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How to be clean and cost-effective.

Is environmental legislation on the horizon cost-effective or a barrier to business opportunity and the source of a steep indirect tax? Uneasy with the answer to this question, some corporations and scientists are calling for regulatory common sense.

Since the celebration of the first "Earth Day" some 25 years ago, the drive to improve the nation's air, water and land has come to occupy a secure place at or near the top of our national political agenda. Faced with mounting stress on the environment resulting from decades of burgeoning economic growth, we, as a society, amended many bad habits and adopted environmentalism as the ultimate "motherhood" issue. Staunch support for a cleaner environment has been, for most people, the quintessence of "politically correct" thought.

In point of fact, though, no one in his right mind favors a polluted environment. Today, while everyone recognizes conceptually the obligation society has to protect the environment, people from all walks of life, including many thoughtful environmentalists, are beginning to examine a number of pivotal questions underlying the movement, such as: "How clean is clean?" "What will a perfectly pristine environment cost?" and "What are the tradeoffs and alternatives available to us?"

During this period of environmental transition, business often found itself on the defensive. Though it created wealth, paid and expanded dividends, employed workers, produced products and increased our standard of living, business was looked upon by society as part of the problem, not part of the solution. Professional environmentalists and politicians captured the moral high ground by demanding legislation to make the world a better place. Costs were considered to be largely irrelevant.

Regrettable, the cautious adherence of business to its traditional role--that of a generator of wealth and a market-driven opponent of waste and inefficiency--was often interpreted as recalcitrance or obstinacy both by government and an over-zealous environmental movement. Even as progress was made, the business community did not satisfactorily tell its story. But attitudes are changing. A national recession forced us to focus on economic realities. So have two decades of experience, with an endless flow of costly regulations, a steep learning curve in fledgling environmental science, and increasing costs to implement programs that chase diminishing returns.

Today, business faces a challenge beyond environmental compliance. It must help society attain reasonable environmental objectives without sabotaging its productive capacity, inhibiting its economic growth, or mortgaging its future. We can have a clean environment on a cost-effective basis, but only if society avoids the mistakes we have made too often in recent years.


Environmental protection seems to spark an emotional response absent from most other public policy issues. The result seems to have been more than a few policies or actions of questionable value. In some instances, actual damage has been done. One reason: Environmental science was a new field. Because of that, the recommendations of environmentalists tended to be accepted unequivocally by the public. Solutions to real and perceived environmental problems--and their ramifications--often are deemed too complex for nonspecialists to understand.

But prodded by current economic pressures, the American public is showing signs of skepticism about some programs and their environmental aspects:

* Concerned about the effect of acid rain on the nation's forests and lakes, Congress ordered a massive $500 million, 10-year scientific study of the problem. The study concluded that acid rain was not a serious problem, and that what minor damage it did cause could be remedied by simple, inexpensive methods. The environmental lobby and Congress blithely ignored the study. In fact, neither waited for the results in pushing for and crafting acid rain legislation that is costing billions to no effect. The investigative reports of television's 60 Minutes have documented this story.

* Alarm bells were sounded years ago about the dangers of asbestos. A nationwide program of asbestos removal costing billions of dollars annually was begun. In retrospect, the removal program has been shown to have been ill-considered, perhaps more harmful than beneficial, and exceedingly costly.

* The apple-growing industry was rocked when the Natural Resources Defense Council (NRDC) claimed that Alar, a chemical spray used to prolong the shelf life of apples, caused cancer. Apples disappeared from stores and from school lunches, many growers were ruined and industry losses were estimated in the hundreds of millions of dollars. Alar was subsequently found to have no harmful effects.

* Billions of dollars have been spent on "Superfund" projects, supposedly to clean up toxic waste dumps. Little has been accomplished. Because the program has been shown to be unfair, Superfund's history, methods and goals are now areas of political dispute.

* The Dioxin scare of the early 1980s--when the chemical was declared a dangerous, cancer-causing agent--resulted in, among other things, the evacuation of an entire Missouri town. The government's leading scientific authority on Dioxin during that time now says the panic was probably unnecessary. Currently, the dangers of Dioxin are being reassessed.

* When the Exxon Valdez ran aground and ruptured in Alaska's Prince William Sound, a federal judge compared the event to the Hiroshima bombing. Few thought his statement odd: Indeed, environmentalists declared confidently and apocalyptically that Prince William Sound would never recover and that a new Dead Sea had been created. The media seemed to agree. Certainly, the Valdez spill was an environmental incident of the first order. It caused considerable, but temporary, economic dislocation. And it caused widespread, but generally temporary, damage to wildlife.


The point of this review of excesses is not to discredit environmentalism; it is simply to help level the moral playing field. The business community is in enthusiastic agreement with responsible environmentalists on the proposition that society should take reasonable actions--after appropriate study of relative risks, costs and rewards--to conserve a healthy and attractive environment. The policy debate is not over ends, it is over means: What does society deem reasonable, and what are the risks and costs it will accept?

That debate is underway today in state houses and legislatures across the country. One debate, currently front and center, which illustrates why caution and analysis are important, is that over the adoption of what have come to be called "California Standards" for compliance with the Clean Air Act Amendments of 1990. If implemented, these standards will prove a hugely wasteful and unnecessary burden on the California economy for little or no discernible benefit. If the measures spread beyond California, as environmental leaders in the Northeast are urging, they could be the environmental movement's biggest mistake ever.

To understand the issues, a review of some science and history will help.

If you asked most people to identify the prime culprit in air pollution, they would probably say, "The automobile." They would be mistaken.

Stationary sources account for roughly 50 percent of hydrocarbon emissions. Power plants, incinerators and other such units are a big part of this category, but thousands of small neighborhood businesses--dry cleaners, fast food restaurants, print shops, paint shops, service stations, indeed, any business that uses organic solvents--are equally significant sources of pollution. (The next time you use a gallon of oil-based paint, you will release into the air about the same volume of hydrocarbons a top-quality auto emits when driven 5,000 miles.)

Natural sources--trees, natural swamps and wastelands--emit approximately 25 percent of the hydrocarbons going into our air. It has been calculated that 12 average-sized trees emit about the same volume of hydrocarbons in one day as a new car driven 30 miles.

Finally, there are mobile sources of hydrocarbons: cars, trucks, buses and off-road vehicles. They account for about one-quarter of the hydrocarbons emitted into the air. Of this 25 percent, tailpipe emissions from gasoline-fueled automobiles and light-duty trucks account for only some four percent of the overall "volatile organic compounds" pollution problem. Evaporative emissions, or "boil-off," contribute about 15 percent. (These percentages are representative of a typical American urban region.)


Many important steps, both in engineering and fuel composition, have combined to bring us to the position where auto tailpipe emissions and "boil-off" are relatively small and fast-diminishing factors in overall air pollution. How did we reach that state and what did it cost?

Before we began installing catalytic mufflers on cars in 1975 and light trucks in 1980, these vehicles emitted about 2,000 pounds of exhaust hydrocarbons during a 100,000-mile lifetime. In contrast, a 1992 vehicle, driven that same distance, emits about 100 pounds of exhaust hydrocarbons over a similar lifetime. We achieved that reduction at a cost of about $1,000 per ton of hydrocarbons removed, or 50 cents a pound (see chart this story).

Vehicles designed for 1995 delivery will cut tailpipe emissions by an additional 50 percent from today's levels--to only 50 pounds over their lifetime. That should be accomplished at a cost of about $2,700 per ton of hydrocarbons eliminated, or $1.35 a pound. Similar progress on evaporative emissions is also planned for 1995. Reduced gasoline vapor pressure, and more precise engineering of canisters and fuel systems, will bring reductions of some 30 percent from 1990 levels, at costs of about $3,500 per ton, or $1.75 a pound.

In the Clean Air Act Amendments of 1990, Congress mandated production of a new, cleaner fuel that must reach the marketplace by 1995. This new "federal fuel," which will cost roughly five to seven cents a gallon more than current fuels, must be made available in the nine areas currently most out of line with EPA-mandated air quality standards--the so-called "non-attainment" areas.

A new study that factors in 1991 air quality data from non-attainment areas offers dramatic support for the conclusion that the 1995 federal fuel provisions were designed to remedy a problem that may be virtually nonexistent everywhere but in the Los Angeles basin by 1995. The Clean Air Act Amendments were written based on data from the three-year period from 1987 to 1989. But by using the latest information and constructing a new three-year base using data from the years 1989 to 1991, we find that there has been a significant improvement in air quality. Six of the seven "non-attainment" cities outside California are no longer in the EPA-designated "severe" category. They should require fewer controls to come into compliance. The Los Angeles basin is unique in the severity of its ozone air quality problems. It is the leading non-attainment area in the U.S., having failed to meet federal air quality standards on 103 days in 1990, the last year for which complete data on that city is available. The second-worst air quality offender that year was Houston.

Add the 1995 federal fuel provisions to air quality advances already achieved or in the pipeline, and you would certainly feel yourself justified in saying, "Mission accomplished." Not under the law. In the 800 pages of Clean Air Act Amendments there are provisions requiring that a second, more radically reformulated fuel be available by the year 2000; allowing individual states to impose the special fuel requirements on areas that are in attainment with air quality standards; and permitting California to be even more restrictive because of its special problems.

By 1996, California has mandated a far more radically reformulated fuel than the federal fuel. "California fuel" will be expensive--15 to 20 cents more than federal fuel. California has also adopted radical new vehicle standards--including what it calls the "low emission vehicle," or L-E-V, program. The program requires that 10 percent of the cars sent to the California market in 1998 be zero-emitting. These most likely will be electric vehicles. Projections show that California's fuel would reduce total hydrocarbons in the air by no more than 1 or 2 percent. But it would do that at a cost estimated to begin at $200,000 per ton of hydrocarbons removed.

At the end of 1991, representatives of the governors of the Northeastern states--except Connecticut--agreed in principle to implement the California vehicle standards in their states--the largest bloc of states to do so. Other states around the country have either adopted or are considering adopting the standards.

Prior to boarding the California bandwagon, had these states balanced the costs with the expected benefits? Apparently not. A study published late last year by DRI/McGraw-Hill concluded that adoption of California standards in the Northeast would result in job losses, wage reductions, an exodus of workers, and reduced state and local tax revenues.

Or had they considered that there are still a large number of cars and light trucks on the road that were built and sold before the installation of any catalytic converters? These vehicles, which comprise roughly 10 percent of the nation's total, are responsible for 50 percent of all emissions. Strict enforcement of inspection and maintenance programs that put the onus for air quality where it belongs--on the polluter--can reduce emissions for a tiny fraction of the cost of the California standards. Programs under consideration in Washington would offer cash rewards to car owners who turn in their old, polluting vehicles.

In 1995, when most pre-1975 cars and pre-1980 light trucks are off the road, and new, properly maintained cars are running on the federally reformulated fuels, we will have virtually eliminated the automobile emissions problem at a cost of only a few thousand dollars per ton. Why then are environmental regulators seriously considering adding another layer of mandates and regulations that could cost $200,000 or more per ton?

Despite our nation's abundance, we don't have limitless sums for wasteful or utopian programs characterized mainly by good intentions. If we ask the American public to spend billions on 4 percent of the nation's air pollution problem--and the California standards, if adopted nationwide, will represent such a request, with a price tag of $50 to $75 billion--how can we afford to cope with the rest of the air-quality elephant?

In a time of great economic uncertainty and reduced state government resources, the warning of yet more economic damage from "gold-plated" environmental regulations is falling, in some quarters, on receptive ears. We have the data to support a commonsense argument for the proper allocation of our resources. Misallocated resources are positively offensive to a businessman, because they signal waste, inefficiency, a missed opportunity elsewhere, and ultimate failure. In our rather untidy democratic system of competing interests, government programs with good intentions and badly allocated resources can sometimes be shrugged off as money "well wasted." That is not the case today, especially not in the area of environmental regulation.

The message of our short history of high environmental awareness is beginning to get through: Rigorous scientific study, the accumulation of real evidence, exacting cost-benefit analysis, and prudent investment are essential ingredients for success in the quest for clean air, water and land. Much environmental legislation and regulation does not exhibit these qualities. My clean air example is just one among many; every industry has its favorite example of cost-ineffective regulation.

Put another way, there is a ready market for regulatory common sense. The American people are beginning to understand that much environmental regulation amounts to a heavy, indirect tax. We must make the case for sensible regulation and work to ensure that cost-benefit analyses are met with respectful attention and not with rolling eyes.

We in the business community should seize this opportunity we helped to create.

We have the responsibility to do that.
COPYRIGHT 1992 Chief Executive Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Environmental Regulation; includes related article
Author:DeCrane, Alfred C., Jr.
Publication:Chief Executive (U.S.)
Date:Sep 1, 1992
Previous Article:Commerce's front-line cannon.
Next Article:Business and the green theology.

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