United States
Environmental Protection
Agency
Policy, Planning,
And Evaluation
(2127)
EPA 230-R-95-011
September 1995
vvEPA
The U.S. Environmental
Protection Industry: A Proposed
Framework For Assessment
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EPA230-R-95-011
September 1995
THE U.S. ENVIRONMENTAL PROTECTION INDUSTRY:
A Proposed Framework for Assessment
Economic Analysis and Research Branch
Economic Analysis and Innovations Division
Office of Policy, Planning and Evaluation
U.S. Environmental Protection Agency
Washington, DC 20460
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SUMMARY
This study defines the goods and services that constitute environmental protection
activities in the United States. The U.S. input-output (I-O) table serves as the basis for the
definition of environmental protection activities developed in this study. The U.S.
environmental protection input-output tables identify the sectors that receive the revenues
associated with purchases of goods and services to comply with environmental regulation as well
as the sectors that demand environmental protection goods and services. The input-output
framework also allows for the development of a measure of the importance of environmental
protection activities relative to the U.S. economy. Finally, employment associated with
environmental protection activities can be estimated.
This study finds that the EP industry is much like the tourism industry in that the
purchases associated with complying with environmental programs consists of a diverse
collection of products and services. Just as the tourism industry consists of parts of the hotel and
restaurant industries, the EP industry includes parts of the construction, chemicals, energy, and
engineering services sectors. Also, just as tourism does not account for all economic activity in
the hotel and restaurant industries, EP activities do not account for all purchases of construction,
chemicals, energy, and engineering services. Because EP activities consist of the activities of
several economic sectors and the activities of these sectors are not uniquely for EP, this poses
difficulties for developing a Standard Industrial Classification (SIC) code for the EP industry.
This complicates measurement of the size of and employment in EP activities as well.
The results also show that EP activities constituted between 0.64 and 0.80 percent of
Gross National Product (GNP) between 1977 and 1991 and during this time. In 1991, the EP
industry was roughly the size of the following industries: Aircraft and Parts (SIC 372) and
Primary Metal Industries (SIC 33). Value-added for these industries in 1991 was $49,046.3
million and $46,605 million, respectively. Value-added for EP was $46,646.6 million.
Employment directly attributable to EP activities increased from 678 thousand in 1977 to 741
thousand in 1991. In 1991, direct EP employment was comparable to employment for the
Aerospace industry, which employed 745,600 individuals.
Using the I-O framework, it is also possible to estimate employment indirectly
attributable to EP activities. As an example, consider an industrial plant that has installed a
scrubber to abate its emissions of air pollution. The plant will directly employ individuals to
operate the scrubber. In addition, the plant will purchase electricity to run the scrubber and
individuals will be employed in the production of electricity. Likewise, the electric power plant
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11
will purchase coal to produce electricity, and individuals will be employed to mine coal. The
individuals employed in producing the electricity to run the scrubber and the individuals
employed in mining the coal used to generate the electricity needed to operate the scrubber
constitute indirect EP employment. The multiplier used in this study does not capture
employment associated with household income generation and the resulting expenditures (i.e.,
"induced" effects). If individuals indirectly employed are also counted, employment increased
from 1.3 million in 1977 to 2.0 million in 1991.
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Ill
Acknowledgments
This report was prepared by Deborah Vaughn Nestor and Carl A. Pasurka, Jr. in EPA's
Office of Policy, Planning, and Evaluation, and represents a summary of the companion
document The U.S. Environmental Protection Industry: The Technical Report. The authors
gratefully acknowledge the assistance and encouragement of past and present colleagues within
the Economic Analysis and Research Branch: Alan Carlin, Anne Grambsch, Mary Jo Kealy, Al
McGartland and Brett Snyder. The authors also thank the individuals mentioned below for
assistance with the report.
Don Garner (while at the Environmental Law Institute) and Jim Lockhart (while at the
Environmental Law Institute) assisted with the data. The participants in the March 1992 seminar
before the Interagency Seminar on Economics and the Environment at the U.S. EPA gave
helpful comments and guidance. Conversations with Roger Bezdek (Management Information
Services) and Dan Noble (Environmental Business, Inc.) provided additional insights.
Rick Kaglic, Mo Moabi, and Christine Vogan of the Environmental Economics Division
at the Bureau of Economic Analysis all helped to clarify environmental data collected by the
BEA. Gary Rutledge, Director of the Environmental Economics Division assisted both in
clarifying the data and in resolving conceptual issues related to this report. Janet Shapiro (U.S.
Bureau of the Census) provided assistance with the "Pollution Abatement Control and
Expenditures" (MA-200) data. Anne Lawson, Director of the Interindustry Economics Division
of BEA, and Allen Young (BEA) also provided assistance. Belinda Bonds and Patricia
Washington of the interindustry economics division of the BEA provided information regarding
data sources and assumptions used in the construction of the U.S. input-output tables.
Anton Steurer (Eurostat) and Carsten Stahmer (Federal Statistical Office of Germany)
assisted in resolving conceptual issues involved in preparing this report.
The following individuals provided helpful comments an earlier draft of this document
(in alphabetical order):
William Holroyd (Department of Commerce)
Raymond Prince (U.S. Congressional Budget Office)
Mahesh Podar (U.S. EPA)
Rodney Sobin (Office of Technology Assessment)
Robert D. Atkinson (Office of Technology and Assessment)
Patrice L. Gordon (Congressional Budget Office)
David Ingersoll (U.S. International Trade Commission)
The preliminary results of this study were presented at a Resources for the Future
Seminar in September 1993.
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IV
TABLE OF CONTENTS
1. OVERVIEW 1
1.1. Purpose of the Study 1
1.2. Principal Findings 1
1.3. Outline of the Report 1
2. CONTRIBUTION OF THE STUDY 2
2.1. TheEP "Industry" 2
2.2. Integrated Environmental and Economic Accounting 3
2.3. Improved Modelling of the Economic Impacts of Environmental
Regulation 4
3. FRAMEWORK FOR DEFINING ENVIRONMENTAL PROTECTION
ACTIVITIES 6
3.1. General 6
3.2. EP Activities in an I-O Framework 6
3.3. Specific Activities Included and Data Sources 9
3.4. Limitations 11
4. COMPOSITION OF EP ACTIVITIES 12
5. SIZE OF THE EP INDUSTRY RELATIVE TO THE U.S. ECONOMY 15
6. EMPLOYMENT ASSOCIATED WITH EP ACTIVITIES 16
6.1. Computation of Direct Employment 16
6.2. Computation of Indirect Employment 17
6.3. Total Employment in EP Activities 18
NOTES 19
REFERENCES 21
APPENDIX A A-l
APPENDIX B B-l
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V
LIST OF TABLES
Table 1: Demand for EP Activities by Sector for 1991 13
Table 2: Inputs Purchased for EP Activities by Sector for 1991 14
Table 3: Measures of the Size of the EP Industry 15
Table 4: Employment in EP Activities 18
LIST OF DIAGRAMS
Diagram 1: System for Integrated Environmental and Economic Accounting 5
Diagram 2: Input-Output Transactions Table 7
Diagram 3: The I-O Framework Modified to Display the EP Industry 9
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1. OVERVIEW
1.1. Purpose of the Study
This study identifies the production and service activities that constitute environmental
protection (EP) activities in the U.S. economy. The identification of these activities is
accomplished through the use of an input-output (I-O) accounting framework. The U.S. I-O
table, published by the Bureau of Economic Analysis (BEA, U.S. Department of Commerce), is
adjusted to isolate EP activities from other economic activities. The resulting EP I-O tables
characterize the sectors whose output is used to comply with environmental regulations as well
as the sectors that demand EP goods and services.
This study does not attempt to measure or draw conclusions about the net economic
impacts of environmental regulation. Rather, it focuses on defining and measuring the amount
of resources devoted to EP activities. The composition of EP activities in the United States is
assessed. The size of EP activities relative to the U.S. economy is estimated for five years:
1977, 1982, 1985, 1988, and 1991. These figures are disaggregated by environmental medium
(i.e., air, water, and solid waste). Estimates of the amount of employment attributable to EP
activities are also presented for these five years.
1.2. Principal Findings
This study finds that the EP industry is much like the tourism industry in that the
purchases associated with complying with environmental programs consists of a diverse
collection of products and services. These include: construction, chemicals, energy, and
engineering services. The results also show that EP activities constituted between 0.64 and 0.80
percent of Gross National Product (GNP) between 1977 and 1991 and during this time, 1.53 to
2.12 percent of GNP was required to support EP activities, with the latter range of numbers
being measured as direct plus indirect EP value-added. Employment directly attributable to EP
activities increased from 678 thousand in 1977 to 741 thousand in 1991. If individuals indirectly
employed are also counted, employment increased from 1.3 million in 1977 to 2.0 million in
1991.
1.3. Outline of the Report
This report consists of five additional sections and two appendices. Section 2 discusses
the contribution of this study and Section 3 outlines the framework used for defining EP
activities. Section 4 describes the goods and services that comprise EP activities in the United
States. Section 5 presents estimates of the size and composition of U.S. EP activities for 1977,
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2 The U.S. Environmental Protection Industry
1982, 1985, 1988, and 1991. These estimates are presented both in total and by environmental
medium (i.e., air, water, and solid waste). Section 6 presents estimates on direct and indirect
employment associated with EP activities for 1977, 1982, 1985, 1988, and 1991. The Appendix
A lists the concordance between the economic sectors in this study and the sectors in BEA's I-O
tables and Appendix B describes the peer review process.
2. CONTRIBUTION OF THE STUDY
2.1. The EP "Industry"
Recently, policymakers have shown interest in quantifying the impacts of
environmental regulation on sectors providing EP goods and services, and more generally, in
defining an environmental protection "industry" (Brown, O'Leary, and Browner, 1993). The I-
O approach applied in this study is a consistent framework for defining an environmental
protection "industry" as well as for estimating its size and the number of individuals employed
in environment protection activities.
Several approaches to estimating the size of and employment in the EP industry have
been taken, and each approach results in a different estimate. For example, the Environmental
Business Journal (EBJ) measures the size of the EP industry by estimating the revenue received
by each of 13 industry segments (EBJ, 1994). In 1990, EBJ estimated that the EP industry was a
$122 billion industry. Another measure is given by total annualized costs of EP, as reported by
EPA in Environmental Investments: The Cost of a Clean Environment. This cost-based
approach yields an estimate of a $115 billion in 1990. Finally, the Organization for Economic
Co-operation and Development (OECD) estimates total U.S. production of EP goods and
services at $80 billion for 1990 (OECD, 1992).1
Discrepancies in estimates of the size of the EP industry stem from at least two factors.
First is the general lack of agreement regarding which activities to "count" as EP. As a example,
BEA (see Farber and Rutledge, 1989) counts none of the expenditures for water supply that are
for water treatment as EP.2 The EBJ, on the other hand, includes all revenues associated with
water supply in its definition. For 1991, EBJ (1994) reports revenues of $21.1 billion for the
water utilities segment of the EP industry.3
Obviously, which activities to include in an EP industry definition is an important
consideration. However, this is not a focus of this study. This study follows EPA's definition of
EP activities as used to compile date for Environmental Investments: The Cost of a Clean
Environment as closely as possible, since this definition is derived from the data sources used in
this study. It is important to note that the I-O framework is flexible enough to accommodate
other definitions of EP activities.
The second factor contributing to discrepancies in estimates of the size of the EP industry
is more relevant to this study. This factor relates to the method used to calculate the size of the
September 1995
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The U.S. Environmental Protection Industry 3
EP industry. As mentioned above, the EBJ estimates revenue received by sectors providing EP
goods and services, while the EPA reports total costs of EP. In practice, the revenue-based and
the cost-based approaches to defining the EP industry will generate different estimates. First,
not all environmental costs involve company to company transactions. Some pollution
abatement activities are performed within the polluting industry and costs associated with these
activities do not become revenues for companies providing EP goods and services. Also, some
environmental control costs do not involve out-of-the pocket expenditures (e.g., depreciation).4
Second, the costs of pollution abatement include expenditures for items that are not part of the
"EP" market (e.g., electricity required for the operation of pollution control equipment). Again,
expenditures on these items do not become revenues for companies providing EP goods and
services.5 Finally, companies like engineering firms provide services besides EP. While these
companies receive the revenues associated with EP expenditures, the total revenues of these
companies overstates the amount received for EP goods and services.6
Besides leading to different estimates of size of the EP industry, it is questionable
whether it is even appropriate to measure the size of the EP industry in terms of either total EP
costs or total EP revenues. Typically, the size of an industry is measured in terms of its
contribution to Gross National Product (GNP), which is given by its total value-added.7 Using
the I-O framework, it is possible to derive a measure of the EP industry's contribution to
national product or its total value-added. Computing value-added associated with EP yields a
measure of EP activities that is comparable to measures of the size of the national economy and
other industries. Note that using a value-added measure will yield a smaller estimate of the size
of the EP industry than reported in Environmental Investments: The Cost of a Clean
Environment, since value-added is only a component of total costs.
Estimates of employment in the EP industry vary more widely than the estimates for the
size of the EP industry. The EBJ (1993) estimates that 1,006,374 individuals were employed in
sectors providing EP goods and services in 1990, while the OECD (1992) estimates employment
at 800,000. Finally, Management Information Systems (Bezdek, 1993) estimates that U.S.
environmental spending created 4,000,000 jobs in 1992 (1.9 million directly and 2.1 million
indirectly).
2.2. Integrated Environmental and Economic Accounting
The EP I-O tables also serve as a foundation for developing integrated environmental and
economic accounts. The United Nations has proposed the System for Integrated Environmental
and Economic Accounting (SEEA) as a special satellite system that is closely related to the core
System of National Accounts (SNA). Diagram 1 provides a schematic representation of the
SEEA, and illustrates its relationship with the core SNA and the development of methods to
measure environmental impacts.8
The SEEA are comprised of four parts, labelled I, II, III, and IV in the diagram. Part I
describes production and consumption activities and the accounts of nonfinancial assets. This
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4 The U.S. Environmental Protection Industry
includes the I-O table from which EP activities are separated from the rest of the production
activities in the economy. In addition, part I contains information regarding changes in the
stocks of natural assets. Part II describes the physical relationships between the natural
environment and the producing sectors of the economy. Part III represents economic cost of
actual or potential deterioration of environmental and natural resource assets associated with
economic activities. Constructing part III of the SEEA requires that a monetary value is placed
on the use of the environment. Part IV represents information derived from extending the
nation's production boundary to incorporate the economic functions of the natural environment.
For example, a nation's production boundary might be extended to include the value of
wetlands in mitigating floods, filtering water for drinking, and serving as a nursery for
commercial fish.
This study represents an application of the SEEA, since it disaggregates the U.S. I-O
table into environmental and nonenvironmental components. This is represented by part I in
Diagram 1. It would be possible to build upon the framework set forth in this study, and
develop the other parts of the SEEA.
2.3. Improved Modelling of the Economic Impacts of Environmental Regulation
Application of general equilibrium (GE) models to environmental policy has become
quite popular. However, when using the models to estimate the impacts of specific
environmental regulations, researchers have had to make simplifying assumptions. These
simplifying assumptions stem from the fact that data on the exact inputs used by each industry
for purposes of pollution abatement are not published. Without information on the inputs to
pollution abatement processes, CGE modelers have made simplifying assumptions about which
goods and services are purchased to comply with environmental regulation. These assumptions
could influence the accuracy of CGE model results in at least two ways. First, even though an
industry may bear a relatively large regulatory burden, the burden may be offset if its output is
used in pollution abatement activities (see Nestor and Pasurka, 1995a). The framework set forth
in this study, if institutionalized, would provide information necessary for explicit modelling of
pollution abatement processes and lead to improved GE modelling of environmental policy.
September 1995
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The U.S. Environmental Protection Industry
Diagram 1: System for Integrated Environmental and Economic Accounting
Core system
Satellite systems
System of
National
Accounts
(SNA)
Description of
economic
activities
I.
Environment-
related
disaggregation
of conventional
national accounts
1
II.
on
environmental-
economic
interrelationships
~^-
^—
^^
III
Additional
valuation
of the economic
use of the
environment
IV
Extensions of
the production
boundary of the
SNA
*
1
r
Source: U
September 1995
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6 The U.S. Environmental Protection Industry
3. FRAMEWORK FOR DEFINING ENVIRONMENTAL PROTECTION ACTIVITIES
3.1. General
This study makes use of an I-O accounting framework for identifying the production and
service activities that comprise EP activities in the U.S. economy. Before describing the
methodology used to construct the EP I-O tables, however, it is helpful to review relevant I-O
concepts and how these concepts relate to national income accounting.
Diagram 2 shows a schematic representation of one type of I-O matrix, the transactions
table. A transactions table records the value of sales and purchases among producing and
consuming sectors of the economy. In Diagram 2, the typical entry (Xy) records the sales by the
producing sector in the ith row to the producing sector in the jth column. Xy is the amount of
intermediate input I used to produce output j. For example, if the industry in the ith row is
woodpulp and the industry in the jth column is paper, then reading across the row Xy is the dollar
value of the product that the woodpulp industry sells to the paper industry. Reading down the
column, Xy is the dollar value of the input that the paper industry purchases from the woodpulp
industry.
Y; is the total final demand for the output of the sector in the ith row and includes
personal consumption expenditures, gross private domestic investment, net exports, and
government purchases. The output of the ith sector is Xj, which is computed by summing the
quantities sold as inputs to other producing sectors (Xy) and Y;. The row total, then is equivalent
to total demand (intermediate and final).
The columns of the I-O matrix describe the purchases made by each sector. Note that, in
Diagram 2, these purchases include payments to primary inputs (Vj), or value-added. Primary
inputs include payments to labor and proprietor's income among other elements. The sum of the
column entries (Xj) is equivalent to total costs of production.
It is useful to think of the I-O tables as representing detailed information underlying
national income and product computations. The total of all final demands in the economy is
equal to GNP. Adding up total value-added in the economy yields total charges against GNP,
which are equal to GNP. Diagram 2 also illustrates how GNP and charges against GNP are
calculated within the I-O format.
3.2. EP Activities in an I-O Framework
EP activities are defined by disaggregating the U.S. I-O tables into EP and non-EP
components. This requires a scheme for classifying the various types of EP activities. The U.N.
(1993) provides some guidance, proposing that environmental protection activities be classified
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The U.S. Environmental Protection Industry
Diagram 2: Input-Output Transactions Table
PRODUCING SECTORS
VALUE ADDED
(CHARGES AGAINST
GNP)
TOTAL OUTPUT
TO
FROM
1
2
n
V
X
PRODUCING SECTORS
1 2 ... n
Xn X12 . . . Xln
X-2i X22 X2n
Xnl Xn7 . . . Xnn
Vi V2 Vn
X, X7 Xn
FINAL
DEMAND
(GNP)
Y
Y!
Y2
Yn
TOTAL
OUTPUT
X
X!
X2
xn
September 1995
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8 The U.S. Environmental Protection Industry
into the following five categories: external EP activities, internal EP activities, fixed capital
formation for EP, household EP activities, and government EP activities.
External EP activities refers to establishments in which EP constitutes the main or
secondary production activity. These activities can be either marketed or non-marketed. The
key identifying characteristic of external EP activities is that they are delivered to other
establishments, or a third party. External EP activities are represented as separate rows and
columns in an I-O matrix. In Diagram 3, the entries depicted by the shaded column (n+1)
represent the dollar value of the products purchased as intermediate inputs from other sectors in
the economy by the external EP activities sector. The corresponding shaded row in Diagram 3
represents the dollar value of the external EP activities that other industries purchase for use as
an intermediate input.
Internal EP activities are for the establishment in which they are produced. Internal EP
activities are ancillary activities analogous to administration or research and development
activities. Internal EP activities are measured by inputs purchased for and combined as pollution
abatement activity by a polluting industry and includes intermediate inputs and value added.
Internal EP activities are not separated from the main activities of an establishment, and in the I-
O framework, are accounted for by separating out that portion of total inputs used by polluting
industries for pollution abatement. This adjustment is reflected by XyEP, which represents
intermediate inputs used for EP activities, in Diagram 3. The residual, X^, represents
intermediate inputs used for non-EP activities.
The category fixed capital formation for EP represents the accumulation of fixed assets
for EP and corresponds to gross private domestic investment in the I-O format. As an example,
the purchase of a scrubber represents the accumulation of capital for air pollution abatement.
In addition, two other types of EP activities are performed in the United States. These
are EP activities performed by households and government. Household and government EP
activities are like EP investment activities in that they are represented by an adjustment to final
demand in the I-O framework.
Household, investment, and government EP activities are embodied in final demand,
depicted by the adjustment YjEP in Diagram 3.
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The U.S. Environmental Protection Industry
Diagram 3
The I-O Framework Modified to Display the EP Industry
TO
FROM
(n+1)
Y
X
NE
"
EP
X21NE+X21EP
NE
"
EP
X,NE+X,EP X,NE+X
3.3. Specific Activities Included and Data Sources
The BEA input-output table, "The Use of Commodities by Industries" forms the basis of
this report. It is assumed that EP activities are embedded in the tables as currently published.
Other sources of information (survey data, engineering data, and information published by other
U.S. federal agencies) are used to disaggregate EP activities from other economic sectors in the
I-O tables. Also, to simplify calculations, it is assumed that all inputs purchased for EP purposes
are domestically produced.9
3.3.1. External Environmental Protection Activities
External EP activities constitute the component best defined by existing data sources.
Sectors that provide external EP activities are included the benchmark (540 sector) I-O tables.10
The primary difficulty in identifying external EP activities is that the 540 sector I-O tables are
not sufficiently disaggregated. The external EP sector consists of the following three activities:
water supply (that portion of water supply that is for water treatment, including drinking water),
sewerage systems, and solid waste management services. Water treatment, which EPA has
determined to constitute 12.4 percent of water supply expenditures, is included because EPA
includes water treatment expenditures when measuring the costs of EP.11 Ideally, external EP
activities would include remediation services. However, these are not included in this report due
to lack of information.
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10 The U.S. Environmental Protection Industry
3.3.2. Internal Environmental Protection Activities
For manufacturing sectors, U.S. Department of Commerce (Bureau of the Census),
Current Industrial Reports (MA-200), reports data on "materials and supplies" and "services and
other costs" used for pollution abatement. These are used to approximate expenditures on
intermediate inputs. To allocate the broad category of "materials" expenditures to the specific
intermediate inputs, it is necessary to follow the same procedure as Ketkar (1980, 1983a, 1983b,
1984). In Ketkar's work, engineering studies and information obtained from surveys of
polluting industries are used to compute the percentage of total operating costs allocated to the
input categories of: electricity, labor, solid waste collection, equipment leasing, chemicals,
depreciation, etc. Because the MA-200 reports data on labor and depreciation at the 4-digit SIC
industry level for manufacturing sectors, these are used directly. For nonmanufacturing sectors,
the data are less detailed. Data reported for manufacturing industries are used to derive internal
EP expenditure patterns for nonmanufacturing. The fuel premium for low sulfur coal for
electric utilities is treated as an increase in the purchase of coal.
The BE A (in the Survey of Current Business) and the EPA (in Environmental Invest-
ments: The Cost of a Clean Environment) report expenditures by business for abating the
pollution from motor vehicles.12 For these expenditures, there is a durable goods and nondurable
goods and services (current account) component. The nondurable component consists of a fuel
economy penalty, a fuel price penalty, and an inspection and maintenance credit. All of these
expenditures are classified as intermediate input expenditures. The durable component is
classified as EP investment and is discussed below.
Another component of internal EP activities is indirect business taxes. The 1980
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
introduced environmental excise taxes on the petro-chemical, inorganic chemical and petroleum
industries to provide a source of funds for Superfund. After its expiration, the Superfund
Amendment and Reauthorization Act of 1986 (SARA) reimposed the excise taxes. The
environmental excise tax is paid by the petroleum and the chemical industries (see Boroshok,
1993). In addition, an additional tax on fuel is imposed for the Leaking Underground Storage
Tank Trust Fund. These are classified as internal EP expenditures as well.
3.3.3. Household Environmental Protection Activities
Households perform two types of EP activities. The first type is associated with
household expenditures on motor vehicle air pollution abatement. These include: expenditures
on emission devices (e.g. catalytic converters) and the cost of operating these devices such as:
fuel economy penalty, fuel price penalty, and the maintenance cost. The second type of
household EP activity is related to the expenditures associated with the repair and maintenance
of septic systems.
3.3.4. Investment Activities for Environmental Protection
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The U.S. Environmental Protection Industry 11
Investment activities for EP are represented as the accumulation of fixed assets for EP.
For households, initial purchase of septic tanks, septic systems, and connectors to public sewer
systems are classified as investment. These are classified as investment expenditures since the
purchase of housing is classified as investment. Business investment expenditures for pollution
abatement include the initial expenditures for motor vehicle pollution abatement devices. Also
included are the capital expenditures for air, water, and solid waste pollution abatement as
reported BEA, EPA, and the MA-200. For each four-digit industry and each medium,
investment expenditures for EP are reported in total. Thus, capital expenditures must be
disaggregated into specific I-O categories (e.g., construction, installation, equipment, etc.), as is
the case for intermediate materials inputs.
3.3.5. Government Environmental Protection Activities
The final component is EP activities performed by governments. Five categories of
activities in the U.S. I-O tables embody government EP purchases: state and local government
purchases for sewerage, state and local government purchases for sanitation, state and local
government purchases for highways, state and local government purchases for water, state and
local government purchases for natural and agricultural resources and recreation. All state and
local government purchases for sewage and sanitation are counted as EP expenditures. Only the
percentage of state and local expenditures for highways which pertains to highway erosion
abatement are included (which was .83 percent in 1982, for example). Following EPA, the
portion of expenditures by state and local government purchases for water that are for water
treatment are classified as EP expenditures (18.4 percent). Also following EPA, 20 percent of
natural resource expenditures are included as EP expenditures.
3.4. Limitations
The decomposition of the U.S. I-O tables into EP and non-EP components depends upon
a number of simplifying assumptions. For external EP activities, the assumptions required to
isolate "environmental" water supply, sewerage, and solid waste management from the I-O
tables are crucial to the estimates of EP activities derived in this report. The estimates for both
internal EP activities and EP investment are driven by the expenditure patterns used to allocate
capital and operating and maintenance expenditures for air, water, and solid waste abatement to
specific I-O categories. These expenditure patterns were derived from dated and, oftentimes,
incomplete engineering studies. Further, due to data unavailability, data from manufacturing
sectors were used to estimate pollution abatement operation and maintenance expenditures for
non-manufacturing sectors.
The procedure for decomposing the U.S. I-O tables into EP and non-EP components was
applied to the 1977 and 1982 benchmark I-O tables (U.S. Department of Commerce, BEA,
1984 and 1991), since at the time this report was prepared, these were the most recent economic
census years for which benchmark I-O tables had been compiled.13 Updating the 1982 EP I-O
tables to estimate the composition and levels of employment for 1985, 1988, and 1991 required
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12 The U.S. Environmental Protection Industry
assuming that the expenditure patterns for the various pollution abatement processes remained
constant over time.
The construction of the U.S. EP I-O tables required information from a number of
different sources. Even within federal sources, there were significant discrepancies. For
example, both BEA and EPA report operation and maintenance expenditures for sewerage.
However, for 1982, BEA reports expenditures of $5,159 million (Rutledge and Vogan, 1994, p.
48) and EPA (EPA, p. F-7) reports expenditures of $4,792 million. Since it was not possible to
always reconcile such discrepancies, preference was given to that source that most closely
matched the data contained in the published I-O tables.
Due to data limitations, it is not possible to distinguish between end-of-pipe pollution
control and production process changes (pollution prevention) within the I-O framework.
Hence, all capital expenditures for EP activities are treated as end-of-pipe pollution control.
Finally, the measurement of foreign trade in EP equipment presents an additional set of
difficulties. These difficulties and the actual measurement of EP trade are the subject of a
separate report International Trade in Environmental Protection Equipment: An Assessment of
Existing Data (U.S. EPA 1993). In this study, the focus is on the domestic portion of the U.S. I-
O tables.14
4. COMPOSITION OF EP ACTIVITIES
It is possible to use the EP I-O tables to identify the sectors that demand EP goods and
services. Table 1 shows the distribution of demand for all EP activities as well as by medium
for 1991. It is generated by summing down the column of the EP I-O table for each industry.15
The EP I-O tables also identify which goods and services are purchased to perform EP activities
(i.e. the goods and services that serve as inputs to EP activities). Table 2 shows the inputs to EP
activities for 1991, and is generated by summing across the row of the EP I-O table for each
industry, illustrates that EP activities are intermediate input intensive. Construction, utilities,
and services comprise the bulk of total EP costs.
September 1995
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The U.S. Environmental Protection Industry 13
Table 1
Demand for EP Activities by Sector for 1991
(millions of dollars)
Sector
Agriculture, forestry, fisheries
Utilities and Mining
Construction
Food, beverages and tobacco
Textiles, leather, wood, paper, and
products
Chemicals and allied products
Petroleum refining
Rubber, plastic, stone, clay and
glass products
Primary metals
Manufacturing products
Machinery and transport
equipment
Non-EP services
External EP Sector
Other industry
Households
Investment
Government
Exports
Total Demand
Total
884.5
7,309.7
554.8
1,235.9
2,518.5
3,543.9
3,696.1
1,719.2
2,083.3
1,799.6
1,839.6
6,813.6
1,931.2
0.0
13,452.9
0.0
284.7
4.6
49,672.1
Air
8.2
2,763.8
52.0
167.0
668.0
698.6
1,479.7
526.2
919.6
260.6
342.0
358.1
0.0
0.0
0.0
0.0
0.0
0.0
8,244.0
Water
103.7
1,993.7
128.7
822.2
1,092.2
1,544.8
815.6
499.5
643.9
692.1
533.0
2,630.1
31.7
0.0
9,622.0
0.0
284.7
4.6
21,442.8
Solid
Waste
772.7
2,552.2
374.1
246.7
758.2
1,300.4
1,400.8
693.4
519.8
846.9
964.6
3,825.4
1,899.5
0.0
3,830.8
0.0
0.0
0.0
19,985.4
Note: Household, investment, and government demand include only purchases from the external EP sector.
September 1995
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14 The U.S. Environmental Protection Industry
Table 2
Inputs Purchased for EP Activities by Sector for 1991
(millions of dollars)
Sector
Agriculture, forestry, fisheries
Utilities and Mining
Construction
Food, beverages and tobacco
Textiles, leather, wood, paper, and
products
Chemicals and allied products
Petroleum refining
Rubber, plastic, stone, clay and glass
products
Primary metals
Manufacturing products
Machinery and transport equipment
Non-EP services
External EP services
Other industry
Total Intermediate Inputs
Labor
Indirect business taxes
Other value added
Total value added
Total Cost
Total
25.3
6,364.3
10,254.5
3.4
429.9
2,138.4
1,570.8
1,117.7
0.2
933.5
1,121.3
6,257.2
1,931.2
52.2
32,200.2
11,077.2
1,609.8
4,785.0
17,472.0
49,672.1
Air
0.0
2,210.3
466.4
0.0
104.3
76.7
94.4
448.0
0.0
0.0
89.0
1,801.8
0.0
0.0
5,290.8
1,304.0
0.0
1,649.2
2,953.2
8,244.0
Water
20.1
2,549.4
9,073.4
0.9
48.6
1,014.7
123.0
621.1
0.0
84.7
187.5
2,651.1
21.4
0.2
16,396.3
3,036.3
49.9
1960.3
5,046.5
21,442.8
Solid
Waste
5.3
1,604.6
714.7
2.5
277.0
1,047.0
1,353.5
48.7
0.2
848.8
844.8
1,804.3
1,909.8
52.0
10,513.1
6,736.9
1,559.9
1,175.5
9,472.3
19,985.4
Note: Excludes inputs to EP activities purchased as final demand, with the exception of external EP activities.
September 1995
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5.
The U.S. Environmental Protection Industry
SIZE OF THE EP INDUSTRY RELATIVE TO THE U.S. ECONOMY
15
Using the I-O framework, it is possible to derive a measure of the size of the EP industry
relative to the national economy. This measure consists of computing value-added associated
with EP activities and is analogous to using value-added for a specific industry to compute its
contribution to national product. The value added for EP activities is simply the sum of value
added for internal, external, household, investment, and government EP activities.
As an alternative measure, one might want to compute the total share of GNP required to
support EP activities. This is given by the sum of direct and indirect EP value-added. Indirect
EP value-added is derived using I-O techniques. The derivation of the formula for computing
direct and indirect EP value-added is taken from Nestor and Pasurka (1995b).
Table 3 lists both direct and indirect plus indirect EP value added in current dollars and
EP value added as percentage of GNP for 1977, 1982, 1985, 1988, and 1991. Both direct value-
added and total value-added have increased in absolute terms as well as a percentage of GNP.
As a frame of reference, in 1991 direct EP value-added was roughly the size of value-added for
the following industries: Aircraft and Parts (SIC 372) and Primary Metal Industries (SIC 33).
Value-added for these industries in 1991 was $49,046.3 million and $46,605 million,
respectively.16
Table 3
Measures of the Size of the EP Industry
Direct Value-Added
(millions of current
Year dollars)
Direct Value- Direct + Indirect
Added as a Value-Added
Percent of GNP (millions of current
dollars)
Direct + Indirect
Value-Added as a
Percent of GNP
1977
1982
1985
1988
1991
14,124.9
20,593.1
28,692.2
37,754.5
46,646.6
0.71
0.64
0.68
0.74
0.80
30,436.4
50,802.5
72,404.1
96,766.0
121,625.2
1.53
1.58
1.74
1.93
2.12
September 1995
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16 The U.S. Environmental Protection Industry
6. EMPLOYMENT ASSOCIATED WITH EP ACTIVITIES
6.1. Computation of Direct Employment
6.1.1. Direct Employment Associated With External EP Activities
Employment in external EP activities consists of employment for water treatment,
sewerage services, and solid waste management services. The water treatment component of the
water supply industry has both a private and a public element. Private water supply (SIC 494)
employment is taken from County Business Patterns while employment associated with water
supply provided by government enterprises is taken from the Public Employment (U.S.
Department of Commerce, Bureau of the Census). Total water supply employment is multiplied
by 12.4 percent (the percentage of water supply expenditures that are for water treatment) to
estimate water treatment employment. Employment related to sewerage services is taken from
the Public Employment. Private solid waste management services corresponds to SIC 495 and
employment data are taken directly from the U.S. Bureau of Labor Statistics (1991 and 1993).17
6.1.2. Direct Employment Associated With Internal EP Activities
To estimate employment associated with internal EP activities, it is assumed that the
composition of the labor used for EP by an industry is identical to the composition of the labor
force used by that industry for producing its marketable good or service. Total payments for
labor for both manufacturing and non-manufacturing is obtained from the input-output tables.
Total employment for each industry is obtained from Employment, Hours, and Earnings, United
States, 1909-1990 (U.S. Bureau of Labor Statistics, 1991) or Employment and Earnings, 1989-
1992 (U.S. Bureau of Labor Statistics, 1993), supplemented by County Business Patterns (U.S.
Department of Commerce) and the Statistical Abstract of the United States (U.S. Department of
Commerce). This information is used to compute an average cost per employee for each
industry. Total payments to labor for EP divided by the average cost per employee multiplied
by gives an estimate of the number of individuals employed by each industry for purposes of
performing internal EP activities.
6.1.3. Direct Employment Associated With Household EP Activities
Employment associated with household EP activities is measured as the amount of labor
required to produce the goods and services purchased by households and used in these activities.
For each good and service used in household EP activities, a non-EP employment-output ratio is
formed by dividing non-EP employment by gross industry output. Non-EP employment is
simply total industry employment less employment used directly in EP activities. Gross industry
output is taken directly from the I-O table. The value of each good and service used in
household EP activities is multiplied by its corresponding non-EP employment-output ratio to
obtain an estimate of direct employment associated with household EP activities.
September 1995
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The U.S. Environmental Protection Industry 17
6.1.4. Employment Associated With Investment Activities for EP
The procedure for estimating direct employment in investment activities for EP is
identical to the procedure for estimating employment associated with household EP activities.
6.1.5. Employment Associated With Government EP Activities
The direct employment associated with (government) sewerage and EP water supply is
estimated using the same procedure as for household and investment EP activities. Direct
employment for the remaining three government EP activities consists of two components. The
first component is the employment required to produce the goods and services used in these
activities, and is computed using the same procedure as for sewerage and EP water supply (and
household and investment EP activities). In addition, governments employ individuals to
perform these EP functions. Data on the number of government employees for highways, water,
and natural resources are taken from Public Employment. Of the total, 0.83 percent of
employment for highways in 1982, 20 percent of employment for natural resources, and all
employment in sanitary services are counted as EP employment. These percentages correspond
to the percentage of highway expenditures that are for prevention of erosion, and the percentage
of natural resource expenditures counted by EPA as EP expenditures.
6.2. Computation of Indirect Employment
Using I-O techniques, it is also possible to estimate employment indirectly attributable to
EP activities or equivalently, the employment that arises as a consequence of "multiplier
effects." Multiplier effects occur because EP activities require inputs and employment is
associated with the production of these inputs. The production of the inputs to EP activities also
requires inputs and this generates employment and so forth. As an example, consider an
industrial plant that has installed a scrubber to abate its emissions of air pollution. The plant will
directly employ individuals to operate the scrubber. In addition, the plant will purchase
electricity to run the scrubber and individuals will be employed in the production of electricity.
Likewise, the electric power plant will purchase coal to produce electricity, and individuals will
be employed to mine coal. The individuals employed in producing the electricity to run the
scrubber and the individuals employed in mining the coal used to generate the electricity needed
to operate the scrubber constitute indirect EP employment. The multiplier used in this study
does not capture employment associated with household income generation and the resulting
expenditures (i.e., "induced" effects). For a detailed discussion of I-O multipliers and the
distinction between "direct," "indirect," and "induced" effects, see any standard I-O textbook,
such as Miller and Blair (1985). Formal derivation of the multiplier used in this study is
provided in Nestor and Pasurka (1995b).
September 1995
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18 The U.S. Environmental Protection Industry
6.3. Total Employment in EP A ctivities
Estimates for direct and direct plus indirect employment associated with EP activities in
1982, 1985, 1988, and 1991 are reported in Table 4. Table 4 shows that direct employment
increased in absolute terms between 1977 and 1991, fluctuating between 0.64 and 0.79 percent
of total U.S. employment. In 1991, direct EP employment was comparable to employment for
the Aerospace industry, which employed 745,600 individuals.18'19 Total EP employment has
increased both absolutely and as a percentage of U.S. employment.
Between 1982 and 1991, the principal source of employment growth was in the external
EP sector. Employment in internal EP activities was stable during this time. Note that the
increases in EP employment (as a percent of U.S. employment) were smaller than the increases
in value-added (as a percent of GNP). The source of this discrepancy is in the external EP and
government EP activities sectors. Between 1982 and 1991, value-added for external EP
activities rose 203 percent, while employment increased 55 percent. Since it was assumed that
the ratio of labor payments to gross output for each sector was constant after 1982, this is one
explanation why increases in value-added that are larger than the increases in employment in the
external EP services sector. In addition, value-added for government EP activities (i.e.,
payments to labor) increased 191 percent, while employment in government EP activities
decreased roughly one percent. For government EP activities, it was assumed that the ratio of
labor payments to the value of government purchases for sanitation, highways, and natural
resources was constant after 1982. This is one explanation why payments to labor increased
more rapidly that employment associated with government EP activities.
Table 4
Employment in EP Activities
Year
1977
1982
1985
1988
1991
Direct Employment
(Number of
Individuals)
678,359
640,181
659,067
698,348
741,186
Direct
Employment as a
Percent of Total
U.S. Employment
0.79
0.69
0.65
0.64
0.66
Direct + Indirect
Employment
(Number of
Individuals)
1,267,082
1,433,502
1,591,940
1,796,027
1,965,818
Direct + Indirect
Employment as a
Percent of Total U.S.
Employment
1.48
1.54
1.58
1.65
1.76
September 1995
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The U.S. Environmental Protection Industry 19
NOTES
1. For a detailed review of estimates of the size of the EP industry, see Parker, Blodgett, and
Aguirre, 1993.
2. Even among government sources, there is no agreement regarding which activities as for EP.
In contrast to BEA, EPA includes 12.4 percent of operation and maintenance expenditures
and 18.4 percent of capital expenditures in its definition of EP expenditures.
3. The EBJ estimate includes revenue of private and publicly-owned water utilities for water
supply (conversation with Dan Noble on May 18, 1995). The EBJ value excludes revenue of
POTWs (publicly-owned treatment works).
4. At this point, the distinction between "costs" and "expenditures" warrants clarification. The
term expenditure is usually refers to tangible out-of-the pocket expenses while cost is a
broader economic concept. For example, depreciation typically is not referred to as an
expenditure because no transaction is associated with this expense. Depreciation is,
however, a cost.
5. In addition, environmental fees, taxes, and penalties do not count has EP industry revenues.
6. For a detailed discussion of the complications and idiosyncracies of various estimates of the
size of the EP industry, see the OTA (1994) report, Industry, Technology, and the
Environment: Competitive Challenges and Business Opportunities (pp. 75-79 and 97-99).
7. Total costs of an industry consist of two components: value added and intermediate inputs.
Value added consists of compensation of employees, indirect business taxes, and property-
type income (e.g. depreciation). Intermediate inputs consist of those goods and services
which are purchased from other industries and used by an industry in the production of its
own product (e.g. steel purchased by the auto industry). GNP is equal to total value-added
for the economy and thus, an industry's contribution to GNP is given by its value-added.
8. For an in-depth description of the SEEA, see United Nations, 1993.
9. Additional details are provided in the companion report, The U.S. Environmental Protection
Industry: The Technical Document (U.S. EPA, 1995).
10. Benchmark input-output table refers to input-output tables constructed for those years in
which an economic census takes place.
11. BEA does not count expenditures related to water treatment as EP expenditures.
September 1995
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20 The U.S. Environmental Protection Industry
12. Throughout this report, "BE A data" will refer to data reported in Survey of Current Business
while "MA-200 data" will refer to data reported by the U.S. Department of Commerce
(Bureau of the Census) in "Pollution Abatement Costs and Expenditures" Current Industrial
Reports, unless otherwise noted. Also, unless otherwise noted, "EPA data" will refer to data
reported in Environmental Investments: The Cost of a Clean Environment.
13. The 1987 benchmark I-O table was published as this report was being completed (see U.S.
Department of Commerce, BEA, 1994).
14. The United States International Trade Commission has published Global Competitiveness of
U.S. Environmental Technology Industries: Municipal and Industrial Water and
Wastewater.
15. This table can be generated for 1977, 1982, 1985, and 1988 as well. Due to the simplifying
assumptions used in constructing the updated EP I-O tables (e.g., fixed expenditure patterns)
it is dangerous to use the tables to make comparisons over time.
16. U.S. Department of Commerce, Bureau of the Census (1991).
17. SIC 495 also includes private sewerage services. For the purposes of this study, it is
assumed that output and employment related to private sewerage services are zero.
18. U.S. Department of Commerce, Bureau of the Census (1991).
19. The Aerospace Industry consists of: Aircraft and Parts (SIC 372) and Guided Missiles,
Space Vehicles and Parts (SIC 376).
September 1995
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The U.S. Environmental Protection Industry 21
REFERENCES
Brown, Ronald H., Hazel O'Leary, and Carol Browner (1993), Environmental Technology
Exports: Strategic Framework for U.S. Leadership, Report of the Interagency Environmental
Technologies Exports Working Group.
Bezdek, Roger H. (1993), "Environment and Economy: What's the Bottom Line?"
Environment, 35, No. 7, pp. 7-11 and 25-32.
Boroshok, Sara (1993), "Environmental Excise Taxes, 1991," Statistics of Income Bulletin, 13,
No. 1 (Summer), 44-54.
Environmental Business Publishing, Inc. (1994), "Foundation for the Future," Environmental
Business Journal, 1, No. 4 (April).
Environmental Business Publishing, Inc. (1993), material from the summit meeting of the
Environmental Business Council of the United States, Inc., June 7-9, Washington, D.C.
Farber, Kitt and Gary Rutledge (1989), "Pollution Abatement and Control Expenditures:
Methods and Sources for Current-Dollar Estimates," mimeograph.
Ketkar, Kusum (1980), "Some Allocation and Distribution Effects of Pollution Abatement
Expenditures in the United States," Ph.D. dissertation, Vanderbilt University, 1980.
Ketkar, Kusum (1983 a), "Pollution Control and Inputs to Production," Journal of Environmental
Economics and Management, 10, No. 1, 50-59.
Ketkar, Kusum (1983b), "The Allocation and Distribution Effects of Pollution Abatement
Expenditures on the U.S. Economy," Resources and Energy, 5, 261-283.
Ketkar, Kusum (1984), "Pollution Control Policies and the Structure of the U.S. Economy,"
Applied Economics, 16, No. 2, 237-256.
Miller, Ronald E. and Peter D. Blair (1985), Input-Output Analysis, Englewood Cliffs, NJ:
Prentice Hall.
Nestor, Deborah Vaughn and Carl A. Pasurka, Jr. (1995a), "Alternative Specifications for
Environmental Control Costs in a General Equilibrium Framework," Economics Letters, 48,
No. 3/4 (June), 273-280.
September 1995
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22 The U.S. Environmental Protection Industry
Nestor, Deborah Vaughn and Carl A. Pasurka, Jr. (1995b), "Environment-Economic
Accounting and Indicators of the Economic Importance of Environmental Protection Activities."
The Review of Income and Wealth, 41, No. 3 (September), 265-287.
Organization for Economic Co-operation and Development (1992), The OECD Environment
Industry : Situation, Prospects, and Government Policies, Paris.
Parker, Larry, John Blodgett, and John Aguirre (1993), "The Pollution Control Industry: An
Emerging Economic Presence," Washington, D.C.: Congressional Research Service, The
Library of Congress, 93-811 ENR.
Rutledge, Gary and Christine Vogan (1994), "Pollution Abatement and Control Expenditures
1972-1991," Survey of Current Business, 74, No. 5 (May), 36-49.
United Nations (1993), Department of Economic and Social Information and Policy Analysis,
Statistical Division, Handbook of National Accounting: Integrated Environmental and
Economic Accounting, Interim Version, Studies in Methods, Series F, No. 61.
U.S. Department of Labor, Bureau of Labor Statistics (1991), Employment, Hours, and
Earnings, United States, 1909-1990, Washington, D.C.: U.S. GPO.
U.S. Congress, Office of Technology Assessment, 1994, Industry, Technology, and the
Environment: Competitive Challenges and Business Opportunities, OTA-ITE-586, Washington,
D.C.: U.S. GPO.
U.S. Department of Labor, Bureau of Labor Statistics (1993), Employment and Earnings, 1989-
1992, Washington, D.C.: U.S. GPO.
U.S. Department of Commerce (various issues), County Business Patterns, Washington, D.C.:
U.S. GPO.
U.S. Department of Commerce (various issues), Statistical Abstract of the United States,
Washington, D.C.: U.S. GPO.
U.S. Department of Commerce, Bureau of Economic Analysis (1984), "The Input-Output
Structure of the U.S. Economy, 1977" Survey of Current Business, 64, No. 5, 42-84.
U.S. Department of Commerce, Bureau of Economic Analysis (1991), "Benchmark Input-
Output Accounts for the U.S. Economy, 1982," Survey of Current Business, 71, No. 7, 30-71.
September 1995
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The U.S. Environmental Protection Industry 23
U.S. Department of Commerce, Bureau of Economic Analysis (1994), "Benchmark Input-
Output Accounts for the U.S. Economy, 1987," Survey of Current Business, 74, No. 4, 73-115.
U.S. Department of Commerce, Bureau of the Census (1991), Annual Survey of Manufactures:
Statistics for Industry Groups and Industries, Washington, D.C.: U.S. Government Printing
Office.
U.S. Department of Commerce, Bureau of the Census (various issues), "Pollution Abatement
and Control Expenditures," Current Industrial Reports, MA200, Washington, D.C.: U.S.
Government Printing Office.
U.S. Department of Commerce, Bureau of the Census (various issues), Public Employment,
Washington, D.C.: U.S. Government Printing Office.
U.S. Environmental Protection Agency (1990), Environmental Investments: The Cost of a Clean
Environment, Report of the Administrator of the Environmental Protection Agency to the
Congress of the United States, EPA-230-11-90-083.
U.S. Environmental Protection Agency, Office of Policy, Planning and Evaluation (1993),
International Trade in Environmental Protection Equipment: An Assessment of Existing Data,
Washington, D.C., EPA 230-R-93-006.
U.S. International Trade Commission (1995), Global Competitiveness of U.S. Environmental
Technology Industries: Municipal and Industrial Water and Wastewater.
September 1995
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APPENDIX A
CONCORDANCE BETWEEN ENVIRONMENTAL PROTECTION INDUSTRY
AND BEA INPUT-OUTPUT SECTORS
-------
Concordance Between Environmental Protection Industry and BEA Input-Output Sectors
EP Industry I-O Sector BEA I-O Sector1 Description
1 Agriculture, forestry, and fisheries
01 Livestock and livestock products
02 Other agricultural products
03 Forestry and fishery products
04 Agricultural, forestry and fishery
services
2 Utilities (Gas and Electric) and Mining
05 Iron and feroalloy mining
06 Nonferrous metal mining
07 Coal mining
08 Crude petroleum and natural gas
09 Stone and clay mining
10 Chemical and fertilizer mining
68.0100 Electric utilities
78.0200 Federal electric utilities
79.0200 State and local electric utilities
68.0200 Gas production and distribution
utilities
3 Construction
11 New construction
12 Maintenance and repair construction
September 1995
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A-2 The U.S. Environmental Protection Industry
Concordance Between Environmental Protection Industry and BEA Input-Output Sectors
(Continued)
Food, Beverages, and Tobacco
14 Food and kindred products
15 Tobacco manufactures
Textiles, leather, wood, paper, and
products
16 Broad and narrow fabrics, yarn and
thread mills
17 Miscellaneous textiles and floor
coverings
18 Apparel
19 Miscellaneous fabricated textile
products
20 Lumber and wood products, except
containers
21 Wood containers
22 Household furniture
23 Other furniture and fixtures
24 Paper and allied products, except
containers
25 Paperboard containers and boxes
26 Printing and publishing
33 Leather tanning and finishing
34 Footwear and other leather products
September 1995
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The U.S. Environmental Protection Industry A-3
Concordance Between Environmental Protection Industry and BEA Input-Output Sectors
(Continued)
Chemicals and allied products
27 Chemicals and selected chemical
products
29 Drugs, cleaning and toilet preparations
30 Paints and allied products
Petroleum refining
31 Petroleum refining
Rubber, plastic, stone, clay and glass
products
28 Plastics and synthetic materials
32 Rubber and miscellaneous plastic
products
35 Glass and glass products
36 Stone and clay products
Primary metals
37 Primary iron and steel
38 Primary nonferrous metals
September 1995
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A-4 The U.S. Environmental Protection Industry
Concordance Between Environmental Protection Industry and BEA Input-Output Sectors
(Continued)
10 Manufacturing products
39 Metal containers
40 Heating, plumbing and fabricated
structural metal
41 Screw machine products and stampings
42 Other fabricated metal products
53 Electrical industrial equipment
54 Household appliances
55 Electrical lighting and wiring
equipment
56 Radio, TV and communication
equipment
57 Electronic components and accessories
58 Miscellaneous electrical machinery and
supplies
62 Scientific and controlling instruments
63 Optical, ophthalmic and photographic
equipment
64 Miscellaneous manufacturing
September 1995
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The U.S. Environmental Protection Industry A-5
Concordance Between Environmental Protection Industry and BEA Input-Output Sectors
(Continued)
11 Machinery and transport equipment
43 Engines and turbines
44 Farm and garden machinery
45 Construction and mining equipment
46 Materials and handling machinery
47 Metal working machinery
48 Special industry machinery
49 General industry machinery
50 Miscellaneous machinery, except
electrical
51 Office, computing and accounting
machines
52 Service industry machines
59 Motor vehicles and equipment
13 Ordnance and accessories
60 Aircraft and parts
61 Other transportation equipment
September 1995
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A-6 The U.S. Environmental Protection Industry
Concordance Between Environmental Protection Industry and BEA Input-Output Sectors
(Continued)
12 Nonenvironmental Services
65 Transportation and warehousing
66 Communications, except radio and TV
67 Radio and TV broadcasting
69 Wholesale trade
74 Eating and drinking places
70 Finance and insurance
71 Real estate and rental
68.0301 Water supply and sewerage systems
("nonenvironmental")
68.0302 Steam supply, sanitary services, and
irrigation systems ("nonenvironmental")
72 Hotels, personal and repair services
73 Business services
75 Automobile repair and services
76 Amusements
77 Health, education, social services,
nonprofit organizations
78.0100 U.S. postal services
78.0300 Commodity credit corporation
78.0400 Other federal government enterprises
79.0100 Local government passenger transit
79.0300 Other state and local government
services ("nonenvironmental")
September 1995
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The U.S. Environmental Protection Industry A-7
Concordance Between Environmental Protection Industry and BEA Input-Output Sectors
(Continued)
13 External environmental protection
sector
68.0301 Water supply and sewerage systems
("environmental")
79.0300 Other state and local government
services ("environmental")
68.0302 Steam supply, sanitary services, and
irrigation systems ("environmental")
14 Other industry
80 Noncomparable imports
81 Scrap, used and secondhand goods
82 Government industry
83 Rest of the world industry
84 Household industry
85 Inventory valuation adjustment
1 From "The Use of Commodities by Industries" table.
September 1995
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APPENDIX B
DOCUMENTATION OF PEER REVIEW PROCESS
-------
B.I. Description of Review Process
Drafts of the reports The U.S. Environmental Protection Industry: The Technical
Document and The U.S. Environmental Protection Industry: A Proposed Framework for
Assessment were subjected to both an inter- and intra-agency reviewed. Representatives from
the following Agencies were contacted for comment: Bureau of Economic Analysis,
Congressional Budget Office, Department of Commerce, Office of Technology Assessment, and
the U.S. International Trade Commission. Within EPA, representatives from the following
offices were contacted: Office of Air and Radiation, Office of International Activities, Office of
Prevention, Pesticides and Toxic Substances, Office of Solid Waste and Emergency Response,
and Office of Water. Upon receipt of comments, EPA staff made an attempt to address and
incorporate all comments, to the maximum extent possible. Specific comments and responses
are listed below.
In addition, the analytical methods used were documented in an academic paper, which
was submitted for peer review to the journal, The Review of Income and Wealth, a journal
specializing in national income accounting and input-output concepts. The paper,
"Environment-Economic Accounting and Indicators of the Economic Importance of
Environmental Protection Activities," was accepted for publication after two revisions.
B.2. Specific Comments and Responses
Comment: [The report should] note (or footnote) additional complications and idiosyncracies
of various estimates [of the size of the EP industry] beyond the discussion
definitions and the example of water supply.
Response: Endnote 3 in Chapter 2 of The U.S. Environmental Protection Industry: The
Technical Document and endnote 6 in The U.S. Environmental Protection
Industry: A Proposed Framework for Assessment were added.
Comment: The point that data is the limiting factor [to measuring the size of the EP industry]
should be made explicit for policymakers.
Response: Although data are a potential source of the discrepancy in different estimates of
the size of the EP industry, it is not the primary source of the discrepancy. Rather,
the report points out that it is the lack of a consistent definition of the economic
activities that constitute environmental protection activities that is the primary
source of the different estimates.
Comment: In addition to internal corporate activities and purchase of nonenvironmental
commodities, environmental costs in the form of fees, taxes, and penalties paid to
government do not count as EP industry revenues.
September 1995
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B-2 The U.S. Environmental Protection Industry
Response: Endnote 2 in Chapter 2 of The U.S. Environmental Protection Industry: The
Technical Document and endnote 5 in The U.S. Environmental Protection
Industry: A Proposed Framework for Assessment were added.
Comment: While disentangling [revenues from] environmental goods and services from
nonenvironmental goods and services can be difficult and may in practice account
for some discrepancy between cost and revenue based estimates of the EP
industry, it is not a theoretical reason for such a discrepancy.
Response: The report does not claim that the difficulty in acquiring such data is a
"theoretical reason for such a discrepancy." The report discusses the difficulties
of actually measuring the size of the environmental protection industry.
Comment: In distinguishing value-added from revenues or costs of EP, it might be useful to
have a more concrete example of how value-added is only a component of total
costs in [The U.S. Environmental Protection Industry: A Proposed Framework
for Assessment}.
Response: Endnote 7 was added to The U.S. Environmental Protection Industry: A
Proposed Framework for Assessment.
Comment: Perhaps a more important example than adding the value of game animals can be
found to illustrate the SEEA's modification of national income accounting.
Response: The example was changed to the value of wetlands in mitigating floods, filtering
water for drinking, and serving as a nursery for commercial fish.
Comment: Are government expenditures on vehicle emissions control and other
environmental activities (e.g., precipitators at a municipal utility or military base
clean-up or environmental monitoring) treated somewhere or are data not
available?
Response: As stated in the report(s), this study uses the BEA definition of environmental
protection expenditures with some modifications in order to accommodate EPA's
definition of environmental protection costs. Some of BEA's expenditure
information is excluded due to lack of information regarding which goods and
services are purchased as a consequence of these expenditures. For example,
regulation and monitoring expenditures are excluded from this report.
Comment: The report may benefit from a comparative assessment that clearly indicates why
one approach [to measuring the EP industry] may be better over others.
September 1995
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The U.S. Environmental Protection Industry
B-3
Response: The preferred approach depends on the type of question that is being asked so it is
not possible to compare approaches without reference to the research issue.
Section 2 of The U.S. Environmental Protection Industry: A Proposed
Framework for Assessment details the reasons that input-output framework is
appropriate for this study.
Comment: The discussion of Table 1 [in The U.S. Environmental Protection Industry: A
Proposed Framework for Assessment] is insufficient.
Response: The text describing the table was revised.
Comment: [The report] needs to clarify that water related EP expenditures include drinking
water.
Response: The text under 3.3.1 in The U.S. Environmental Protection Industry: A Proposed
Framework for Assessment was altered to make this point.
Comment: The format of the reports [should be] described in a preface or other appropriate
introductory material.
Response: The acknowledgments section of the reports describes the relationship between
the two reports.
Comment: The report could be improved by collection of primary data.
Response: Such data would have been useful in constructing the EP input-output tables for
this report. However, the cost collecting primary data was not within the EPA
budget allocated for this project.
Comment: The reports could be improved by more clearly describing the objective of the
analysis.
Response: Section 1.1 of The U.S. Environmental Protection Industry: A Proposed
Framework for Assessment was revised to address this comment.
Comment: The report [should] highlight all assumptions in a list or table.
Response: Appendix G, "List of Important Assumptions" was added to The U.S.
Environmental Protection Industry: The Technical Document.
Comment: Are any air pollution services provided by the [external] EP industry?
September 1995
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B-4 The U.S. Environmental Protection Industry
Response: As indicated by the detailed discussions of what is included in the external EP
sectors in Chapters 2 and 3 of The U.S. Environmental Protection Industry: The
Technical Document no air pollution control services are provided by the external
EP services sectors.
Comment: (Regarding Table 1 in The U.S. Environmental Protection Industry: A Proposed
Framework for Assessment} The table needs a discussion of units and whether
the information is based on a revenue, cost or value-added approach.
Response: The text describing the table was revised and the omitted units (millions of
dollars) were added to the table.
Comment: The report needs a more complete discussion of the model to accompany
derivation of the mathematical formulae.
Response: The derivation of the input-output multipliers is presented in "Environment-
Economic Accounting and Indicators of the Economic Importance of
Environmental Protection Activities" which will appear in the September 1995
issue of The Review of Income and Wealth.
Comment: The report needs to make clear that there are two parts to disaggregating the
input-output tables: 1) identifying environmental protection expenditures which
reduce pollution and 2) identifying defensive expenditures to reduce the effects of
pollution.
Response: Endnote 5 in Chapter 2 of The U.S. Environmental Protection Industry: The
Technical Document was added.
Comment: How are federal contributions to SRFs treated?
Response: Federal state revolving fund (SRF) subsidies do not appear to be counted as
environmental protection expenditures by the Bureau of Economic Analysis.
Hence, there is no explicit accounting of SRFs in the input-output tables in this
report.
September 1995
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