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
                                        vn

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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

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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

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                                          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

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     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

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      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

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     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

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                                 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

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 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

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 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

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                                     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

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                                         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

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                                          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

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                                  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

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                                           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

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                                           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

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                                          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

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                                         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

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   • 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

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                                           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

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                                         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

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                        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

-------
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

-------
                                               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

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                                    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

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                  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

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         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

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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

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                                          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

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                                          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

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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

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                                          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

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                                         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.
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                     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
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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).


 BIBLIOGRAPHY

 Appalachian Regional Commission, Acid Mine
   Drainage in  Appalachia, Vol. 1.  Washington,
   D.C., 1969.
 Arner, D.,  et  al., "An Ecological  and Recrea-
   tional  Use Survey of the Luxapalila  River,"
   page 367. Water Resources  Bulletin  V.  8,
   April 1972, No. 2,  Permagon  Press, Oxford,
   England.
 Aukerman,  R.,  "Water  Quality  Criteria  for
   Selected   Recreational Uses—Site  Compari-
   sons," Thesis, University of Illinois, 1971.
 Baker,  J. M.,  "The Effects  of Oil  on Plants,"
   Environmental Pollution, (I) 1970.
 Bale, H. E., Jr., Report on the Economic Costs
   of Fishery  Contaminants,  National  Marine
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   for Two Aquatic  Animals," Water Research,
   Pergamon Press, 1968, Vol. 2.
 Sprague, J. B., and D. W. McLeese, "Toxicity of
   Kraft Pulp Mill Effluent for Larval and Adult
   Lobsters,  and Juvenile  Salmon," Water Re-
   search, Pergamon Press, 1968, Vol. 2.
 Stanley,  Maxwell  C., "Economics  of Water
   Softening," J. Am. Water Works Assn.,  Vol.
   28, No.  4.
 Stevens, J. B., "Recreation Benefits from Water
   Pollution   Control,"  Water  Resources  Re-
   search,  Vol. 2, No. 2, Second Quarter 1966.
 Stoevener, H. H., et al., Multi-Disciplinary Study
   of Water Quality Relationships: A Case Study
   of Yaquina Bay, Oregon, Oregon Agricultural
   Experiment   Station,   Corvallis,  Oregon,
   February, 1972.
 Stoll, J. B., "Man's Role in Affecting Sedimenta-
   tion of  Streams and Reservoirs," Proceedings
   of the Second Annual Water Resources Con-
   ference, Chicago, 111., 1966.
 Stone,  R.,  and  H. Friedland, "Estuarine Clean
   Water Cost-Benefit Studies," presented at 5th
   International  Water Pollution Research Con-
   ference, San Francisco, Calif., 1970.
 Stone,  Ralph, William Garber, and Helen Fried-
   land, "Water Quality: Cost Benefits  of  Irre-
   ducibles,"  J.  of   the  Sanitary  Engineering
   Division, June, 1970.
 Storey, E. H. and Ditton, R. B., Water Quality
   Requirements for  Recreation,  Water  Re-
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   of Texas Press, Austin, 57,1970.
 Sumitomo, H., and N. L. Nemerow, "Pollution
   Index for Benefit Analysis," Syracuse Univer-
   sity, Department  of Civil  Engineering, Syra-
   cuse, N.Y., 1969.
Tarzwell, Clarence M., "Thermal Requirements
   to  Protect Aquatic Life,"  J.   Water Poll.
   Control Fed.,  May  1970, Vol. 42, No.  5,  Part
   1.
Tihansky, D. P., "An  Economic Assessment of
   Marine   Water  Pollution  Damages,"  Third
   Annual  Conference  International  Association
   for Pollution  Control," Pollution Control in
   the Marine Industries, Montreal, Canada, June
   7,1973(a).
Tihansky, D. P., Economic Damages to House-
   hold Items  from Water Supply Use, Environ-
   mental Protection  Agency, Washington, D.C.,
   August, 1973(b).
Todd,  David Keith, The Water Encyclopedia,
  Water  Information  Center, Water  Research
  Building,  Manhasset  Isle,  Port  Washington,
  N.Y., 1970.
Tomazinis,  A.  R., and  I.  Gabbour,  "Water-
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  Recreation Benefits  Derivable from Various
  Levels of  Water  Quality  of the  Delaware
  River," Institute for Environmental Studies,
  University  of Pennsylvania, Philadelphia, Pa.,
  February, 1967.
Trice, A. H.,  and  S. E.  Wood, "Measurement of
  Recreation Benefits,"  Land Economics, 34,
  1958, pp. 796-207.
Tybout, R. A., "Economic Impact of Changes in
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  for  Salinity  Management  in  the  Colorado
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                                             84

-------
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  Albuquerque, N.M. 1962, pp. 220-282.
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  Vol.  L,  University of Western  Ontario, Lon-
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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

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   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

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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

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                                            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

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     — 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

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  •  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

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                  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

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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
                                              97

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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
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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
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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.
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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
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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.
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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
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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.
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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
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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,
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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,
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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

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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

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                                       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

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                             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
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