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Pollution abatement and control expenditures, 1984-87.

REAL spending for pollution abatement and control (PAC) declined slightly-0.6 percent-in 1987 (chart 1). In contrast, real spending had increased at least 4 percent in each of the preceding 4 years. Prices for PAC goods and services, as measured by the fixedweighted price index for PAC, rose 2.6 percent in 1987, following a leveling off in 1986.

Real pollution abatement (PA) expenditures-which account for over nine-tenths of total PAC expenditures-declined slightly in 1987. Of the remaining portion of PAC, spending for regulation and monitoring declined 4.4 percent, and spending for research and development increased less than 1 percent.'

The 1987 decline in real PAC spending, traceable to a 7.2-percent decline

NOTE.-Gary L. Rutledge, Chief of the Environmental Economics Division, supervised the preparation of the estimates. Kit D. Farber planned and coordinated the compilation and analysis of the estimates. The preparation of estimates involved the entire staff-. Personal consumption-Frederick G. Kappler; business-David M. Bratton, Kit D. Farber, Frederick G. Kappler, Nikolaos A. Stergioulas, and Howard J. White; and government-David M. Bratton, Kit D. Farber, and Howard J. White. Shirley D. Tisdale and Sonia R. Bundy provided statistical assistance and secretarial services, respectively. in air PAC, reflects large declines in personal and business purchases and operation of emission abatement devices on motor vehicles. The decline was partly offset by a moderate increase in business operation of plant and equipment. The decline in air PAC was the first since 1982.

The other portions of PAC spending increased in 1987, continuing a pattern of increases since 1983. Water PAC increased 5.7 percent, mainly reflecting increases in business operation of plant and equipment and of public sewer systems and in government construction of sewer systems. Solid waste disposal increased 6.6 percent, mainly reflecting an increase in business operation of plant and equipment.

Before 1987, estimates for spending by manufacturing industries were based on data from the Pollution Abatement Costs and Expenditures Survey collected by the Census Bureau. This survey was not conducted for 1987. In the absence of 1987 data, estimates for manufacturing industries, which underlie total spending for plant and equipment and its operation, were prepared using indirect estimation methods. Technical notes at the end of the article discuss the sources of data used to prepare the estimates for PAC spending.

The first section of this article discusses real PAC spending in 1987, prices of PAC goods and services in 1987, and likely real PAC spending in 1988. The next section compares real PAC spending in recent years with that in 1972-82.

Recent estimates

Real PAC spending in 1987.-Real PAC spending declined $0.4 billion in 1987 to $71.4 billion (table 1, with detail in tables 6 and 7). The overall decline in PAC spending was due to a decline of $1.8 billion to $5.1 billion in personal and business operation of motor vehicle emission abatement devices and to a decline of $1.0 billion to $11.7 billion in purchases of such devices. Other major components of PAC spending increased: Business operation of plant and equipment, $1.6 billion to $19.5 bilhon; business purchases of plant and equipment, $0.5 billion to $8.2 billion; government construction of sewer systems, $0.5 billion to $8.3 billion; and business operation of sewer systems, $0.4 billion to $7.1 billion.

Personal consumption spending for PA, all of which is to purchase and operate motor vehicle emission abatement devices, declined $1.9 billion to $10.3 billion. Operation of motor vehicle emission abatement devices-mostly for the additional cost of using unleaded rather than leaded gasoline in vehicles with catalytic converters-declined $1.1 billion; the decline mainly reflects the narrowing gap between the prices of leaded and of unleaded gasoline. Purchases of devices declined $0.8 billion, reflecting a decline in purchases of motor vehicles.

Business PA spending increased $1.1 billion to $43.8 billion. Most of the increase was for spending on current account, which increased $1.0 bilhon to $29.2 billion. Large increases in spending to operate industrial plant and equipment and public sewer systems offset a small decline in spending to operate motor vehicle emission abatement devices. Capital spending increased slightly, $0.1 billion to $14.6 billion, reflecting a moderate increase in purchases of plant and equipment coupled with a small decline in purchases of motor vehicle emission abatement devices.

Government PA spending increased $0.4 billion to $13.7 billion. Spending to construct sewer systems, which is about three-fifths of government PA spending, accounted for the increase.

Business and government spending for research and development combined remained at about $2.3 billion-business spending increased slightly, while government spending declined slightly. Government spending for regulation and monitoring declined $0.1 billion to $1.2 billion.

Prices in 1987.-Prices of PAC goods and services increased 2.6 percent in 1987, following a leveling off of overall prices in 1986 (table 2). Underlying the 1987 increase was a sharp 13-percent increase in energy prices, following 5 consecutive years of decline. Prices for components other than energy rose by only 1.6 percent. Air PAC prices increased 2.7 percent, water PAC prices increased 2.0 percent, and solid waste disposal prices increased 3.4 percent.

Real PAC spending in 1988.-Real PAC spending is expected to increase somewhat in 1988, according to the limited information available in midJune 1989. Personal and business spending to purchase motor vehicle emission abatement devices is expected to increase in line with increased sales of motor vehicles. Spending to operate devices is expected to continue to decline. Business plans, according to a survey of U.S. companies conducted by BEA, indicate a decline in spending to purchase plant and equipment for pollution abatement. Govemment spending to construct sewer systems is expected to decline.

Patterns in real PAC spending, 1972-87

The slight dechne in real PAC spending in 1987 followed growth of 5.6 percent in 1982-86 and growth of 3.0 percent in 1972-82. During 1972-82, the impetus of newly enacted environmental legislation in the early 1970's spurred PAC spending early on, but a moderate recession in the general economy reversed PAC spending from 1980-82. Renewed economic growth and, in the mid-1980's, increased environmental regulatory activity led to the resurgence in PAC spending generally.

Real spending by sector.-From 1972 to 1987, as a percentage of total PAC spending, business PAC remained about the same at 64 percent, govemment PAC declined from 27 percent to 22 percent, and personal PAC about doubled from 8 percent to 15 percent.

Personal consumption spending for PAC declined 15.5 percent in 1987, following strong growth in the preceding 4 years and in 1972-82 (table 3). The pattern of strong growth in 197286 closely resembles the pattern of increases in spending to purchase motor vehicle emission abatement devices; spending to operate these devices grew more moderately. In 1987, spending to purchase and operate these devices both declined.

Business PAC spending increased 2.5 percent in 1987, continuing a 3year slowdown in growth from a high of 7.7 percent in 1984. The increase in 1987 was about the same as that in 1972-82. This pattern mainly reflects spending on current account, which is about two-thirds of total business PAC spending. Current-account spending increased 3.4 percent in 1987, following growth at about twice that rate in the preceding 4 years and at about the same rate in 1972-82. Of the components, spending to operate plant and equipment contributed most to the increase.

Business spending on capital account grew less than 1 percent in 1987, following a pattern of bumpy growth over the preceding 4 years and slight growth in 1972-82. This pattern mainly reflects spending to purchase plant and equipment, which-despite an increase of 6.3 percent in 1987-was at about the same level as in 1972.

Government PAC spending increased 2.3 percent in 1987, following growth at about three times that rate in the preceding 3 years, a decline in 1983, and only slight growth in 197282. Spending to construct sewer systems accounted for the overall trend.

Real spending by type.-Table 4 organizes the estimates of PAC spending according to definitions emphasized in PAC legislation. For air PA, the Clean Air Act classifies sources of pollutants as mobile (e.g., cars) 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 1987, as a percentage of total PAC spending, air PA increased from 34 percent to 40 percent, water PA declined from 46 percent to 40 percent, and solid waste disposal remained about the same at 17 percent.

Air PA spending declined 7.6 percent in 1987, following moderate growth in the preceding 4 years and in 197282. The reversal in 1987 was due to a 14.2-percent dedine in spending to abate pollution from mobile sources, which is about three-fifths oftotal air PA spending. Growth in spending for mobile sources moderated in 1985 and 1986, following strong increases throughout earlier years. The 1987 decline was mostly attributable to declines in spending to operate and maintain motor vehicle emission abatement devices; the increases throughout the early 1980's were mainly due to increases in purchases of devices.

In 1987, there were declines in all components of spending to operate and maintain motor vehicle emission abatement devices: (1) The fuel price penalty-the additional cost of unleaded fuel for motor vehicles with catalytic converter emission abatement devices, (2) the fuel consumption penalty-the additional gasoline consumed by motor vehicles because of reduced fuel efficiency due to emission abatement devices, and (3) the maintenance cost penalty or benefit-the effect of emission abatement devices on the cost to maintain motor vehicles.

The 1987 fuel price penalty decline, the first since 1980, reflected the narrowing gap between the prices of leaded and of unleaded gasoline. The fuel consumption penalty decline, beginning in 1976, reflected increasing fuel efficiency of motor vehicles in general. The decline in spending to maintain motor vehicles, beginning in 1976, occurred because unleaded gasoline is less corrosive on motor vehicle engines and exhaust systems than leaded gasoline.

Of the factors affecting purchases of motor vehicle emission abatement devices, unit sales of motor vehicles declined in 1987 and exhaust emission standards have remained basically unchanged since 1981 for the largest portion of motor vehicles-passenger cars. Amendments in 1970 and in 1977 to the Clean Air Act led to the introduction of catalytic converter emission abatement devices in 1975 and expensive computer-like devices in 1981, respectively; the introduction of these devices spurred spending. Purchases of devices increased during 1972-81 in response to regulations stipulating exhaust emission and fuel economy levels, despite declining unit sales of motor vehicles from 1979-81. From 198287, in the absence of additional emission requirements above the 1981levels for passenger cars, spending to purchase devices mainly reflected sales of motor vehicles.

Spending to abate pollution from stationary sources increased 3.9 percent in 1987, following a bumpy pattern of overall dedine in the preceding 4 years and slow growth in 1972-82. This pattern reflects spending to purchase industrial facilities. Growth in spending to operate industrial facilities has been generally moderate since 1983, following stronger growth in 1983 and slow growth in 1972-82.

Water PA spending increased 5.9 percent in 1987, following comparable growth in the preceding 3 years, slow growth in 1983, and slight growth in 1972-82. This pattem reflects spending to abate pollution from point sources, almost all of water PA spending. Purchases of industrial facilities picked up in 1987, following a moderate decline in 1986, modest growth in 1985 and 1984, and an overall decline during 1972-83. Growth in public spending to construct sewer systems, moderating somewhat in 1987 after 3 years of very high growth, reversed the downward trend during 1972-83. Growth in spending in 1987 to operate industrial facilities was about twice that in each of the preceding 3 years and in 1972-82. Growth in spending to operate sewer systems in 1987 was about one-half that in 1986 but comparable to growth in the preceding years. Spending for nonpoint sources of water pollution declined since 1985, following a moderate increase in 1984 and declines in 1983 and in 1972-82.

Spending for solid waste disposal increased 6.9 percent in 1987, following 3 years of strong growth and moderate growth during 1972-83. Industrial spending, mostly to operate plant and equipment, has grown at strong rates since 1984 and more moderately before 1984. The other portion of spending, mostly by government to collect and dispose of residential and commercial sohd waste, grew moderately in 1987, more strongly in the preceding 3 years, and slowly during 1972-83.

Technical notes

Table 5 summarizes sources of PAC expenditures in 1987, compared with those for earlier years, and distinguishes the PAC component estimates based directly on surveys and censuses from the estimates based on indirect estimation methods. Direct sources accounted for about three-fifths of total PAC spending prior to 1987. 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 by other industries and capital spending control totals by nonfarm business), and Governmental Finances (for government spending for sewer systems and solid waste collection and disposal).

In 1987 direct sources accounted for a little more than two-fifths of total PAC spending because the Pollution Abatement Costs and Expenditures Survey was not conducted. The 1987 estimates for manufacturing for operating spending, costs recovered, and capital spending were estimated using multiple regression techniques. The absence of the Pollution Abatement Costs and Expenditures Survey results also affected estimates for operating spending by other industries except electric utilities because these estimates involve indirect methods sensitive to general spending patterns (including those for manufacturing).

The explanatory variables in the multiple regression equations used to obtain the 1987 estimates for manufacturing were as follows: For operating spending-annual changes in value added according to the 1987 Annual Survey of Manufacturers conducted by the Census Bureau and in the net stock of pollution abatement capital estimated by BEA; for costs recovered-annual changes in prices for industrial chemicals as indicated by the Producer Price Index prepared by the Bureau of Labor Statistics and in industrial energy use according to a survey by the Department of Energy; and for capital spending-annual changes in capital spending according to the Pollution Abatement Plant and Equipment Expenditures Survey and in Environmental Protection Agency outlays.

The Pollution Abatement Costs and Expenditures Survey of manufacturers is being resumed for 1988. However, coverage of the Pollution Abatement Plant and Equipment Expenditures Survey of business capital is being cut back for 1988.
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Author:Farber, Kit D.; Rutledge, Gary L.
Publication:Survey of Current Business
Date:Jun 1, 1989
Words:2462
Previous Article:National income and product accounts tables: selected NIPA tables and reconciliation and other special tables.
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