive disadvantage, which may force some
small plants to close.
In titanium dioxide production, the major
problem arises over the fact that abatement
costs are higher for sulfate than for chloride
process plants. Current market conditions will
probably allow some cost differential to be
passed on. Sodium bichromate will probably not
be able to pass on abatement costs because of
increased competition from imports and substi-
tute products. After-tax profits of bichromate
producers could decrease by 30 percent if all
costs of 1977 standards had to be absorbed.
Plant closings in the inorganic chemicals
industry will depend on both market trends and
abatement costs, making it difficult to deter-
mine the effects of possible unemployment. The
facilities expected to close, however, are gener-
ally small and so are a small portion of the
industry's labor force.
Since there are now few substitutes for these
inorganic chemicals, industry growth would
probably not be significantly affected by the
standards. To some extent, however, price in-
creases, coupled with minor decreases in profit-
ability and rates of return, might slightly retard
the industry's future growth potential.
' Leather. The leather tanning and finishing
industry consists of a wide diversity of firms,
ranging from small family-owned companies and
closely held corporations to divisions of large
conglomerates. Almost 50 percent of the firms
are located in Massachusetts and New York.
Over 70 percent of the plants are in buildings 50
years or older, but a substantial number have
been rebuilt and modernized. Most plants are
highly specialized because tanning equipment
and processes are specialized; also, shoe manu-
facturing has been and continues to be the
principal consuming industry, .accounting for
about three-quarters of all leather used in 1972.
It is primarily the 176 wet process tanners that
will be affected by the effluent guidelines.
Meeting the 1977 standards would involve
capital expenditures of some $37 million, a
substantial proportion of the industry's total
fixed investment of $130 to $140 million.
Raising capital may pose a severe problem.
In this competitive industry only the large
firms, which produce at least two-thirds of the
total industry volume, can be expected to be
able to pass on the entire cost in price increases.
Assuming that 60 percent of tanneries are linked
to municipal systems, with several large plants
incurring only pretreatment costs, actual price
increases will probably range from 0.6-1.3%.
The 1977 standards may force closing of
about 21 small plants (most of which are not
linked to municipal treatment systems). About
2.8 percent of industry capacity and 4 percent
of its employees would be affected by the
guidelines. An additional 2,850 employees in the
leather manufacturing industry might also be
affected. An additional 28 plants, affecting
about 16 percent of current production, are
predicted to close for reasons unrelated to
pollution abatement.
Meat Packing. In mid-1973, there were
almost 6,000 livestock slaughtering plants in the
United States, down from 6,400 in 1971. Many
have closed as Federal inspection requirements
have been more vigorously enforced. Employ-
ment has also dropped as highly automated
plants increased the productivity of plant labor.
The industry is characterized by a preponder-
ance of single-plant firms generating a high
dollar value of sales. After-tax profits have
traditionally been around 1 percent, with
smaller local and sectional packers usually doing
better than larger regional and national packers.
Plants are found in every State, with Iowa,
Nebraska, and Texas leading in pounds of
liveweight killed. . Two factors govern plant
location—concentration of fed livestock for
101
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slaughter and concentration of demand. The
trend in recent years has been to locate plants
near livestock.
The study focused on the 1,400 plants that
slaughter more than 2 million pounds liveweight
annually. If these plants are to meet the 1977
standards, they will have to invest roughly an
additional $44 million; operating costs as a
percent of sales range from 0.04 to 0.16. The
price increase required at the wholesale level to
recover all the costs would range from a low of
0.04 percent for large packing houses with
baseline controls already in place to a high of
0.5 percent for small slaughter houses with only
primary controls currently in place. Because of
competition, the actual long-term price increases
within the industry should be about 0.1 percent.
The increases will be relatively small from the
point of view of the consumer but may be very
significant to an industry with low profitability.
Potential closings necessitated by the stand-
ards are estimated at about 10 plants represent-
ing less than 0.2 percent of industry capacity
and 400 employees. The small slaughter houses
with disproportionate pollution control cost and
lower operating efficiencies are most likely to be
affected. As many as three-quarters of meat
packing houses and slaughter houses are located
in communities of less than 10,000 population,
so a plant closing could have a noticeable effect
on the local economy. Many small communi-
ties have only one plant, so that opportunities
for reemployment in new or remaining plants in
the industry will probably be low.
Nonferrous (Aluminum Only). The proposed
standards are expected to have only minimal
effects on the secondary aluminum sector and
practically no impact on the primary sector.
While similar conclusions have been reached
concerning the bauxite refining sector, two
plants in this industry (representing about 24
percent of total industry supply) are likely to
incur very significant cost in meeting the pro-
posed standards. There are good reasons to
believe that these plants will remain open, but
such decisions ultimately lie with company
management.
Within the primary aluminum sector, the
current trend toward dry scrubbers to control
air pollution should minimize if not eliminate
the problems of water pollution control.
Accordingly, there should be only minimal cost
in meeting the proposed effluent limitations for
1977 and 1983. No price increases, no plant
closings, or unemployment are anticipated. Fur-
ther, there should be no impacts on the balance
of trade or industry growth.
Noticeable price increases are not expected
within the secondary aluminum industry as a
result of the proposed standards. With the
exception of the wet dross processing sector,
cost increases are expected to be less than 1.1
percent of the sale value of aluminum. Except-
ing isolated cases of regional monopolies, com-
petition should prevent these costs from being
passed on as price increases. Plant closings are
expected only in those plants using wet proc-
esses for dross and slag milling. In such plants
the combined 1977 and 1983 proposed guide-
lines could lead to cost increases equal to 6
percent or more of the sale value of aluminum.
There are six known wet dross operations,
representing approximately 160 employees and
less than 1 percent of total aluminum produc-
tion.
The majority of the costs for meeting the
proposed guidelines have already been incurred
by seven of the nine plants in the bauxite
refining sector. Cost increases for these seven
plants are expected to range from zero to 2
percent of the sale value of alumina, depending
on the levels of control already in place. Cost
increases for the remaining two plants may equal
as much as 25 percent of the sale value of
alumina. Due to the low cost increases for the
other seven plants, it is not likely that the cost
to these two plants can be recovered through
price increases. Their estimated cost for meeting
the proposed guidelines are quite high; invest-
ment costs are equal to about 18 percent of
replacement cost of refining facility, and annual
costs are equivalent to 30 percent or more of the
total profits normally realized on the manufac-
ture of finished aluminum. In light of some
distinct advantages to overseas bauxite refining,
these high costs may cause the owners to give
serious consideration to closing these plants.
Such actions could result in significant short-
term disruptions within the aluminum industry.
In addition, an estimated 1,200 jobs would be
lost, with potential secondary unemployment
for an additional 2,500 people.
Organic Chemicals. The organic chemical in-
dustry produces 80 to 90 million tons of
chemicals each year. Thousands of compounds
are made, ranging in production volume from a
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high of about 10 million tons of ethylene to
very small quantities of reagent chemicals. How-
ever, 70 chemicals or classes of chemicals
account for about three-fourths of the industry's
sales.
Nearly 500 companies are engaged in pro-
ducing organic chemicals; the four largest
account for a minimum of 36 percent and the
first hundred for more than 92 percent of total
shipments. At the other end of the spectrum are
220 plants with less than 10 employees each.
The large plants produce a wide variety of
different chemicals, and their effluent will gener-
ally be treated in a centralized water treatment
plant. Many smaller plants dump their effluent
into public sewer systems.
The basic organic chemicals are generally
produced in large-volume continuous process
plants located near their raw material sources-
natural gas fields, petroleum refineries, or coke
oven operations. Because the basic chemicals are
the raw material for upgraded intermediates,
these intermediates are frequently made in the
same plant to save freight cost, or by purchasers
at adjacent plant sites that receive the basic
organics by pipeline.
About 35 percent of the industry, based on
number of employees, is located in the North-
east. New Jersey accounts for about one-quarter
of the industry's total employment. The South
is responsible for nearly 45 percent of employ-
ment (and much larger percentage of tonnage).
The Midwest accounts for less than 20 percent
and the West has less than 5 percent of the
organic chemical industry's employees. The Gulf
Coast, principally Texas and Louisiana, is pre-
dominately the source of basic organics, while
the Northeast accounts for a major share of the
upgraded products such as dyestuffs, flavor and
fragrances, and other high-value, low-volume
products.
The investment required for the organic
chemical industry to meet the 1977 standards is
roughly $1.03 billion; annual costs are $210
million. There is no definite indication that any
significant economic impact would result from
imposition of the standards. Overall, potential
price increases range from 1 to 4 percent for the
majority of products, but can go as high as 6 to
12 percent for several of the products with the
most difficult waste treatment problems (ethyl-
ene glycol, ethylene dichloride, caprolactam,
ethyl acrylate, acetic acid, para-cresol, and ani-
line). Since the majority of these products are
commodity chemicals with few substitutes,
potential price increases will probably be passed
on rather than absorbed by the manufacturer.
A seemingly critical area is the small-volume
producers of intermediates and end products.
Unfortunately, little information is available to
facilitate an analysis of their water pollution
control costs. For dyes and organic pigments,
costs appear to be 2 to 5 percent of selling price
but 20 to 50 percent of the selling price of
plasticizers. Although many of the producers in
this category discharge their wastes into munici-
pal treatment facilities, those plants without
access to such a discharge route will probably be
forced to close. Firms with less than 20 em-
ployees will be most severely affected. Gener-
ally, they are located in major urban areas in the
Northeast, where the community impacts of any
resulting unemployment would be minimal.
Plastics and Synthetics. The plastics and
synthetic polymer manufacturing industry
covered in the study consists of approximately
280 companies, many of which have multiple
plants. Production in 1972 totaled 12,661,000
kkg. The plants are located throughout the
United States and its territories, with most
major production units located in the Gulf
Coast, Midwest, and South.
The plastics and synthetic polymer industry
will have to invest $300 million to meet the
1977 standards. Pollution control investment
costs are roughly 30 percent of current industry
investment based on 1967 figures. For the
majority of the industry, price increases of 0.1
to 2.4 percent would be needed to recover the
costs. Given the current market, including com-
petition from lower-priced imports, such in-
creases are unlikely. Rather, the near-term result
will be a decrease in profitability. In either
event, the impact does not appear to be severe,
although some already marginal plants may be
forced to close from the added burden of
pollution costs.
For the plastics industry, the overriding factor
is whether increased costs will be able to be
passed on to the consumer. In 1971, the
industry was overproducing, profits were low,
and costs could probably not have been passed
on. The reverse was true in 1973, and prices
could have risen except for price controls. Based
on past history, supply may again exceed
demand, making it difficult to pass costs on.
103
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Among the synthetics, there would be no
great economic impact on production of viscose
rayon. At present, rayon staple producers are
optimistic because prices on competitive fibers,
cotton and polyester staple are expected to rise.
With demand and prices high, producers would
switch to staple should demand for textile
filament and industrial filament decline. The
situation with cellophane producers differs. Mar-
kets have been declining and show no signs of a
turnaround. Costs arc rising, and although they
may be offset by increasing costs for com-
petitive materials, this segment does not have
the same pricing flexibility as does viscose
rayon. The standards are expected to make
production of cellophane decline still further.
They should have a negligible effect on cellulose
acetate and triacetate fibers, however, since
producers appear well on their way to
compliance.
Petroleum. The costs for the petroleum
industry to meet the 1977 standards are
approximately $637 million, with an annual cost
of $255 million. For the 1983 standards, the
total costs are approximately $625 million, with
an estimated annual cost of $250 million. In
terms of production costs, the annual cost
amounts to approximately 5.8 cents per barrel
by 1977 and 9.8 cents per barrel by 1983.
Although many refineries will be forced to
provide additional capital for in-plant alterna-
tives for water conservation (average of 2.3 cents
per barrel by 1977), only a small portion of
these expenditures would be reflected in price
increases, which are estimated to be about 0.1
cents per gallon by 1977 and 0.2 cents per
gallon by 1983.
There is tremendous variability in the treat-
ment costs in refineries of less than 25,000
barrels, as compared with the relative stability of
costs for larger refineries. Two to 11 small
refineries representing at most 0.3 percent of
current capacity may incur pollution abatement
costs large enough to force then- closure.
Approximately 100 to 500 out of the 150,000
refinery employees would be the maximum
number to face job losses. Since these refineries
are located in several geographical areas, the
community and regional impacts of even the
maximum unemployment do not appear to be
substantial.
Although the $1 billion required expenditure
for water pollution control appears to be rela-
tively large, it is not' expected that this require-
ment will jeopardize the petroleum industry's
capacity for expansion throughout the decade.
Estimated capital expenditures for the petro-
leum industry in 1971 were approximately $7
billion. Furthermore, the industry itself claims
to have spent $288 million in 1972 alone on
water pollution abatement, while the 1977
guidelines would require annual capital expendi-
tures of only $250 million. With rapidly in-
creasing profitability, the industry should find
the needed capital.
Rubber. The U.S. rubber industry consists of
two segments. The first is 28 plants producing
different types of synthetic rubbers; 18 plants
producing a single rubber are part of a diver-
sified plant complex manufacturing other
products such as rubber processing chemicals,
plastics, and organic chemicals. Most plants are
located in heavily industrialized areas, and in the
case of synthetic rubber, near sources of raw
materials and refineries.
The second segment of the rubber industry
consists of 56 plants producing tire and tube
products. The plants vary in capacity from
5,000 to 30,000 tires per day. Water pollution
problems depend in part on the age and general
maintenance of the plant, since most water
originates from washdown of facilities and blow-
down of cooling water. However, most tire
plants have been expanded and modernized
since 1967 when belted bias tires were intro-
duced. Older plants located in heavily built-up
industrial sections have no land on which to
build ponds and lagoons, while the newer ones
in less confined areas do.
Most firms in the industry are large with a
high level of integration, some of which are
owned by the petroleum industry and some of
which are not involved in the manufacture of
consumer products.
The standards will not seriously affect the
economic viability of the rubber industry. The
probable price effect on tires and inner tubes is
less than 0.8%; and for the synthetic rubbers,
104
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the effect is less than 1% except for SBR latex,
where the price effect is as high as 3.5 percent.
Thus, while price increases of around 1 percent
will occur in most segments, not all producers
will be able to recover the full cost of pollution
by raising prices. The required annual costs for
plants in the industry are estimated to range
from 0 percent to 3.1 percent of sales.
Timber. The timber industry assessment
focused on three segments. Their products are
generally noncompetitive; the sectors are in
differing states of growth; and, the companies
active in one sector are not necessarily active in
another.
Hardboard is manufactured primarily from
wood cellulose fiber and is used for paneling,
siding, furniture, and millwork. The product can
be producted by the "dry process," which uses
little process water, and by "wet process,"
which is analogous to the manufacture of pulp
and paper and uses substantial process water.
The study considered 17 dry process mills and
nine wet process mills.
The plywood and veneer sectors was further
broken into softwood plywood/veneer and hard-
wood plywood/veneer. Products within each
sector are generally not competitive. Softwood
plywood is used for structural applications—for
example, exterior sheathing and residential
homes; hardwood plywood is used for its
decorative qualities—in furniture, for example.
Moreover, while both industries have approxi-
mately the same number of plants (200), the
total output of hardwood plywood and veneer is
approximately 12 percent of the softwood
sector. The softwood industry is concentrated in
the Pacific Northwest and in the Southeast.
The hardwood plywood and veneer sector is
characterized by small operations owned and
operated by an independent business. The
industry is concentrated in the mid-South and
Southeast, and also in the North Central and
Northeast States.
The third sector of the timber industry is the
wood preserving industry. It is composed of
more than 400 plants, many of which are small,
privately owned companies with long-standing
technology and largely depreciated plant and
equipment. The top four producers account for
about 35 percent of production and are owned
by large, public corporations in the chemical and
timber products industries.
The 1977 standards will have essentially no
major impact on the hardboard and the soft-
wood plywood sectors. The impact is focused
more specifically on hardwood plywood and
wood preserving, since these industries are more
the province of the small, independent business.
There will be essentially no overall production in
curtailment in any of the four industry sectors.
Where plants are forced to close, they will be
smaller firms, with relatively little impact on
total industry output. In addition, with the
exception of the hardboard industry, which is
operating at more than 90 percent of capacity,
the industry is characterized by flexible capa-
city. (Certain producers move in and out of
production depending on price/profitability
levels.) The industries typically operate at 70 to
80 percent of total capacity. Thus, any produc-
tion deficiency that results from plant closures
can be offset by the remaining facilities.
About 75 to 85 plants are predicted to close
due to the effluent guidelines. In most cases,
these plants are already marginal because of
their low profitability over the preceding 5 to 10
years. The added burden of air pollution abate-
ment costs and difficulties in raising capital may
result in a shutdown decision.
Price increases will vary by industry segment,
but will range from 1 to 8 percent. Unemploy-
ment effects will impact most severely on
operations in the mid-South and Southeast. The
total effect on unemployment will not be great,
perhaps 1600 nationwide, but for 30 to 40
individual communities, as much as a quarter of
the work force could become unemployed.
CONSTRUCTION INDUSTRY
Recent legislation will make it necessary to
increase substantially the rate of construction of
new water pollution control facilities and the
modification of existing facilities. An increase of
the magnitude called for in the 1972 Amend-
ments (from close to $3 billion/year in 1971 to
$9 billion/year in 1976) will place additional
demands on the capacity of the construction
105
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industry to produce these facilities and possibly
create an unacceptable increase in the cost of
the facilities or in construction costs in general.
EPA initiated several studies in order to assess
the impact of these expenditures on the con-
struction industry as a whole and the impact on
particular sub-sectors of the construction
industry.1 °
One type of study estimated the impact of
the incremental EPA-stimulated demand on the
price and output of the construction industry.
Since this type of study assumed that past
relationships will hold in the future, unforeseen
events such as the energy crisis may lead to basic
changes in the system and therefore outcomes
may be very different from those predicted. A
second type of study examined the possible
existence of specific bottlenecks, such as the
supply of skilled labor or entrepreneurs, that
would limit the construction industry's capacity
to meet EPA stimulated demand. The following
material describes in some detail one of the
macro studies and summarizes the qualitative
discussion on specific bottlenecks.
Macro Estimate. Very little analytical work
has been performed examining the questions
considered in this report. In particular, the study
described in this section11 is only an initial
effort to determine the flexibility of construc-
tion supply to meet increased demand. As such,
the work must be considered preliminary and
additional research is necessary to obtain defini-
tive results.
10George F. Brown, Jr. and Louis Jacobson, "An
Assessment of the Sabotka Study," Order No.
P3-01-02905, September 1973.
Bureau of Labor Statistics, Department of Labor,
"Manpower Implication of Alternative Levels of
Sewer Construction," Agreement No. EPA-IAG-0240
(D), October 1973.
Chase Econometrics Associates, Inc., "The Economic
Impact of Pollution Control Expenditures Needed to
Meet Waste Water Discharge Standards by 1980 with
Particular Emphasis on the Effect on Construction
Prices," Contract No. 68-01-1532, April 1973.
Stephen Sabotka and Co. and McKee-Berger-Man-
sueto, Inc., "The Economic Impact of the Additional
Demands Caused by New Environmental Protection
Standards," Contract No. 68-01-0554, December
1972.
11 George F. Brown, Jr. and Louis Jacobson, "An
Assessment of the Sabotka Study," Order No.
P3-01-02905, September, 1973.
The method of analysis used in this study is
an econometric model. The model attempts to
reflect the economic behavior of the construc-
tion industry through the use of mathematical
techniques. A model by its very nature must
make certain simplifying assumptions and
specify only some of the many relationships
which may bear upon the economic behavior of
the construction industry. Thus a model repre-
sents an aggregation of many relationships.
Some models are more complex than others as
they attempt to specify the behavior of a
particular industry. Accordingly, the results of
any model should be viewed with due respect
for the balance between detail and aggregation.
Before describing the model in more specific
terms it is important to be clear about precisely
what questions this analysis addresses. The
analysis attempts to estimate the incremental
impact on the level and price of construction
given an incremental change in demand due to
increased expenditure on water pollution
control. The analysis does not examine the
determinants of price increases that are unre-
lated to changes in construction demand. EPA
does recognize, however, that the recent devalu-
ation of the dollar has increased the demand for
exports (such as a larger European demand for
U.S. steel reinforcing rods) and that this change
will increase the price of domestic construction
and result in some shortages. Similarly, EPA
recognizes that uncertainty about future prices
and deliveries of inputs into the construction
process may result in significant increases in the
price of construction.
Description of Models. Model 1, an aggregate
model of construction demand and supply, was
estimated using annual time-series data for the
period 1958-1972.12 It includes two equations.
One represents the demand for construction as a
function of the price of construction, the price
of other commodities, the level of gross national
product (GNP), and the mortgage interest rate.
The second equation defines the supply of
construction as a function of the price of
construction, other prices, and the size of the
prime-age male labor force.
Model 2 differs from Model 1 in two principal
ways. First, Model 2 includes four equations
12The estimation was carried out using two-stage-least-
squares (TSLS) regression procedures.
106
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representing the supply and demand of construc-
tion labor measured separately in terms of hours
and numbers of workers. The supply of labor is
specified as a function of the wage rate in the
construction industry, the wage rate in manu-
facturing industries, and the size of the prime-
age male labor force. The demand for construc-
tion labor is derived from an analysis of a model
of production in the industry. Construction
input is assumed to be a function of the levels of
capital and labor used as inputs.
The second difference in that, rather than
examining construction activity in the aggregate,
Model 2 identifies five separate sectors and
estimates demand and supply equations for
each. The five sectors are private residential
construction, private non-residential construc-
tion, public building construction, public non-
building construction excluding sewers, and
sewer construction. Over the period of estima-
tion (1969-1972), these five sectors accounted
for, roughly 45 percent, 24 percent, 12 percent,
17 percent, and 2 percent of total construction
activity. These percentages have shown consider-
able volatility over time. The public sectors, in
particular, can be expected to respond to various
legislative programs. Thus, Model 2 consists of
14 equations: four for construction labor and 10
for construction activity.
Results of Models
Demand for Construction. When viewed in
the aggregate (Model 1), the demand for total
construction appears to be influenced to a far
greater degree by overall factors in the economy,
(for example, GNP and the interest rate) than by
the price of construction. For example, a 1
percent increase in the price of construction is
predicted to lead to a decrease of only 0.025
percent in demand. In contrast, a 1 percent
increase in GNP would increase construction
demand by 0.47 percent, and a 1 percent
increase in the interest rate would lead to a 0.22
percent decrease in construction demand. The
overall implication is that construction demand
is quite price inelastic and is more a function of
the overall state of the economy.
This same conclusion applies as well to each
of the five separate sectors in Model 2. For each
sector, the estimated price elasticity of demand
is less than unity. (However, the estimated
coefficients are not statistically significant for all
sectors other than sewers.) This implies that the
percentage change in demand is smaller than the
percentage change in price. On a relative basis,
public building and public non-building con-
struction respond more to price changes than do
either of the private sectors. This may be due in
part to the specific policy of using public
construction project to even out total demand.
The private sectors, which make almost 80
percent of construction activity, respond more
strongly to GNP and the interest rate than to
price. Other things being equal a 1 percent
increase in GNP would lead to increases of 4.3
percent and 0.93 percent in private residential
and private non-residential construction, respec-
tively. A 1 percent increase in the interest rate
also has a marked impact on residential
construction—Model 2 predicts a decrease of
0.49 percent. This is to be expected. The major
'cost' of purchasing residential construction is
the mortgage payment. Changes in the rate of
mortgage interest are likely to have greater
influence on the total cost of housing than
change in construction price. Similarly, the
major determinant of business investment in
non-residential construction is the expected
return from a given expenditure. The return is
likely to fluctuate more closely with the general
level of economic activity than with the cost of
the project.
However, one might expect that the interest
elasticity of demand to be greater than the value
estimated. A possible reason for the low value is
that mortgage money is subject to considerable
non-price rationing, particularly at the peak of
business activity. Thus the relatively high elas-
ticity of demand with respect to the level of
GNP may reflect a high correlation between
non-market rationing of mortgage money and
GNP. If so, the analysis should have included a
measure of the availability of credit (in addition
to the rate of interest) in the model. While this
variable would modify the importance of the
GNP variable, it would not significantly change
the estimate of the price elasticity of demand.
The impact of GNP on public construction is
also sizeable. A 1 percent increase in GNP leads
to increases of 1.2 percent in public building and
0.40 percent in public non-building construc-
tion. Increases in the interest rate, while also
statistically significant, have a smaller absolute
impact on the public sector construction
demands. Decreases of 0.2, 0.37, and 0.46
percent in public building, non-building, and
107
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sewer construction demand are predicted to
result from a 1 percent increase in the interest
rate.
In summary, the models suggest that:
• Construction demand is relatively price
insensitive, particularly so in the private
sector, which makes up the bulk of the
industry demand.
• The level of GNP has a much more impor-
tant impact on construction demand, sug-
gesting that the level of economic activity
is a primary determinant.
• The availability of credit may be a more
important determinant than indicated by
this model. However, it appears that the
interest rate would have to undergo quite
substantial changes to impact greatly on
construction demand.
• The levels of GNP and the interest rate
have relatively larger effects on private
demand than on public demand.
Supply of Construction. Viewed in the aggre-
gate (Model 1), the supply of construction
appears to be quite responsive to both economic
factors and the price of construction, which,
unlike demand, responds very little to price
changes. A 1 percent increase in the price of
construction leads to an increase of 6.5 percent
in construction volume, while an increase of 1
percent in the prime-age male labor force leads
to an increase of 3.9 percent in construction
supply. On an aggregate basis, this suggests that
construction supply is quite price elastic: Small
price changes lead to large changes in the supply
of construction.
This same conclusion remains when the five-
sector model is considered. The supply of
construction appears to respond most to price
changes in the private residential and public
non-building sectors. The prices of construction
inputs have, as predicted, negative impacts upon
supply. Of the two variables, construction wage
rates appear the more important: in four of the
five sectors the wage coefficients exceeds the
interest rate coefficient. The impact of construc-
tion wages appears particularly large in the
public non-building sector: a 1 percent increase
in wages is predicted to decrease supply by 1.9
percent. In no other category is the estimated
elasticity greater than 1.0.
In summary, the supply of construction
appears to have the following characteristics:
• Relatively small price changes elicit sizeable
changes in the supply of construction.
• Construction supply increases with the size
of the available labor force, but decreases
with the price of inputs.
• The largest sector of construction, private
residential, is also the sector in which price
changes elicit the largest supply response.
Aggregate Impact of the Incremental EPA
Stimulated Demand. The aggregate demand and
supply curves described in Model 1 and esti-
mated from annual time series data can be
combined to assess the impact of additions to
demand. An increase in incremental demand
over the baseline is estimated to be $4.9 billion
for the sewer component of the aggregated
construction industry (Table VII-11). It is the
component stimulated by EPA. Using the values
of the estimated elasticities and parameters for
Model 1 to estimate the aggregate impact on
1976 construction, an increase of $4.9 billion
results in an increase in total construction of
$4.6 billion and an increase in relative prices of
0.6 percent. One effect of higher prices however
is to reduce the amount of construction that
would take place in other segments of the
construction industry. This explains why an
increase in $4.9 billion of demand for one part
of the construction industry results in a net
increase in total construction of $4.6 billion.
This result is shown graphically in Figure
VII-1. The impact of an increase in aggregate
demand is to shift equilibrium price and quan-
tity from (PI, Ql) to (P2, Q2). The increase in
the one component is shown by the differences
between Q3 and Q2. The price increase is shown
by the difference between P2 and PI. Due to the
price increase there is a decrease in demand by
other components of the construction industry
amounting to the difference between Q3 and
Ql. Thus the net increase in total construction
demand is shown by the difference between Q2
and Ql. .
Construction Labor Market. The supply of
construction labor, measured in terms of either
hours or employment, appears to respond
exactly as theoretically predicted. Wages in both
the construction industry and in competing
108
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TAB LEV) Ml
PROJECTED EPA-STIMULATED AND EPA BASELINE
CAPITAL OUTLAYS FOR POLLUTION CONTROL FACILITIES
Facilities
1974
1975
1976
1977
(billions of dollars)
Municipal*
EPA Stimulated (4-4 plan)
Baseline
Total
Nonthermal Industrial Costs^
EPA Stimulated
Baseline
Total
Thermal Industrial Costs *
0.8
2.8
3.6
1.5
1.0
2.5
2.1
2.9
5.0
1.5
1.0
2.5
2.8
3.0
5.8
1.5
1.0
2.5
1.8
3.2
5.0
0.9
1.0
1.9
EPA Stimulated
Baseline
Total
Total EPA-Stimulated Costs
0.5
0.5
2.8
0.6
0.6
4.2
0.6
0.6
4.9
0.6
0.6
3.7
*This capital outlay reflects an allotment of $4 billion in FY 1975 and $4 billion in FY 1976.
'('This capital outlay is based on the $11.9 billion estimate in Chapter 4 to achieve best practicable treatment. It
assumes $2.5 billion capital outlays in years 1973-1976 and a $1.9 billion capital outlay in year 1977.
tThis capital outlay is based on the $2.3 billion estimate in Chapter 4 to meet the thermal effluent guidelines given
the exceptions provided by Section 316 of the 1972 Amendments. It assumes a $0.5 billion capital outlay in year
1974 and $0.6 billion capital outlays in years 1975-1977.
occupations are important determinants of labor
supply. A 1 percent increase in construction
wages is predicted to lead to a 2.0 percent
increase in construction employment and a 2.2
percent increase in construction hours, while a 1
percent increase in alternative (manufacturing)
wages is predicted to lead to a 2.7 percent
decrease in employment and a 3.2 percent
decrease in hours. The size of the male labor
force is similarly an important determinant of
supply: A 1 percent increase in the male labor
force is predicted to lead to a 1.7 percent
increase in employment and a 2.7 percent
increase in hours. All of these estimated coeffi-
cients are statistically significant.
These results suggest a large and flexible
supply of labor to the construction industry.
Both the expanding labor force and the rapid
supply response to wage changes suggest that the
changes in construction activity can be con-
ducted by the existing labor force. (The data did
not enable estimates of production functions
using disaggregated labor categories. Hence the
wage and employment figures represent the
current aggregate of skill classes and are not
particularly applicable to predicting specific skill
shortages that may occur.) Quantitative esti-
mates of these impacts can be deduced from the
reduced form employment and hours equations,
which result from "solving" the demand and
supply equations to give equations relating the
endogenous variables to the exogenous variables
in the model. From these reduced form equa-
tions, the elasticities of construction hours and
wages are estimated to be 0.86 and 0.20,
respectively. Given the estimates of a $4.6
109
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FIGURE VIM
SUPPLY-DEMAND RELATIONSHIPS OF THE CONSTRUCTION INDUSTRY
Q
w
O
U
H-
o
8
Q2 - Q! = Increase in Total Construction
- Q3 = Decrease in Baseline Construction
Aggregate Demand Plus
Incremental EPA Demand
Aggregate Demand
Quantity of Construction
billion in aggregate construction, these elastic-
ities imply an impact of increasing construction
hours by 2.8 percent and of increasing construc-
tion wages by 0.7 percent.
One additional observation about the con-
struction labor market comes from the esti-
mated labor demand equations. The elasticities
of total construction activity on employment
and hours are 0.69 and 0.89, respectively. This
suggests that the demand reaction may be more
heavily concentrated on increased hours per
worker than on additions to the construction
labor force. Thus, the potential for expansion of
hours suggests further capacity for handling
short-term fluctuations in construction activity.
Model 2 was augmented to permit estimation
of demand and supply for four important skill
categories of construction labor—bricklayers,
iron workers, plumbers, and electricians. They
account for 15 percent of year-long sewage plant
construction jobs and 30 percent of the con-
struction trades jobs (Table VII-12).
A 1 percent increase in wages will lead to
increases of 3.0 percent in the number of
plumbers, 1.8 percent in the number of electri-
cians, 3.3 percent in the number of bricklayers,
110
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TABLE VII-12
ON-SITE YEARLONG JOBS
REQUIRED FOR SEWAGE PLANT CONSTRUCTION (1971)*
Administrative & Supervisory
Supervisors & General Foreman
Professional & Technical
Clerical
Construction Trades
Bricklayers
Carpenters
Electricians
Iron Workers
Operating Engineers
Painters
Plumbers
Cement Finishers
Other Skilled Trades
Labor Foremen
Laborers1"
Other Occupations*
All Occupations
Number/billion dollars
of sewage construction
2,260
(1,740)
(200)
(320)
13,000
(450)
(3,200)
(870)
(1,120)
(4,565)
(320)
(1.290)
(645)
(570)
570
7,365
1,590
24,800
Percent of
total
9.1
(7.0)
(0.8)
(1.3)
52.5
(1.8)
(12.9)
(3.5)
(4.5)
(18.4)
(1.3)
(5.2)
(2.0)
(2.3)
2.3
29.7
6.4
100.0
* Based on 1,800 man-hours a year per job.
tjncludes laborers, helpers, tenders, pipelayers, flagmen, and watchmen.
^Includes truckdrivers, oilers, and power tool operators.
Source: Bureau of Labor Statistics.
and 1.8 percent in the number of iron workers.
These predictions closely correspond to the
2.0 percent increase predicted in aggregate
construction labor.
As was the case for aggregate labor, hours
respond even more rapidly than employment. A
1 percent increase in wages is predicted to lead
to an increase in hours worked of 3.7 percent
for plumbers, 2.9 percent for electricians, 4.0
percent for bricklayers, and 2.4 percent for iron
workers, versus the overall aggregate estimate of
2.2 percent. This might suggest that barriers to
entry, either union-induced or the result of the
higher levels of skills required, lead to propor-
tionately larger increases in hours in these four
categories than in the other categories. The
possibility that these barriers may be somewhat
union-induced is further supported by the fact
that the estimated elasticities of employment
and hours for the size of the male labor force are
below those obtained for aggregate labor.
In terms of the impact on wages, a 1 percent
increase in total construction activity will lend
to increases in the wages of plumbers by 0.06
percent, of electricians by 0.20 percent, of
bricklayers by 0.02 percent, and of iron workers
by 0.14 percent. These estimates are slightly
below those obtained for aggregate labor. Given
the $4.6 billion increase in overall construction
in the peak year, the model predicts rises of 0.2,
111
-------
0.7, 0.1, and 0.5 percent in the wages of
plumbers, electricians, bricklayers, and iron
workers, respectively, from EPA-stimulated
demand.
In summary, the labor market flexibility
predicted in the aggregate analysis appears to
carry over to these four skill categories. An
increase in the demand for labor is met to a
greater extent by increases in hours and a lesser
extent by increases in numbers of Workers at
least in the short run.
Impact of Capital Markets on Construc-
tion. An earlier section of the report concluded
that the impact of the EPA-stimulated demand
on interest rates would likely be quite small.
(For example, peak year incremental funding
requirements represent only about 3.0 percent
of 1970 gross private domestic investment and
1.0 percent of 1970 mortgage debt.) In addition,
the results presented earlier suggest that only
very large interest rate changes would substan-
tially impact on construction activity. Even if
EPA-stimulated demands cause interest rates to
rise as much as 1 percent, overall construction
would probably decrease by only 0.22 percent,
w|th a maximum decrease (but of only about
0.49 percent) in the private residential construc-
tion category. These liberal estimates of the
impact via the capital markets suggest that
impacts induced by interest rates will probably
be negligible.
Sector Impact. In assessing the impact of the
EPA-stimulated demand on the five construction
sectors contained in Model 2, it is important to
note that the overall impact is predicted to be a
decrease of $0.3 billion in the peak year. The
private residential and the public non-building
sectors are estimated to have the largest relative
decrease in construction activity due to their
(relatively) high demand elasticities and (rela-
tively) low supply elasticities. Of the predicted
decrease in baseline construction, $0.16 billion
would be concentrated in the private residential
sector and slightly less than $0.15 billion in the
public non-building sector. (A conceivable
reason for the high demand elasticities for the
public sectors is that public works projects are
timed somewhat to smooth the overall level of
construction activity. Thus these estimates could
be somewhat in error if the practice of con-
tracting for public building in periods of slack
activity [low prices] is not continued.)
Bottlenecks. To supplement the studies dis-
cussed above which examined the flexibility of
the construction industry, additional studies
were carried out that attempted to examine the
possibility of bottlenecks developing that could
not be foreseen using the more formal tech-
niques.1 3 These studies were based primarily on
an examination of the institutional framework
of the construction industry. Possible supply
bottlenecks examined were manpower, entre-
preneurial skills, and construction materials.
Manpower. The ability of the economy to
supply sufficient manpower to meet the needs
generated by the increased demand for pollution
control construction was examined by a special
report prepared for EPA by the Bureau of Labor
Statistics (BLS). The conclusions of this study
can be summarized by the following quotations
from the BLS report: "The construction in-
dustry in the past had demonstrated a remark-
able capability to expand its work force to meet
short-term spurts in demand. Shortages in cer-
tain construction occupations do occur, how-
ever, in some geographical locations during
periods of peak demands or as a result of shifts
in the composition of construction en-
gineering."1 4 These findings are consistent with
the results generated by the formal model of
labor supply. While there is clearly a potential
for a bottleneck to develop, the labor market in
the past has been able to adjust adequately. The
BLS study did suggest expansion of formal
training programs in the certain construction
trades to prevent future bottlenecks.
The Sabotka study also examined labor
supply conditions and reached similar conclu-
sions with regard to the overall sufficiency of
supply. However, the study pointed out that the
degree of union power is very large and may lead
13Bureau of Labor Statistics, Department of Labor,
Manpower Implications of Alternate Levels of Sewer
Construction, Agreement No. EPA-IAC-V0240(D),
Oct., 1973.
Stephen Sabotka and Co. and McKee-Berger-Man-
sueto, Inc., The Economic Impact of the Additional
Demands Caused by New Environmental Protection
Standards, Contract No. 68-01-0554, Dec. 1972.
14 Bureau of Labor Statistics, Department of Labor,
Manpower Implications of Alternate Levels of Sewer
Construction, Agreement No. EPA-IAC-V0240(D),
Oct., 1973, p. 38.
112
-------
to significant price increases, particularly if the
growth of construction output is sustained at a
high rate.
A major problem not specifically addressed in
the above studies is the possible impact of
Davis-Bacon type legislation. This legislation
calls for the payment of the "prevailing" wage
on government-supported construction projects.
The prevailing wage has come to be defined as
the union scale. In many labor markets this
represents a significant increase in the construc-
tion wage over the actual prevailing level. Fre-
quently this inhibits non-union contractors from
bidding on contracts. This institutional arrange-
ment means that even if sufficient capacity
exists for an expansion of construction output it
will be used only if there is a considerable price
increase. In fact, a large increase in Federally-
assisted construction, such as called for in the
1972 Amendments, may lead to large increases
in construction prices. One study has estimated
that a 10 percent increase in the proportion of
Federally-financed construction would increase
union wages by 6.8 percent relative to wages of
production workers in manufacturing.* 5
Entrepreneurial Skill. The large number of
contract construction firms, the ease of entry,
and the relatively general skills needed to pro-
duce water pollution abatement facilities have
been pointed out as factors facilitating the
expansion of this type of construction. How-
ever, there is the possibility that several barriers
to expansion exist. The small firm size makes
the possibility of business failure very high. This
means risk premiums add significantly to the
cost of construction. These take the form of
performance bonding, which is a type of in-
surance and high interest rates on bank loans.
Also, "tight money" conditions may make an
expansion of construction output very difficult.
In addition, the riskiness of construction may
cause firms to greatly increase their bids on
slightly unfamiliar tasks. The Sabotka Study
indicates that while this inhibits expansion it
does not inhibit expansion significantly.
Construction Materials. The Sabotka report
indicates that the supply of construction mate-
rials "could expand to meet any foreseeable
demand for the next decade though there might
be lags and local shortages." In light of thi
recent fuel shortages and devaluation of the
dollar this optimistic view may need revision.
Such commodities, such as steel reinforcing
rods, timber products, and even concrete, may
greatly increase in price.
EQUIPMENT SUPPLY
Meeting the new effluent standards will have an
impact on industries supplying water pollution
abatement equipment, especially during the crit-
ical period of construction activity extending
from 1972 through 1980.16
Since industrial activity in the water pollution
abatement equipment field cannot be forecast
with precision, the demand and impact analyses
were performed assuming three alternative
futures: (I) a Baseline scenario that extrapolates
pollution abatement activity from a base year
predating major environmental legislation; (II) a
Federal Compliance Schedule that simulates
on-time enforcement of existing standards; and
(III) an Expected Compliance Schedule that
reflects forecasts of what may alternatively
occur.'
The following analysis was completed in
1972. It was" based on statements of equipment
suppliers and secondary statistics. Its primary
focus was on the productive capacity of the
industry rather than the availability of raw
material and skilled labor inputs. The latter
categories may cause, as recent evidence indi-^
cates, some disruptions in short-time supply. '*
Pollution Abatement Equipment Indus-
try. More than 400 firms participate in the
water pollution abatement equipment industry.
The four volume leaders hold about 20 percent
of the market, which totaled about $475 million
in 1971—about $275 million for wastewater
treatment and $200 million for water treatment.
The market structure of the industry is
complex, frequently involving, multiple layers of
municipal governments, consulting engineering
firms, contractors, local health departments, and
1^John P. Gould, Davis Bacon Act: The Economics of
Prevailing Waff" Laws, Special Analysis Number 15
(Washington, D.C.: American Enterprise Institute,
1971) p. 38.
16Arthur D. Little with U.S. Environmental Protection
Agency—December 1972, Economic Impact Study of
the Pollution Abatement Equipment Industry, Con-
tract No. 68-01-0553.
113
-------
federal agencies. One effect of this marketing
structure is an extended delay (3 to 5 years)
between the decision to buy equipment and its
delivery. A second, and maybe more important,
effect is the pressure on these parties to protect
their respective positions by conservative
decision-making. As a result, the municipal
water pollution control market is generally slow
to respond to federal compliance pressures and
to technological change.
The industry has enjoyed glamour status,
largely due to the great publicity afforded water
pollution control problems and programs. Its
performance, however, has thus far been a
relative disappointment. The pollution abate-
ment equipment business is attractive enough
however, to encourage the development of as
much long-term supply as may be needed
through 1980. There are several reasons that
support this conclusion:
• The profit margins enjoyed by pollution
control companies on their pollution busi-
ness have generally exceeded the margins
on their other businesses in the same
industrial categories.
• Companies in which pollution control is a
significant activity (greater than 5 percent
of sales) have slightly higher return on
assets than companies in which pollution
control is a minor activity.
• Comparing the returns on assets, companies
"in" the pollution business have out per-
formed those in closely related SIC's.
• Examination of the returns of selected
companies in two industries which have
indicated strong interests in entering the
business—the chemical and aerospace in-
dustries—shows that the returns of water
pollution control specialty chemical com-
panies were greater than their rates of
return.
Demand From Municipal Sector. Aggregate
needs for municipal sewage and ancillary facil-
ities were developed from figures in EPA's
Economics of Clean Water reports. Current
market and product mix estimates were based
on surveys made by the Department of Com-
merce. Projections of changes in product mix were
developed by the contractor's staff with assist-
ance from persons within the industry. On a
constant dollar basis, the recent history of
municipal expenditures has been disappointing.
The average annual growth since 1965 has only
been 0.6 percent per year. This plateau of
municipal demand has resulted primarily from
the waiting by municipalities for promised Fed-
eral assistance—assistance which has not been up
to those expectations. The aggregate demand for
total municipal sewage system expenditures
between 1972 and 1980 is esimated at $27
billion. The mix of expenditures between treat-
ment plants, ancillary facilities, and collection
systems were further adjusted to reflect EPA's
survey of specific municipal needs. The results
of the demand analyses under the three alter-
native futures are shown in Table VII-13 and
Figure VII-2.
Case I—Baseline. The starting line for the
baseline projection was 1965, which marked the
first promise of significant Federal funds for
municipal construction and correspondingly
marked the beginning of a plateau in municipal
spending that only recently has been exceeded.
From the 1965 level of expenditures, the base-
line was updated to 1971 by a multiplier (about
1.04) corresponding to the growth in municipal
water usage over that period. Similar multipliers
were used to grow the baseline over the 1971-80
period. Figure VII-2 shows that the baseline
exceeds the level of activity in Cases II and III
until 1974, thus emphasizing the impact that the
municipal waiting game has had upon not only
the progress of the national water pollution
control program but upon the operation rates
and profits of the water pollution control
equipment industry.
Case II—Federal Compliance Schedule, This
case reflects at least some flexibility in waiving
compliance to contemplated water effluent stand-
ards in selected situations, particularly in recog-
nition of the long delay between Federal grants
and final equipment delivery in the municipal
market. The Federal compliance schedule por-
trays a fast growing industry that peaks quickly
and then falls to a presumed situation of low
operating rates and low profits.
Case HI—Expected Compliance Sched-
ule. The expected growth of municipal sewage
treatment demand encompasses a continuation
of lower growth rates in annual investment
through 1973, an acceleration of expenditures in
1974-76, and the tapering off to an acceptable
growth rate through 1980. Hidden within the
curves in Figure VII-2 are the greater growth
114
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TABLE VII-13
ESTIMATED ANNUAL SHIPMENTS. 1972-80 OF POLLUTION ABATEMENT EQUIPMENT INDUSTRY
Annual Shipments (Millions of 1972 Dollars)
Growth (%/year)
1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1971-75 1975-80
MUNICIPAL SEWAGE TREATMENT
Case I: Baseline
Specialty equipment 96 100 104 109 114 119 125 132 138 145 4.3 5.0
Instrumentation 11 12 12 13 13 14 15 15 16 17 4.3 5.0
Case II: Federal compliance schedule
Specialty equipment 110 126 159 221 292 368 300 211 113 73 27.6 -24.4
Instrumentation 17 21 28 39 54 78 65 52 23 15 33.0 -23.0
Case III: Expected compliance schedule
Specialty equipment 110 114 123 152 186 222 239 255 277 293 14.1 9.5
Instrumentation 17 19 21 26 33 42 48 54 62 69 17.9 15.9
INDUSTRIAL WASTEWATER TREATMENT
Case I: Baseline
Case II:
Case III:
Specialty equipment 56
Instrumentation 13
Federal compliance schedule
Specialty equipment 172
Instrumentation 26
Expected compliance schedule
Specialty equipment 172
Instrumentation 26
59
14
192
31
184
30
63
14
211
35
197
32
66
15
228
38
207
34
69
16
239
42
213
36
73
17
248
44
217
38
77
18
151
28
198
36
81
19
85
17
124
23
86
20
76
14
80
16
91
21
63
13
73
15
5.4
5.4
8.6
12.7
5.5
8.5
5.4
5.4
-23.4
-21.0
-19.3
-16.1
FIGURE Vll-2
COMPARATIVE EXPENDITURES. 1972-80, FOR MUNICIPAL SEWAGE TREATMENT
CASE I
BASELINE
CASE II
FEDERAL COMPLIANCE SCHEDULE
CASE III
EXPECTED COMPLIANCE SCHEDULE
J3
&
CM
s>
s
o
a
I
I
ui
1
i
2-
71 72 73 74. 75 76 77 78 79 80 71 72 73 74 75 76 77 78 79 80 71 72 73 74 75 76 77 78 79 80
115
-------
rates of specialty equipment indicated in Table
VII-13. These higher growth rates for the equip-
ment proportion of the total are due to changes
in product mix and the relative proportion of
total investment represented by treatment plant
expenditures. From the point of view of either
specialty equipment or total expenditures, the
pattern of growth in Case III presents a more
favorable future for the water pollution control
equipment industry. However, Case III will also
suffer a declining market after 1980, providing
new legislative targets are not set by then. The
1972 Amendments affect more the source of
monies for municipal sewage treatment than
targets of control. Thus, the backlog of needs
remain roughly the same, $27 billion.
Demand From Industrial Sector. Reliable in-
formation on industrial wastewater treatment
expenditures was difficult to obtain. Depart-
ment of Commerce surveys were used for
estimating the level of current equipment ship-
ments and the product mix. From this informa-
tion, the 1971 market for specialty equipment
and instrumentation was estimated at about
$192 million (current dollars). Aggregate
demand estimates for the 1972-80 period were,
with slight modifications, based on Economics
of Clean Water reports. The aggregate demand
for industrial expenditures estimated for the
period was estimated to be $9.7 billion. Demand
was also forecast for the market for industrial
wastewater treatment.
Case I—Baseline. Again, 1965 was selected as
the base year. The baseline (Figure VII-3) was
constructed using the level of shipments in 1965,
a growth index reflecting industrial plant invest-
ment (at 5.4 percent per year), and a constant
product mix of equipment.
Case II—Federal Compliance Schedule. Since
industry responds more quickly to Federal en-
forcement than municipalities, the majority of
industrial wastewater treatment is assumed to be
taken care of by 1976. Indeed, the apparent
level of expenditures by industry in 1971 is
already so high that it took only a small growth
rate to achieve the needed expenditures by 1975
(about 7.2 percent).
Case HI—Expected Compliance Schedule. In-
dustry will apparently have no great difficulty in
accomplishing most of the backlog (as now
measured) by 1976. This is partly based on
estimates that industrial expenditures are
FIGURE VII-3
INDUSTRIAL WASTEWATER TREATMENT COMPARATIVE EXPENDITURES, 1972-80
CASE I
BASELINE
CASE II
FEDERAL COMPLIANCE SCHEDULE
CASE III
EXPECTED COMPLIANCE SCHEDULE
c
(N
S
i
g
S
I
1.5
1.0 -
3 -
X)
X)
xq
I
X
5i
>'x
>^
71 72 73 74 75 76 77 78 79 60
'/I 72 73 74 75 76 77 78 79 80
71 72 73 74 7s 76 77 78 79 80
116
-------
already at a level ($1.2 billion) which, with only a
modest growth, could reach the estimated target
by 1976-77. As a result, in industrial wastewater
treatment, the possibilities of a declining market
during the 1970's exist in Case III just as they
do in Case II. This implies that either industry is
close to solving its water pollution problems
under present objectives (excluding the implica-
tions of the 1972 Amendments) or that the cost
of control have been greatly underestimated.
Again, specialty equipment expenditures will
grow at a faster rate than total expenditures
because of the trend toward advanced treatment.
Impacts. The impact analysis focused upon
balancing estimates of demand against the sup-
ply capabilities of the pollution abatement
equipment industry. The analysis was hindered
by a serious lack of reliable data on industry
supply capacities if capacities are restricted to
physical plant and equipment. "Supply" was
looked upon in terms of not only physical plant
and equipment (the impact of capital) but also
in terms of the input of labor arid materials.
By combining traditional production theory
with basic accounting practice, total revenue was
assumed equal to the sum of total payments for
labor, capital, and materials. The proportions of
these three production factors (as a part of total
revenues) were estimated from data on selected
SIC industries in the Census of Manufactures
and from contacts with leading manufacturers.
Three to five companies in each of the industry
sectors (also employment agencies) were sur-
veyed to determine the supply elasticities of
different kinds of labor and materials. This
survey was not exhaustive. It was made pri-
marily to assure that the supply elasticities used
in this analysis were of the right magnitude. An
analysis of the elasticity of interest rates for
corporate , borrowing over time was made
separately to ascertain the effects of increased
capital costs upon the final price to customers.
These analyses of the -capital markets for this
industry were confirmed through conversations
with leading financial institutions.
The elasticity information from these surveys
was then combined into individual supply curves
for skilled labor, production labor, materials,
and capital. These supply curves were used as
annual short-run supply curves,, relating in-
creased cost premiums against increases in fac-
tory requirements over a given year.
A major simplifying assumption was that the
short-run supply curves (actually developed for
1972) W9uld be characteristic of the short-run
factor supply markets for the rest of the decade.
The second major assumption was that, except
for operating effects, the Census of Manufac-
tures breakdowns of the factors of production
will also remain constant.
The supply curves were generally quite elastic.
Supply curves for materials were more elastic
than those for production labor, which in turn
were more elastic than the skilled labor curv.es.
Supply curves for borrowed capital were
actually stepwise curves indicating that above a
certain annual increase in capital requirements
the interest rate would jump from a lower to a
higher level.
The objectives in balancing demand forecasts
with empirical supply curves were to indicate
what price increases would result if direct cost
increases created by supply constraints were
passed on to the customers. The demand fore-
casts were balanced with empirical supply
curves. In short, a cost push was measured
instead of forecasting prices directly. This cost
push reflects factor scarcity. The forecast of
actual prices would have to include other im-
portant considerations besides factor scar-
city: the effects of operating rates upon the
fixed cost loads, the relative price elasticity to
the quality of product and service performed,
and the prediction of corporate policies on
pricing in times of short- and over-supply.
The economic impact upon the different
industry sectors were analyzed in terms of the
pollution abatement and closely-related busi-
nesses of the leading manufacturers. As the
companies involved in water pollution control
equipment are equally involved in water treat-
ment markets, forecasts of water treatment
equipment demand were included in the calcu-
lation of year-to-year growth factors. Similarly,
because of a substantial overlap of companies in
the air and water instrumentation markets and
the probability that the overlap will increase in
the future, these two markets were combined.
The comparative inflationary impacts are pre-
sented in Table VIM 4. The baseline and ex-
pected compliance schedules would result in
only a 0.3 .percent average inflation, whereas the
inflation would be 0.8 percent under the Federal
compliance schedule.
The results of the analysis, which takes into
account supply elasticities and operating rate
conditions, are combined in a kind of composite
supply curve for each industry component
117
-------
TABLE VI1-14
COMPARATIVE INFLATIONARY IMPACT, 1972-80.
FOR WATER POLLUTION CONTROL EQUIPMENT
Case I
Case II
Case III
Baseline
Federal compliance
schedule
Expected compliance
schedule
1972
1973
1974
1975
1976
1977
1978
1979
1980
Inflated demand
1971-1980
'(millions 1972
dollars)
•*• Base Demand
1971-1980
(millions 1972
dollars)
= Average
inflation
(infk.^d demand)
base demand
Cumulative index
1.0007
1.0013
1.0020
1.0026
1.0033
1.0039
1.0046
1.0053
1.0080
Cumulative index
1.0013
1.0026
1.0046
1.0090
1.0131
1.0141
1.0100
1.0087
1.0087
Cumulative index
1.0006
1.0013
1.0026
1.0038
1.0054
1.0054
1.0054
1.0054
1.0059
$1,909.4
$1,903.0
0.3%
$3,677.0
$3,655.4
0.8%
$3,640.0
$3,636.0
0.3%
(Figure VII-4). These are not true supply curves
in the sense of the ones used as inputs to the
analysis. They simply summarize a plot of the
results of the price impact analysis in the
industry. For water pollution control equipment
and specialty chemicals, the curve reflects a
higher elasticity in the range of anticipated
growth rates.
The lack of detailed studies of the manpower
requirements in .the pollution field for the
equipment suppliers, and the smallness of the
sample of manufacturers' estimates of the break-
down of the types of manpower they utilize,
prevented a detailed statistical analysis of man-
power requirements. Based on average 'sales per
employee ratios for leading companies in the
business and the demand estimates developed,
estimates were prepared of the gross manpower
requirements for 1972, 1975, and 1980 (Table
VII-15).
In Case III, the total employment is expected
to increase from 20,000 in 1972 to 27,000 in
1975 and 30,000 in 1980. Employment in Case
II is projected to increase to 35,000 in 1975 (up
about 65 percent from 1972) but then decline
to (17,000 people (less than current levels) by
1980. ..'.;:
Federal legislation has had a positive employ-
ment impact when the estimate of 20,000
people employed in 1972 under expected
118
-------
FIGURE VII-4
EFFECTIVE "SUPPLY" CURVES
Water Pollution Control
1.075
5 1-050
6
o
o
^ 1.025
c
O
"o
X
01
•a
c
1.000
Specialty Equipment and
Specialty Chemicals
.975
•40
-20 0 +20
Market Growth in One Year, %
+40
•*CO
1.075
1.060
Instrumentation
(Air and Water)
u
K
8
3
1.025
x
0>
1.000
.975
_L
-40
-20 0 +20
Market Growth in One Year, %
«f,0
119
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TABLE VII-15
PERSONNEL REQUIREMENTS OF WATER POLLUTION
CONTROL EQUIPMENT INDUSTRY, 1972-80
Case
I
1972
II III
I
1975
II III
I
1980
II III
Water pollution control
equipment— Sales (millions) $149 318 298 183 531 399 236 136 366
Employees 4,890 9,780 9,170 5,630 16,300 12,300 7,260 4,160 11,300
Instrumentation
air and water
Specialty chemicals
for water pollution
control
Total Employees
Sales (millions) 34 80 69 38 198 109 50 45 166
Employees 1,630 3,830 3,300 1,900 9,470 4,220 2,390 2,150 7,900
Sales (millions) 282 289 289 318 339 336 392 419 418
Employees 6,880 7,050 7,050 7,760 8,270 8,200 9,560 10,200 10,200
13,875 21,347 20,176 15,829 35,108 26,564 19,888 17,130 30,350
compliance schedules is compared to the esti-
mated 14,000 people under baseline conditions.
By 1975, the expected compliance schedule cor-
responds to an employment almost 170 percent
that of baseline conditions. And by 1980 is one
and one-half times as great.
A major cause of the present overcapacity in
the pollution control industry has been the
expectation of promised action. To the degree
that standards and deadlines are set realistically
and enforced on schedule, future overcapacity
should be reduced.
ftU.S. GOVERNMENT PRINTING OFFICE:W4 546-314/197 13
120
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