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Pollution abatement and control expenditures, 1985-88.

Pollution Abatement and Control Expenditures, 1985-88

REAL spending for pollution abatement and control (PAC) increased 3.0 percent in 1988 (chart 9). In contrast, real PAC spending had decreased 0.8 percent in 1987, the first decline since 1982. Prices of PAC goods and services, as measured by the PAC fixed-weighted price index, grew modestly in 1988, increasing 2.4 percent.

Real pollution abatement (PA) expenditures--which account for over nine-tenths of total PAC spending--also increased 3.0 percent in 1988. The two components accounting for the remainder of total PAC spending are regulation and monitoring expenditures and research and development expenditures. In 1988, real spending for regulation and monitoring increased 8.4 percent, and real spending for research and development increased 0.4 percent. [1]

In 1988, real spending for both air PAC and solid waste disposal increased substantially. A 4.1-percent increase in air PAC spending was led by a sharp increase in personal and business expenditures for motor vehicle emission abatement devices; personal and business spending to operate these devices fell. A 9.1-percent increase in solid waste disposal spending was widespread across expenditure categories. Business spending on current account increased sharply, and government spending increased moderately.

Real spending for water PAC decreased 1.4 percent in 1988, after 5 consecutive years of growth. The decrease was attributable to a sharp decline in capital spending for public sewer systems. The decline in public capital spending was largely offset by an increase in business spending on current account for water PAC.

The first section of this article examines real PAC spending in 1988, prices of PAC goods and services in 1988, and likely real PAC spending in 1989. The second section examines the changing composition of PAC spending from 1972 to 1988.

Recent estimates

Real PAC spending in 1988.-- Real PAC spending increased $2.2 billion in 1988 to $73.7 billion (table 1, with detail in tables 7 and 8). The largest increase in PAC spending was in personal and business spending for motor vehicle emission abatement devices, which together increased $1.8 billion, to $13.5 billion. Personal and business spending to operate motor vehicle emission abatement devices fell $0.5 billion, to $4.6 billion. Most other components of PAC spending increased: Business purchases of new plant and equipment increased $0.2 billion, to $8.4 billion; business spending to operate plant and equipment increased $0.6 billion, to $19.9 billion; and business spending to operate public sewer systems increased $0.4 billion, to $7.6 billion. The largest decrease was in government expenditures for the construction of public sewer systems, which fell $0.7 billion, to $7.5 billion.

Personal consumption PA expenditures increased $0.7 billion, to $11.0 billion. This spending consists of the purchase and operation of motor vehicle emission abatement devices. Purchases of these devices (e.g., catalytic converters) increased $1.0 billion, to $8.3 billion. Two factors are responsible for this increase. First, unit purchases of new motor vehicles grew by approximately 500,000 over the 1987 level, increasing the number of devices sold. Second, tightened Federal nitrogen oxide standards for 1988 model year light-duty trucks increased the cost of emission abatement devices for those vehicles. Operation of emission abatement devices consists mainly of the additional cost of using unleaded, rather than leaded, gasoline in vehicles with catalytic coverters. In recent years, the price gap between unleaded and leaded gasoline has narrowed, decreasing the cost of operating the devices. In 1988, spending for the operation of motor vehicle emission abatement devices fell $0.3 billion, to $2.7 billion.

Business PA expenditures increased $1.8 billion, to $45.5 billion. Most of the increase was in spending on current account, which increased $1.0 billion, to $30.2 billion. Among current-account items, the largest increases were in PA spending on the operation of plant and equipment and of public sewer systems. PA spending on capital account increased $0.7 billion, to $15.4 billion. The increase was largely in business purchases of motor vehicle emission abatement devices.

Government PA expenditures decreased $0.4 billion, to $13.5 billion. The decline resulted from a decrease in spending for the construction of public sewer systems.

Prices in 1988.--Continuing the trend of the mid-1980's, price changes for PAC goods and services werre modeerate in 1 988 (table 2). The fixed-weighted price index for total PAC spending increased 2.4 percent. PAC energy prices remained relatively stable, declining 0.2 percent; they had increased 6.6 percent in 1987, the first increase since 1981. Prices for components other than energy rose 3.0 percent in 988. Air PAC prices increased 1.9 percent after a 3.0-percent increase in 1987. Water PAC prices increased 2.3 percent, the same growth rate as in 1987. Prices for solid waste disposal continued to grow faster than those for air or water PAC, climbing 4.0 percent.

Real PAC spending in 1989.--According to the information available in November 1990, real PAC spending is expected to have decreased slightly in 1989. A substantial drop in personal and business spending to operate motor vehicle emission control devices is expected to have more than offset increases in most other compoents of PAC spending.

The changing composition of real PAC

spending, 1972-88

Spending by sector.--Since 1972, the composition of real PAC spending by sector--personal consumption, business, and government--has changed substantially (tables 3 and 4). From 1972 to 1988, personal consumption spending as a percent of total PAC spending grew from 7.6 percent to 15.0 percent; in contrast, business spending declined from 65.1 percent to 64.2 percent, and government spending fell from 27.3 percent to 20.9 percent. Within sectors, an examination of PAC spending reveals several important growth trends (chart 10):(1) The increasing share of spending by persons for motor vehicle emission abateent devices, (2) the increasing share of business PAC spending on current account, particularly for the operation of PA plant and equipment an dof public sewer systems, and (3) the increasing share of government PAC spending for activities other than public sewer system construction.

Personal consumption expenditures for PAC consists of two components: Motor vehicle emission abatement devces, and operation of motor vehicle emission abatement devices. From 1972 to 1988, as a percent of personal consumption expenditrues for PAC, spending for the devices increased from 25.9 percent to 75.7 percent, and spending for their operation fell from 74.1 percent to 24.3 percent. Several factors have led to these changes. Since 1972, increases in the number of new cars purchased and in the costs of emission abatement devices (resulting from tightened tailpipe emissions standards) have pushed spending for the devices steadily upward. Meanwhile, the shrinking price gap between leaded and unleaded gasoline has kept spending for their operation relatively stable.

The rapid growth in spending for the devices has led to a sharp increase in its share of total PAC spending. In 1972, spending for the devices accounted for only 2.0 percent of total PAC spending; by 1988, it accounted for more than 11 percent.

From 1972 to 1988, current-account spending as a percent of business PAC spending grew from 55.4 percent to 67.5 percent. The steadily increasing share of current-account spending can be traced to expenditures for the operation of PA plant and equipment and of public sewer systems. The largest component of current-account spending, expenditures to operate PA plant and equipment, grew at an average annual rate of 4.6 percent from 1972 to 1988; its share of total PAC spending grew from 22.4 percent in 1972 to 27.1 percent in 1988. Business expenditures to operte public sewer systems rose steadily, at an average annual rate of 6.1 percent from 1972 to 1988; its share of total PAC spending increased from 6.8 perent in 1972 to 10.3 percent in 1988.

From 1972 to 1988, capital-account spending as a percent of business PAC spending fell from 44.6 percent to 32.5 percent. Spending on capital account grew at an average annual rate of 1.3 percent from 1972 to 1988. Within capital-account spending, steady growth in purchases of motor vehicle emission abatement devices was largely offset by declines in expenditures for PA new plant and equipment.

From 1972 to 1988, the share of government spending for PAC acounted for by public sewer system construction dropped from 58.4 percent to 49.0 percent. In contrast, the share of government spending for other PAC activities (e.g., solid waste collection and disposal, research and development, and regulation and monitoring) has grown.

Spending by type.--Table 5 organizes the estimates of PAC spending according to definitins emphasized in Federal environmental legislation. For air PA, the Clean Air Act classifies sources of pollutants as mobile (e.g., automobiles) or stationary (e.g., factories). For water PA, the Federal Water Pollution Control Act classifies sources of pollutants as point (e.g., factories) or nonpoint (e.g., highway construction projects).

From 1972 to 1988, air PA spending as a percent of total PAC expenditures increased from 34.0 percent to 39.7 percent, water PA spending declined from 45.7 percent to 37.4 percent, and solid waste disposal spending grew from 16.5 percent to 19.9 percent. Within types, an examination of PAC spending reveals several important growth trends: (1) The increasing share of air PA spending for mobile sources, (2) the increasing share of water PA spending for point source activities, (3) the increasing share of water point source expenditures accounted for by operation of facilities, and (4) the increasing share of solid waste disposal expenditures accounted for by industrial solid waste disposal.

From 1972 to 1988, spending for mobile source devices and their operation increased as a share of total air PA spending (table 6). In 1972, this spending accounted for 33.0 percent of total air PA spending; the steady growth of mobile source spending--from $4.8 billion in 1972 to $18.1 billion in 1988--pushed this share to 61.9 percent in 1988. The corresponding decline in the share of total air PA spending accounted for by stationary sources--from 66.9 percent to 38.0 percent--is a result of relatively stable stationary source PA spending levels. Within stationary source spending, a decrease in spending fo ndustrial facilities (from $5.2 billion to $4.2 billion) largely offset an increase in spending to operate these facilities (from $4.6 billion to $7.0 billion).

The composition of water PA expenditures has also changed. From 1972 to 1988, spending for point sources increased, and its share of total water PA spending grew from 90.4 percent to 97.0 percent; over the same period, spending for nonpoint sources fell. Within point source spending, the operation of facilities (industrial, public sewer systems, and other) grew from 31.7 percent to 52.9 percent, and purcahses of new facilities fell from 68.3 percent to 47.1 percent.

From 1972 to 1988, industrial spending for solid waste disposal as a percent of total solid waste disposal expenditures grew from 47.9 percent to 57.2 percent, while "other" spending fell from 52.1 percent to 42.8 percent.

Technical notes

The estimates of PAC components are based directly on surveys or censuses or are estimated by indirect methods. Typically, PAC estimates derived from direct sources account for about three-fifths of total PAC spending. The most important direct sources are the Pollution Abatement Costs and Expenditures Survey (for capital and operating spending by manufacturing industries), the Pollution Abatement Plant and Equipment Expenditures Survey (for capital spending totals by nonfarm business), and Governmental Finances (for government spending for sewer systems and for solid waste collection and disposal). Each of these surveys is conducted by the Bureau of the Census.

In 1988, the Pollution Abatement Plant and Equipment (P&E) Expenditures Survey was temporarily cut back to cover only three industries, and the processing of the estimates temporarily slowed. Consequently, preliminary 1988 estimates of total expenditures for nonfarm business PA plant and equipment were estimated in three steps. First, regression techniques were used to estimate the percentage of 1988 nonfarm business P&E spending that was for PA (i.e., PA P&E divided by total P&E). These estimates were derived separately for air, water, and solid waste PA. Second, the estimated values of the percentage of 1988 total nonfarm business P&E consisting of PA P&E were multiplied by the Census Bureau's estimate of total 1988 nonfarm business P&E spending to yield the preliminary estimates by PA type presented in this report. Third, estimates by PA type were further allocated by industry (e.g., to obtain industry detail needed for selected areas of nonmanufacturing).

For a more detailed discussin of the sources of PAC component estimates, see Kit D. Farber and Gary L. Rutledge, "Pollution Abatement and Control Expenditures, 1984-87," SURVEY OF CURRENT BUSINESS 69 (June 1989): 22.

(1) The expenditures discussed in this article are for goods and services that U.S. residents use to produce cleaner air and water and to dispose of solid waste. PA directly reduces pollutant emissions by preventing the generation of pollutants, recycling them, or treating them prior to discharge. Regulation and monitoring is a government activity that stimulates and guides action to reduce pollutant emissions. Research and development by business and government not only supports abatement but also helps increase the efficiency of regulation and monitoring.

PAC spending covers most, but not all, PAC activities, which are defined as those resulting from rules and regulations restricting the release of pollutants into common-property media such as the air and water. PAC spending excludes (1) PAC activities that do not use productive resources (e.g., plant closings due to PAC, delays in plant construction, or curtailments in the use of chemicals in manufacturing and agriculture) and (2) PAC activities that do use productive resources but that are nonmarket activities (e.g., volunteer litter removal).

Gary L. Rutledge, Chief of the Environmental

Gary L. Rutledge, Chief of the Environmental Economics Division, supervised the preparation of the estimates. David M. Bratton planned and coordinated the compilation and analysis of the estimates, with the assistance of Mary L. Leonard and Mohamad F. Moabi. The preparation of estimates involved the following staff: Personal consumption--Frederick G. Kappler; business--David M. Bratton, Frederick G. Kappler, Mary L. Leonard, Nikolaos A. Stergioulas, and Howard J. White; and government--David M. Bratton, Mary L. Leonard, and Howard J. White. Shirley D. Tisdale and Sonia R. Bundy provided statistical and secretarial services, respectively.
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Author:Bratton, David M.; Rutledge, Gary L.
Publication:Survey of Current Business
Date:Nov 1, 1990
Words:2440
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